We all know what happened and it has been well documented elsewhere.  The reaction of nonprofits to this collapse was inconsistent.  None of us had any experience with this kind of economic meltdown.  Many, if not most, nonprofit board members were pouring their energy, intellect and creativity into saving their own businesses and jobs.  Nonprofit executives, who often come to their jobs with limited formal financial management education, were largely left to fend for themselves in charting their course through the storm.  On the fundraising side of this equation, there were three courses that could be and were taken – Stay the Course, Redouble our Efforts or Shut Down and Wait it Out – and each of these decisions proved to have long term implications.

In the aftermath of the great recession our economist and financiers have learned a great many lessons.  Among these are: 1) property values cannot keep rising in perpetuity, 2) your home is probably not your single largest “investment”, 3) there is no such thing as too big to fail, 4) there is no such thing as a “risk free” investment, 5) no matter how much money you throw at it the government cannot stop or prevent a recession, any more than it can prevent an earthquake, hurricane or any other naturally occurring force of nature.

In this aftermath we have also learned some lessons in the nonprofit sector, in addition to knowing, for sure, that “shut down and wait it out” is a bad survival strategy.  The great recession and the lessons it taught us have changed the way that nonprofit organizations will operate and raise funds for years, perhaps decades to come.  From governance, to staffing, to growth rates, and business planning, the nonprofit sector is adapting to a new normal which includes 10 major lessons learned with have long term ramifications for the nonprofit sector moving forward.

1)      Relationships matter more than causes

2)      Serving on a board in not an honor, it is a real job with real responsibilities

3)      If you stop fund raising, you will stop raising funds

4)      Endowment is not an insurance policy against declines in earned and donated revenue

5)      Take donors for granted and they will take their donations elsewhere

6)      Financial acumen is, in fact, a requirement for nonprofit executives

7)      Your next campaign does not “have” to be larger than you last campaign

8)      We have a new definition for what we “need”

9)      The donor pyramid has been pinched in the middle (think hour glass)

10)  Fear of multi-year pledging has reshaped how capital campaigns are executed.

Many in the nonprofit sector have started to jump on this bandwagon. This attitude, however, is a dangerous and slippery slope for nonprofits. In fact, it is akin to biting the hand that feeds us. You see, if you turn off the talking heads and spin doctors, the fact is that the nonprofit sector is extremely dependent on the top three percent. In fact, this very group who are oft criticized for not doing their “fair share” actually account for more than 66 percent of all charitable giving year after year. This means, of the approximately $300 billion contributed, $200 billion comes from this top group. According to a Bank of America study of high-net-worth donors done by the Center on Philanthropy, 71 percent of high net worth donors contribute to cultural organizations and 80 percent contribute to education, versus only 7 percent and 15% of general donors. Take away their tax deductions, or increase their tax rates while freezing their deductions, and you run the risk that this top group will pull back their philanthropy as well.

Today, after 2 years of decreased total giving in the US, we are all anticipating that the pie will start to grow again.

So, whether Republican or Democrat, tea partier or progressive, when the rhetoric of the “evil rich” comes up, think of your donors who fall into this category. Are they really as bad as they are being made out to be? Or, are they generous people who care about their country and their community and go above and beyond paying taxes to support good causes? Would the government do a better job spending the $200 billion than your organization and others in the nonprofit sector do already? Remember, the dog that bites the hand that feeds him often starves.

Ok, I really wasn’t that sarcastic (but I wanted to be). I did go on to explain to this very knowledgeable and experienced school academic leader that there is no such thing as donor fatigue. Donor fatigue is not a real disease; it is a misdiagnosis of another significant problem. That problem: the inability of organizations to keep donors excited and engaged in their missions, accomplishments and goals. Donors do not get “fatigued” from giving to support things they are passionate about. In fact, that experience excites and invigorates donors. What donors get tired of is being taken for granted. They get tired of the assumption that a hastily crafted annual-fund appeal, to maintain the status quo, is all that is required for their continued generous support. Donors get tired of uninspired strategic plans. They get tired of the same message over and over again. School leaders and development officers want to put the blame on them – or on others – by diagnosing them with donor fatigue. However, the real issue is how institutions have cultivated the relationship with them, stewarded donor’s past gifts, communicated the value of what the school is doing and failed to engage supporters in making the school’s goals come to fruition.

