The COVID-19 pandemic has touched each of us in a variety of ways. We are reminded daily of its impact upon businesses, both large and small. No one could have predicted how a single virus could cause such disruption in our economy. Like their for-profit contemporaries, nonprofit organizations have struggled to continue creating value in the ways they had grown accustomed before the crisis hit.
Nonprofits are critically different from for-profits — they don’t measure their success in financial returns and don’t support themselves by creating and selling better products, services or ideas. Financially, their yearly budget goal is zero-sum, and they struggle to maintain positive cash flows with fundraisers, donations and grants.
The problem with the typical nonprofit business model is that it’s based on dependence. While they are driven by a mission and aim to have a social impact, many nonprofits scavenge for funding every year.
However, all corporations, whether for-profit or not, do have something in common: They need to solve a problem and create value for their clients. For nonprofits, the value they create may be the programs and services that benefit vulnerable populations, preserve the environment or put a stop to the mistreatment of animals. The challenge comes in connecting the value provided by the nonprofit to the wishes and perspectives of potential funders.
During COVID-19, many charitable organizations have experienced significant increases in the demand for their services, while others have seen programs completely decimated by the monthslong stay-at-home orders. Universally, their revenue streams have shifted. Looking forward, might it be time to reimagine the nonprofit business model?
WHAT A NONPROFIT SURVEY REVEALED
To help answer this question and gather data for future support, Kern Community Foundation recently surveyed local nonprofits. How had the pandemic impacted organizations and what were their most immediate needs? Nearly 130 nonprofit leaders responded with eye-opening insights.
Fifty-three percent of all responding organizations reported annual operating budgets of $249,999 or less (small nonprofits), 17% between $250,000 and $999,999 (midsize nonprofits), and 30% in excess of $1 million (large nonprofits).
Organizations classified as human services and community benefit accounted for the largest percentage of respondents (47%), followed by education and youth development (24%), health (12%), environment and animals (10%), and arts and culture (7%).
A large percentage of all organizations, 73%, saw general donations and corporate sponsorships decrease since mid-March. Additionally, 43% saw decreases in program revenue, 28% in grant funding and 46% in in-kind donations. While some organizations (16%) reported receiving an unexpected “windfall” of donations since mid-March, 55% of those organizations identified as large organizations and only 30% of small organizations received any such windfalls.
Forty-one percent of all respondents received funding from the Paycheck Protection Program (PPP) through the Small Business Administration. Seven percent had applied for PPP and been denied and 52% had not applied.
SMALL NONPROFITS ARE MOST VULNERABLE
Thirty percent of all respondents reported that the impact of COVID-19 had created operational shortfalls, placing them at risk of closing. Unfortunately, small organizations bear the brunt of this distinction: Nearly two-thirds of those at risk of closing are classified as small.
Nearly 36% of small nonprofit organizations had not operated since the shelter-in-place order was issued, while 90% of the midsize organizations and 94% of the large organizations continued to operate.
Nearly one-half of small nonprofit organizations reported that they had been forced to cancel a program or service that they do not plan to bring back after the shelter-in-place orders are lifted.
Further, organizations from the Education and Youth Development, Environment and Animals, and Health subsectors are seemingly at a greater risk of closing than organizations from Human Services and Community Benefit or Arts and Culture subsectors.
HOW TO HELP KERN’S NONPROFIT SECTOR
We asked organizations to tell us what technical assistance might be most helpful to them as we moved toward economic reopening. More than half of all organizations requested grant writing resources and assistance in attracting nontraditional financial resources to help them remain sustainable. Small organizations requested marketing/visibility tools while mid-size and large organizations requested financial/capital access tools. Additionally, many organizations seemed eager to gain operational efficiencies, strengthen staff motivation/retention strategies, and build strategic visioning and resiliency plans.
When asked “What three items (goods or services) do you need right now to help your organization?” organizations overwhelmingly requested funding and grant opportunities, followed by PPE supplies, various technology needs and specific capital expenditures.
As one can see, the results of the survey provide insight into the wide landscape of needs throughout the nonprofit sector.
First, this is not a one size fits all; rather, organization needs are dependent upon size, services provided, and countless other factors.
Second, there are simply not enough donors, funders, or fundraisers available to rebuild our nonprofit sector. We must come together and think about doing things differently.
Nonprofit leaders, board members, volunteers, donors and funders need to think like for-profit businesses, creating sustainable business models, investing in staff, technology and marketing, treating donors like customers and looking explicitly for opportunities to partner with both nonprofit and for-profit organizations.
For-profit leaders and community stakeholders can play a role as well. Consider engaging with a nonprofit organization committed to the cause you care about. But think beyond writing a check or providing your name to the board roster. Instead, consider ways to mentor and provide opportunities for innovation. Businesses have wisdom from which nonprofits can make a greater impact and perform at their most effective.
Kristen Beall Watson is president and CEO of Kern Community Foundation. You can reach her at firstname.lastname@example.org.