By: Chris Fink & Sofia Jonas
We imagine many of you spend your initial hours at work in the same way we do: scanning through the listserv sends and newsletters that made their way into your inbox around 6:00AM. Lately, in addition to the normal stream of success stories, fundraising tips and the like, many take a cautionary tone and highlight how shifting federal priorities will have direct consequences for the nonprofit sector.
At top of mind these days is the new tax law, the contents and implications of which are captured comprehensively by the National Council of Nonprofits. Sitting in on their recent webinar that broke down this massive piece of legislation (a must-see, by the way, for nonprofit leaders and policy wonks), we concluded that the most universal consequence of the tax law’s passage is a less certain future. Community-based organizations will face greater challenges predicting their financial futures, making it especially difficult to anticipate revenue coming in. Of course, this is nothing new for community based organizations which have continuously faced uncertainty through the Great Recession and the uneven recovery. The University of Indiana’s Lilly Family School of Philanthropy predicts a reduction in charitable giving by $13 billion as a result of the new tax law. As more people take a larger standard deduction, it follows that fewer are itemizing charitable gifts and are therefore less likely to give.
While the number is alarming, do most donors give because of tax incentives? Or, are they contributing to organizations in which they believe and can make a difference. Whichever premise you find most compelling, the common denominator is that no one knows for sure what will happen with philanthropic giving in the immediate future.
The task of landing at the right mix of revenue streams is not easy. Different revenue streams require different capacities at which an organization must excel. Disparate skillsets are required for cultivating individual donors compared to winning government contracts, and many organizations often cannot afford to adequately build the skills required to significantly diversify revenue streams.
(Nonprofit Sources of Revenue, without college tuition, hospital revenue)
To adapt to this new wave of uncertainty, then, nonprofit leaders should develop a culture in their organizations of ongoing, adaptive strategy which allows their organization’s funding streams and business model to react and evolve in response to external changes. In a 2011 piece on this topic, the Bridgespan Group describes an adaptive framework as having:
a clear but flexible definition of success, clear criteria for what kinds of opportunities are in and out, nimble decision-making, an openness to new ideas, and a passionate commitment to continuous improvement.
Nonprofit leaders must recognize the risk to their revenue model and respond to the mounting uncertainty with focused, continuous strategic thinking. Rather than a set, static strategic plan, organizations need to approach strategy in a dynamic fashion in order to make changes faster and allow leadership to learn from implementation and adjust for the future.
One key way of strategizing adaptively around revenue challenges is to consider what types of revenue make the most sense to fuel your organization’s impact. Instead of adding more revenue streams to address the uncertainty, consider prioritizing which revenue streams the organization is positioned to succeed with. For instance, before opening a social enterprise, consider if the organization has the marketing, accounting, and customer service expertise to start a financially viable business. If not, devote more resources to streams whose infrastructure already exists inside of the organization, or that would require limited funds to develop. Maybe strong ties exist between an organization and a local foundation, and cultivating these might yield more unrestricted funds.
The following key questions will help point leaders in the right direction in determining an appropriate revenue mix:
- Which of our revenue streams are changing, and is this change beyond our control?
- Which of our streams can we rely on to fund our impact, and how can we resource our internal capacity to grow these revenue streams?
- What skills, infrastructure or relationships do we need internally to do more of what we’re good at? Looking holistically at our business model, where will resources to do this come from?
Reflecting on questions like these strengthens one’s ability to succeed in a volatile future by aligning an organization’s revenue strategy with its internal strengths and capacities, resources, and impact. In uncertain times, strategic thinking will only enhance the sector’s resilience and allow nonprofits to drive impact regardless of the political climate.