How do we – fundraising consultants – know that donor fatigue is a myth when so many others believe it to be an epidemic? We know because we are constantly listening to donors in the course of our consulting and feasibility study work. One donor recently told us “There is no shortage of philanthropic funds; what is in short supply is good, well-conceived and exciting projects to fund.” Donor fatigue is really just code for donor apathy or “I’m not interested in this.” I cannot tell you how many times we have interviewed a prospective donor about a potential capital campaign and had them tell us that they were “pledged out” at the moment, only to interview them a short time later, for a different project, and have them indicate significant financial support. What they were really telling us the first time was not “I don’t have any more money to donate,” but “I don’t have any money that I’m willing to donate for THAT project.”

Donors do not get tired of supporting organizations that do good work, communicate their successes, have a vision for the future and communicate that vision in a clear and inspiring way. So, what is the cure for donor fatigue? Other than the obvious (avoid contact with unicorns) the prescription is – Physician heal thyself – take a hard, objective look at how you are communicating with donors and assess whether you are invigorating and exciting them, or exhausting and tiring them.

Future 1 – The Rescue Fantasy . In this future, the organizations base their future on the hope that some stranger – a white knight if you will – will ride into town and bestow upon them a gift (or gifts) that will save the day, without the organization doing much other that waiting for it to happen. At Alexander Haas, we have a saying – “hope is not a strategy” – and this clearly seems to be a strategy of hope. Heck, even lottery winners have to take the initiative to buy a ticket.

Future 2 – Withering Winterland. In this future, organizations essentially “starve themselves” into a weakened state through a series of hiring freezes, layoffs, pay cuts, etc., to the point that the organization ultimately fails. Paul believes that this future is likely to become reality for many organizations, including some large “brand names” in the nonprofit sector. I doubt anyone reading this newsletter has not seen a nonprofit (perhaps even their own) take some steps down this path.

Future 3 – An Arbitrary Winnowing . In this future, a lot of nonprofit organizations fail, but somewhat randomly. Some of the survivors simply outwork others and are able to secure funding to keep going. Others are so well-entrenched in their community that a plea for a bailout works – even if they should, perhaps, be allowed to fail. The ultimate outcome of this future is a nonprofit sector comprised of fewer and weaker organizations that reduces the sector’s ability to meet increased service demands. This is an interesting scenario in which one of Dr. Light’s main thoughts is that some organizations will survive because they are “popular” rather than because they are “good.” At first this seems absurd – right? But think for a minute and I’ll bet you come up with an organization that has been successful in securing support, even though you may not think they do a very good job of delivering service.

Future 4 – Transformation . This is the most hopeful of the four possible futures, in which organization respond by looking at everything they do and making strategic changes to their behavior that actually allow them to come out of the recession a better organization. This future requires both leadership and “guts”; as well as a willingness to look critically at all aspects of the organization – including the sacred cows. In a way, this future plays on an old saying – “never let a good recession go to waste” – that hardship creates opportunities to do things that would not be possible in times of prosperity.

Certainly, not all organizations are limited to these four futures – some may have more, some may have less. But, it is interesting to look at these scenarios and think about which path your organization is currently on –rather it is for profit or not-for-profit – and if there is an opportunity to change paths. I have heard it said many times that 2009 was the year of survival, but what will 2010 become? Hopefully, it can be the year of thoughtful self-analysis and getting on the path to transformation.

In January of this year we advised that it was time to “go on the offensive” with your annual fundraising if you wanted to be successful.  We had seen too many organizations that were becoming paralyzed by fear and deciding to “stop asking” for donations.  Now, as we look back we see that those who ignored that advice and did put fundraising on the back burner are reporting dramatic declines in donations and many are in jeopardy of closing their doors.

In March we reported that a recent survey indicated that the overwhelming majority of Americans who give to charity indicated that they intend to give the same, or more, in 2009 as they did in 2008, but were likely to give to fewer organizations.  So we strongly urged everyone to get out and make your case so as not to fall off the list and we provided “12 Tips for Fundraising During the Recession.”

