Financing good will: How charities are innovating to survive
On his first day as chief executive officer of Valley Services Inc., a nonprofit work placement program for disabled and needy persons, Jeremy Christensen fired eight people.
It was a tough decision, but the recession and a cutback in funding meant the organization was no longer able to provide those eight with temporary work.
"There's definitely been tears," Christensen, a 36-year-old social worker and Utah native, said in a phone interview. "There were times when I lost sleep and was up at night trying to figure out how to reorganize and make this work."
But, something changed at Valley Services that made their story a successful one.
Many organizations, like Valley Services, are abandoning old methods of financing, like grant writing and fundraising, and becoming self-sustaining by developing marketable products and services.
A struggle for funding
The number of charities and foundations in the U.S. has dropped by .4 percent to 1.6 million since 2009, according to the National Center for Charitable Statistics.
Nonprofits in Utah have dropped by 38 percent to 3,568 since 2009 as many are struggling to find finances for already struggling budgets, according to a study by The Community Foundation of Utah.
"One of the things nonprofits can do is understand how to generate revenue," Fraser Nelson, executive director of The Community Foundation of Utah, said.
Over the past three years, nonprofits like The Head Start Program and Valley Services have learned how to generate revenue by innovating the products and services they offer, Nelson said.
Finding the solution
When the recession hit, many companies cut back on jobs that Valley Services offered, such as janitorial and painting, causing the group to nearly close its doors in 2009. In two years, 50 people receiving temporary work were laid off.
After introducing new offerings, like grounds work for Salt Lake Community College and event support for the City of Salt Lake, Valley Services is on track to raise its revenue this year by 69 percent to $5.4 million from $3.2 million in 2009.
The nonprofit more than doubled its workforce and brought back 40 percent of those who were originally laid off.
Christensen says the success is in the innovations.
"This is really big," said Christensen, who is married with two children. "A lot of nonprofits are talking about it now especially."
Nonprofits are evolving beyond simple fund seeking into organizations providing community service with revenue streams rather than donations, Christensen said.
The Special Olympics of Utah was able to raise its grants from $65,000 to $132,000 for the 2013 school year by focusing efforts on the organization's unified sports program, said Amy Hansen, CEO of the Special Olympics of Utah. The program integrates intellectually disabled athletes with those who are not in order to create a more accepting environment in high schools in the state.
A changing landscape
Philadelphia-based Singing City, which maintains a 100-person volunteer choir and offers instruction services to elementary schools that have cut music budgets, has also learned to find revenue through innovation.
The group created an online rental service for sheet music and has started selling CDs and T-shirts at concerts.
"Nonprofits are going to be much more businesslike," said Scott Hughes, Singing City's office manager who has served on multiple grant panels. "I think, in the future, organizations will be providing services that people will be willing to pay for."
The innovations Singing City made, along with minimal funds from an endowment, allowed the group to weather the recession.
"I think there is a blurring in the line between for-profit and nonprofit anyway," Hughes said. "I see them converging, and the only thing that will be different is tax status."
Nelsen says entrepreneurship is the nature of nonprofits and can help them overcome financial struggles.
"Entrepreneurs are really good at seeing a problem and solving it," Nelsen said. "That is the kind of thinking that organizations have seen as an opportunity to rethink their business model — not to become more like a business, but to respond to market needs."
The old method of applying for grants, using those funds and repeating may not be enough anymore.
"Entrepreneurs say, 'When things change, you change,'" Nelsen said.
Helping bring the change
Because business is associated with cold decision-making, there may be resistance to change in the nonprofit community, said John Brady, chief operating officer of HigherNext.
Brady has previously worked for nonprofits like The College Board and Franklin Institute in Boston.
"I have found that there are many people in the nonprofit world who believe that you're only doing a public good if you are living month-to-month and hand-to-mouth," Brady said. "That isn't necessarily true."
Four out of every five nonprofit organizations in Utah work with budgets less than $100,000 while employing more than 5 percent of the state's workforce.
"At the beginning of the recession, corporate giving in Utah tanked," Nelsen said. "There is no doubt that the worst nonprofits hit were in rural areas. Our data has showed this consistently."
Beginning in 2012, 31 percent of organizations in Utah had less than 3 months of operating capital, according to the study.
Brady compared nonprofits to a family, saying that in order to be successful and serve the people in a home, breadwinners have to save and plan for the future.
"A nonprofit is the same way," Brady said. "There is no value in being impoverished in order to be home all the time. Ask any parent that can't make ends meet. They'd do anything to provide the things they want to provide. Nonprofits are the exact same way if they are run right, and they are thinking about their future."
Brady says that often nonprofits will choose to reinvent themselves when it's already too late, making it too costly to innovate.
The return of philanthropy
Though the recession has led many to quit giving, experts say that won't be a permanent problem.
Charitable contributions were up $298.42 billion last year, which is a 4 percent increase from 2010, according to a study for The Giving USA Foundation. However, giving is still lower than pre-recession levels when Americans were donating $314 billion in 2007.
"The belief is that the drop we're seeing is related to the economy and that people will come back and give more again," said Allan Luks, author of the book "The Healing Power of Doing Good" and founder of The Center for Nonprofit Leadership at Fordham University in New York. "America, along with Canada and England, has very high rates of philanthropy. The U.S. tends to lead."
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