Covid-19 Insights: Non-Profit Organizations (Part 2)

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

Non-Profit Organizations

View prior insight into this topic.

• Status Update: In recent weeks, it has become apparent that in many states across the country, disruptions caused by Covid-19 will last far longer than was originally hoped for. Coupled with the dramatic change in the equilibrium that currently exists caused by an imminent return to school of children across the nation (virtually or in-person), many non-profits will become increasingly strained to make ends meet and challenged to retain employees. Many donors will continue to be stretched in many directions as they will also be preoccupied with schooling issues for their children.
• Initial emergency funding that was key in helping non-profits weather the initial storm is starting to dry up. In addition, there is significant uncertainty around future public funding with the upcoming election on the horizon. Finally, continued depressed (albeit less so than 2 months ago) oil prices (for some Texas foundations) and ongoing volatility in equity and bond markets will increase uncertainty in financing from private philanthropic organizations as well.
• As I mentioned in my prior update, stalwarts of fundraising such as events, walks/runs, and galas continue to remain unavailable to many non-profits who were hoping for a reprieve in the Fall to reschedule past or host planned events.
• Finally, many non-profits lack the organizational expertise and funds to invest in the technology infrastructure necessary to fundraise, operate, and deliver services in the constrained world we live in.
• Noteworthy Developments: With crisis comes innovation. Within the non-profit world, many are redefining their ability to deliver key social services virtually, while others are developing business models that support live delivery while promoting safety and health. As I mentioned in my first update, we are witnessing a large amount of creativity, innovation and collaboration among non-profits to ensure long-term continuity.
• Around non-profits, an important technology ecosystem is developing rapidly to support new fundraising models — ranging from a growing array of online fundraising platforms to interesting ways to engage donors digitally. While there are many promising technologies and approaches, much work remains to be done before the solutions and models being tried are validated and reach a level of maturity that does not carry with it significant implementation risk. Unfortunately, time may be a luxury that many non-profits don’t currently have, and as such, I anticipate their overall business risk to rise considerably in the months ahead.
• Important Variables: The important original variables have not changed (and have been duplicated below from my original update). In addition to those variables, two others are emerging that are of significance:
• the speed with which fundraising models and corresponding technology solutions can be proven viable and leveraged by non-profits;
• the timing and availability of additional federal funding (ex. PPP) to provide much needed working capital to support ongoing operations for non-profits as they work to convert their service delivery and fundraising models.
• Original 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.
• On the Horizon: As it becomes apparent that Covid-19 survival for non-profits will be a marathon rather than a sprint, keep an eye out for those organizations that are able to successfully balance fiscal prudence with the ability to reinvent their business model and quickly build the organizational capacity to be successful in a new (but hopefully temporary) world order. In addition, look for organizations that find innovative ways to connect with donors and their communities in digital settings versus simply attempting to migrate their prior strategies online. In other words, look for those that come up with a fundraising model that is born digital versus those that simply migrate their galas online.
• For those that are not able to make the transition, I anticipate significant financial pressures if no additional aid is forthcoming and the option to host traditional fundraising events remains unavailable.
• Useful Sources: As time has passed, more information and help has become available to non-profits. Academic sources like the Stanford Social Innovation Review are producing valuable content to help non-profit leaders navigate the times. In Austin, local organizations like Mission Capital (www.missioncapitalcovid19.org) are creating dedicated groups to help non-profits share best practices as well as provide access to important curated content. Also, community foundations (ex. Austin Community Foundation www.austincf.org) continue to provide access to funding for non-profits in their cities. In short, the national and local ecosystems dedicated to supporting non-profits continue to expand.
• Personal Note: I believe that innovation will be the key driver of non-profit survival over the next six months. Non-profits that can creatively find ways to connect with their communities, donors, and other stakeholders across a variety of channels (digital, physical and hybrid) will emerge stronger from the crisis, while those that don’t will weaken considerably. The technology ecosystems being developed and business models emerging (by force rather than choice) are creating the opportunity for non-profits to connect with much larger and more geographically disperse and larger audiences than ever before. This is a compelling advantage that could persist will beyond the Covid-19 crisis.
• I mentioned in my first update that I am actively involved in a local non-profit in Austin — Wonders & Worries (www.wondersandworries.org). For W&W, the pandemic has accelerated the introduction of virtual services to better support rural and remote populations. These services will persist well beyond the current crisis and will allow many more communities to benefit from important mental health support. The pandemic has also accelerated the organization’s investments in virtual-reality technology and digital stewardship in a way that would not have been possible before. The net result is broader reach, better engagement, and more support for more people. I continue to remain hopeful that when all is said and done, many non-profits will be able share similar stories to those I am experiencing first hand with Wonders & Worries.