In May we urged everyone to “let the donors decide”, again advocating that everyone must continue to solicit gifts and let the donors make the decision about their ability to give.  After all, it is the donors’ money.  We warned that projecting our own fears and hardships onto donors is very dangerous and that we should give them the courtesy of deciding what they want to do with their money.

In June we reported the 2008 Giving USA numbers which confirmed that giving was down only slightly from 2007 and that foundation giving reached an all time high in 2008.

In August we told you that the “worst is over” and it is time to get used to the “new normal”.  That is, the state we are entering now that will be marked by stability and slow growth and is likely to stay with us for a while.

While we don’t claim to be economists or prognosticators, our years of experience have helped us to understand how the recession would impact giving, and, more importantly, enabled us to provide sound advice on how to survive it.

So what do we advise next? If you have already put a capital campaign on hold and are about to pull it back off the shelf, or if you have decided that you need to start a campaign in the next 18 months – our advice is to lace up your running shoes and start sprinting. 

Almost everyone we talk with in the sector expects a virtual tidal wave of capital campaigns over the next two years, as projects that were delayed by concern about the economy come online, along with projects that were initially slated for this time frame.  Add to that the organizations just realizing that they need to expand because of the increased demand of the economy.  And, now that leading indicators are trending positive, the Dow is up 45% off its March lows, real estate is selling again, manufacturing is rebounding and consumer confidence in increasing, we are seeing a dramatic increase in capital campaign activity.  This activity is not the product of naiveté or unbridled optimism, but a realization that the work of their organizations is just as important now as it was two years ago and that they need philanthropic support if they are to thrive.  People realize that the recovery will be slow and that the “new normal” is already here.  If you are waiting for conditions to return to 2006 and 2007 levels to start fundraising you are going to be waiting a long, long time – which probably means you don’t really “need” the planned projects.

Past performance may not be a predictor of future performance, but we’ve been right many times during this recession and I think we are on target again.  The capital campaign tidal wave is coming and you can either get in front of it or get run over by it.

Consumer confidence is still lagging and, yes, we still have unemployment hovering just below 10%.  But keep in mind that there is no such thing as zero unemployment.  In fact, from 1996 – 2007 the average annual unemployment rate in the United States was 4.9% (and the lowest rate in the last 30 years was 4.0% in 2000).  There are always millions of Americans who are unemployed for one reason or another.  This matters because it means that in order to get back to “normal” we don’t need 10% of the population to find a new job – only 5% need to find a job to return us to the recent historic unemployment average.  That is no consolation if you have lost your job and, historically, job growth lags the overall recovery but it does help to put the 10% number in perspective.

But the point here is – the worst is behind us – dare I say the recession is over (though the economists won’t officially name the date that it “ended” until sometime next year) and recovery is beginning.  It is time for us to climb out of our collective funk, get comfortable with the New Normal and get on with our plans. 

What is this “New Normal?”  Well, most agree that for a variety of reasons (lessons learned, national debt, tighter credit, etc., etc.) we are not likely to see 4% or 5% annual growth rates in our economy as we climb out of this recession – 2% or maybe 3% are more likely.  And, because job creation comes toward the end of a recovery, we are likely to maintain higher than average unemployment rates for some time.  But we are seeing growth in the economy, gains in the wealth we hold in the stock market and a stabilization of unemployment rates.  So, moderate growth and stability are the New Normal.

With the worst behind us and better days ahead it is time for all of us to dust off those growth plans that were shelved late last year (or earlier for some) and begin moving forward again. It may take longer in the New Normal, but it can still be done.

What do you think would be the results of such a survey in the for-profit sector, if a random sampling of businesses were asked if top line revenue had declined in the first half of 2009?  Do you think more than 25% of for profit businesses would report that revenues were down?  I certainly do.  In fact, it would not surprise me if the number were in the 80 – 90% range.

