It's Time to Rethink Nonprofits

Do you work at a nonprofit where everyone's focusing on the near term without an eye to the future? Do you realize that there are shifting tides happening in philanthropy, but when you speak to executives or even the board, it's a cycle of dealing with what is versus what is needed for growth? If someone takes the time to do the work, it's plain to see that donors have started to move their financial contributions away from nonprofits to impact investing, venture philanthropy and donor-advised funds — whose grantors are, in fact, nonprofits.

The fact is that although the U.S. is an incredibly generous nation, Americans are skeptical about charities. That's a problem because it shows nonprofits haven't done an excellent job communicating their importance in society. However, more troubling is the fact that only 18% of the U.S. population thinks that the nonprofit sector is heading in the right direction, and one-third believe these social organizations "contribute a lot to society."

In my estimation, major donors are significantly shifting away from giving to nonprofits and instead finding other socially minded approaches to doing good. This is happening because there's doubt and skepticism that nonprofits have what it takes to genuinely make an impact. In their minds, nonprofits always ask for money, and the problems are never solved. 

The Trust Deficit

This shifting landscape has significant implications for the long-term viability of the nonprofit sector. Donors are starting to question quietly among themselves if nonprofits are relevant. They're wondering about the effectiveness of nonprofits and whether the history of philanthropy based on the 20th-century model of charity works for the modern era. The fact that the idea of nonprofits is being challenged is a problem. 

These questions are leading to a growing trust deficit in the nonprofit sector (opens as a pdf). As a society, Americans will never stop trying to do the right thing for society. But, they will increasingly ask themselves if doing social good is best handled through underfunded nonprofits all doing the same thing and not coordinating with each other for the greater good. 

In my conversations with major donors, there's growing concern about whether their contributions genuinely make a systemic difference. I've heard donors who've complained about the perpetual fundraising cycle. There's always an "urgent" appeal. And when donors take a long-term view of the issue, nothing seems to be fully resolved. As a result, there's a decrease in confidence in traditional philanthropy and an increase in alternative ways to make a philanthropic impact. 

Breaking the Cycle

Inevitably, donor behavior spreads to others. As donors speak to their friends and learn about the challenges of supporting nonprofits, more and more people start to conclude that traditional philanthropy isn't the best way to make a social impact. The fact is that although there's more money in philanthropy, there are fewer donors. In short, fewer people give more money (and influence) to causes that interest them and dictate what is funded and what isn't. 

That's a problem for nonprofits the wealthy don't deem as worth their time. In the past, they had the support of general gift donors, but that's now changing because the average American is shifting away from supporting a nonprofit cause. As a result, nonprofits must dig deeper and confront the changes in the nonprofit sector. Over the long term, if the industry isn't thinking about how to stem the tide of erosion of donors, the sector will become irrelevant. 

In my estimation, there are two critical ways that the sector can reposition itself.

1. Reimage the Future

Nonprofits need to get beyond incremental change and take bold steps to make an impact. Donors are too savvy at every level and want to get past the eternal fundraising cycles with urgent appeals that don't seem to accomplish much. 

For example, Icon Homes can 3D print sustainable homes for a fraction of the cost of a traditionally built home. We know there's a housing crisis at the moment. For nonprofits operating with missions related to housing, why not partner with a company like this to alleviate the lack of housing for at-risk populations?

2. Self-Reflect to Reinvent the Sector

Nonprofit leaders need to view and evaluate everything. They need to reconsider how they approach their programs and be open to the idea that donors direct the terms for nonprofits. With the guidance of a strategic consultant who will challenge them, they need to ask themselves what it takes to create a strategic plan that works for today. What innovative things, such as strategic partnerships and creating an impact investment fund or a business revenue stream, can the organization do to excite donors and become more accountable to end the ongoing yearly cycles of fundraising as usual?

Right now, a confluence of things is forcing the nonprofit sector to evolve. Wealthy donors don't believe nonprofits are the only way to make a social impact. The same is true of general gift donors. There's a rise of technology that could significantly change and end some of the existing social problems. However, that requires nonprofits to create strategic partnerships and shift from the charity mentality to one of proactive impact that's measurable and innovative and genuinely changes people's lives at scale. When that happens, nonprofits will restore the faith of donors and ensure their futures as genuine problem-solvers.

The preceding blog was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.