Covid-19 Insights: Non-Profit Organizations (Part 1)

Alex Gabbi, MBA, Lecturer, McCombs School of Business, The University of Texas at Austin

• Current Status: Non-profits are ubiquitous in the USA, providing many essential services that our communities desperately need. Under normal circumstances, the existence of non-profits is frustratingly insecure. While all are dedicated to good work, most non-profits are thinly capitalized and struggling to meet their operating needs. Competition for funding is brutal, as an ever-increasing number of non-profits competes for philanthropic dollars that haven’t grown nearly as fast in the last decades. This was the tenuous non-profit landscape prior to the COVID-19 pandemic.
• Due to these pre-existing conditions, non-profits have been among the hardest hit by COVID-19. As a result, many non-profits currently share the same vision: survival. The fact that many non-profits are already thinly capitalized and being forced to pivot has only accelerated their desperate race for survival. According to Gary Reedy, CEO of the American Cancer Society, “funding for non-profits will fall precipitously but the needs in our communities will not.”
• Since the COVID-19 outbreak began, donors are being stretched in many directions and are preoccupied with their own problems. As a result, many are donating less than in the past. In addition, federal funding that many non-profits have traditionally relied upon may dry up in the months ahead as those budget dollars continue to be reallocated to provide much needed economic stimulus in the here and now. Finally, crucial spring fundraisers that non-profits rely on have either been moved to far less lucrative online venues or cancelled altogether. In fact, social distancing measures profoundly impact many traditional fundraising strategies such as rides, walks, races, open houses, and galas.
• Longer-Term Concerns: Prior to COVID-19, a fundamental imbalance between the growth rate in number of non-profits and the growth in philanthropic dollars had already resulted in hyper-competition for funding. Many thinly capitalized non-profits will struggle to survive through the first wave of COVID-19 over the next several months. Of even bigger concern is what will happen if (or when?) a second, third, or fourth wave of COVID-19 and/or associated capital constraints affects their ability to fundraise. While many foundations have provided essential flexibility on capital utilization to non-profits as well as access to emergency funds, there is significant concern around what will happen if this capital runs out in future waves. Furthermore, until the underlying necessity to social distance changes, many traditional forms of fundraising will simply be unavailable to non-profits, making access to other kinds of funds even more essential.
• In Texas specifically, this problem has been further exacerbated by the catastrophic collapse in oil prices. A large number of foundations in Texas rely on oil and gas assets as key sources of revenue to fund their giving. With the future of oil production in question for many local producers at current WTI oil prices, foundations may have to dramatically curtail their grant initiatives in the years ahead, further reducing another critical source of funding for non-profits in our state.
• Important Variables: Giving as a percentage of overall GDP has remained relatively unchanged for many years at about 2%. At a macro level, non-profits should continue to pay close attention both to the overall giving rate and GDP growth.
• Within Texas, the WTI oil price is an important early indicator of future giving capacity for many foundations.
• Related to COVID-19, policies related to social distancing will be an important factor in determining if/when traditional sources of fundraising become available to non-profits.
• Finally, earned income (the percentage of a non-profit’s operating budget that comes from revenue producing activity) will be an important measure of a non-profit’s sustainability and resilience to future fundraising crunches.
• Ones to Watch: Some non-profits have found ways to pivot and reinvent their business models, both ensuring they are able to continue to deliver important services to their communities and discovering new sources of funding that they had never pursued prior to COVID-19.
• Sweet Farm, a non-profit focused on addressing the impact of factory farming on animals, launched “Goat-to-Meeting” in response to the pandemic. The service allows farm animals to join in Zoom sessions to just provide a cameo and some levity to company meetings, or allow virtual attendees to tour the farm and learn more about the cause. I hosted a virtual tour for my marketing students after classes had moved online, and it met with great success. Students not only appreciated the change of pace but also had the opportunity to learn about the innovative marketing strategies Sweet Farm used to reinvent their fundraising model. Sweet Farm benefited by raising both money and awareness with audiences they may not have traditionally been able to reach.
• Meals on Wheels, a national non-profit focused on keeping older Americans nourished and safe, transformed their operational model to continue to provide critical community-based services. In response to Covid-19, the organization closed neighborhood dining and switched to no-touch delivery several times a week for the population they served.
• Wonders & Worries, an Austin-based non-profit with whom I am personally affiliated that ensures that children and teenagers can reach their full potential despite a parent’s serious illness, also pivoted over a period of just a few weeks. In response to Covid-19, the organization converted all therapeutic sessions to virtual support (i.e. telemedicine) while leveraging retailers to deliver materials required for sessions directly to client homes.
• Personal Note: I am personally optimistic that as the effect of the pandemic gradually subsides, there will be renewed enthusiasm for many causes when people are allowed to re-emerge. In the meantime, I would encourage everyone to view their free time at home as an opportunity to volunteer with and solicit for their favorite non-profits. They need you now more than ever, and our society relies heavily on non-profits to support our communities.
• In the meantime, I remain hopeful that many non-profits will find a way survive in the short-term and turn the COVID-19 crisis into an opportunity to identify new business models, sources of earned income, and operating strategies that will last well beyond the crisis into a new normal. Over the long run, building a non-profit sector that is more self-reliant for its income and sustainable, coupled with a robust return of traditional sources of fundraising from the public and private sector, will help ensure that the organizations that contribute so greatly to our nation’s communities may continue to do so for years to come.