Another interesting fact is that, according to the Center of Philanthropy at Indiana University, in every single year – recession or not – some percentage of nonprofits report raising less money than they did in the previous year.  I don’t know what percentage report donations down, on average, in a “normal” year.  But, I know from the COP that it is not zero.  So the 25% does not represent an increase of 25% – it may represent no increase.  Without some standard to put this in proper perspective we don’t know what number means.

We have reached the point that most people (economists and the “man on the street”) feel that the worst of this recession is behind us.  We now need to begin to look positively toward the future.

I, for one, find it remarkable and encouraging that ONLY 25% of nonprofits report donations down during the worst economic six months since the great depression.  Imagine how quickly we can chip away at that 25% in the second half of the year if the stock market continues to climb, economic indicators continue to rise and consumer confidence goes up.

Likewise, I found it amazing that Giving USA reported that total giving in the US declined only 2% in 2008 as compared to 2007.  As I’ve said before, ask you friends is the housing, auto and banking industries how happy they would be if there sectors had declined only 2% last year.  Ecstatic I bet.

History tells us that giving recovers rapidly as the nation comes out of a recession and we can all get there if we keep things in the proper perspective.

All last year, our Firm reported that things in the world of philanthropy were not a bleak as the media would have you believe. Certainly there are organizations that raised less money in 2008 and have been financially challenged. But, there are also organizations that surpassed their expectations in 2008. Research indicates that is the case every year – recession or not – that some organizations will raise more money than the previous year and some organizations will raise less money than the previous year.

Now, the data is in and we know the facts. Giving USA 2009 measures U.S. philanthropic activity for 2008. First, the good news: total giving in the U.S. in 2008 was down only 2% from 2007, showing that just over $307 billion dollars was given to charities in 2008.  Now, a 2% decline is a lot of money – over $7 billion in fact – but compare that 2% decline to the 37% drop in the Standard & Poor’s 500 Index and it hardly registers. Just ask your local car dealer or banker how they would feel if their industry measured just a 2% decline in 2008. We would imagine that they would feel relieved and almost revived, given the most recent economic climate.

The bad news is that this is only the second time that giving has gone down in more than 40 years. However, giving has never gone down two years in a row, and we are hopeful that history will hold true and that 2009 will show a return to growth. Already the stock market is returning some wealth to our accounts and leading economic indicators are improving. And, history tells us that donations recover faster from a recession that the stock market does. Because philanthropy is a very emotional process, all of these factors that make us “feel” better about the economy also make us feel better about making donations.  

Bottom line: Americans did not abandon the nonprofit sector in these hard times. Even as other industries were being hit hard, people continued to support the organizations that help the needy, preserve our history, educate and inform us, cure our illnesses, add cultural richness to our lives and look out for the less fortunate. That is a little silver lining to the grey cloud of this recession.

The truth of the matter is that “donor fatigue” – which often manifests itself is such statements as “I’ve got too many commitments”, “there are too many campaigns”, “we need to find new donors to give our traditional donors a break” – is nothing more than a polite way for a donor to say “I’m not interested in your project.”  It is the equivalent of the girl turning down a date because she has to stay home to wash her hair.  Donor fatigue is a myth, but donor apathy is a reality. A donor who is apathetic about an organization or project for which there are being solicited is likely to be misdiagnosed as “tired of giving”, when the real issue is that they have not been properly engaged in the life of the organization or the project.

How can I so confidently dismiss the pandemic and common accepted condition of donor fatigue?  Well, in the course of nearly 20 years working in a fund raising consulting firm, I have had the opportunity to witness, first hand, how donors react to different organizations approaching them.  What I have seen time and time again is donors who will, during a feasibility interview or even a solicitation, indicate that they are “overcommitted”, “fatigued”, etc., only to, a short time later, have a completely opposite reaction to another organization and project and commit to a significant contribution.  Think about your own experiences and I’ll bet you will find examples of this as well.   If “donor fatigue” were the real problem it would apply to all projects and organizations.  But it does not.  It is selective.  And it selects organizations that fail to do good cultivation and education before they reach the solicitation stage.  So, let’s focus on eliminating “donor apathy” and if we do, I’ll bet we see the eradication of the “donor fatigue” as well.