Nonprofits need to change the way they look at how they operate in order to bring lasting solutions to the social issues they address, according to at least one leader in that arena.
Matt Ryerson, CEO of United Way, offered nonprofit leaders and volunteers in the community a national overview of the future of nonprofits at a recent Chamber of Commerce Food for Thought event.
His talk was titled, “This ain’t your Mama’s nonprofit.”
“I am going to challenge you to break from tradition in how you view and how you work in the nonprofit world,” Ryerson said. “I would say generally the health of our community nonprofit world is not good.”
He said if nonprofits continue to operate the way they have traditionally they could find themselves no longer existing. However, Ryerson said there are solutions for “unhealthy” nonprofits.
Nonprofit organizations were created at a time when churches could not solve all social problems and the government did not want to, according to Ryerson.
“The IRS started seeing social good from these organizations and they wanted to incentivize these organizations to continue to do their good, and incentivize people to give to these organizations,” Ryerson said. “And at that time the government didn’t want to get into the business of social services.”
He said while nonprofits are tax exempt “that doesn’t mean that no nonprofit pays any type of tax; we do, but there are some tax benefits.”
While many think the term ‘nonprofit’ means an organization does not make money, that is not the case.
“Nonprofits actually have two bottom lines; first is mission. The mission of the organization … is the whole reason we exist,” Ryerson said.
Nonprofits also have a monetary bottom line.
“If you are looking at your nonprofit as anything other than a private equity model with heart and soul, you are failing your mission,” Ryerson said.
Issues such as poverty have gotten worse despite the numerous nonprofits created to combat it.
Ryerson said working to solve problems like poverty or homelessness cannot be viewed solely as a ministry. He said in order to accomplish lasting, positive results a nonprofit’s “ministry heart’ has to be integrated to a business model.
“If you are sitting there saying, ‘Well, my nonprofit is very traditional,’ your nonprofit will … go the way of the wooly mammoth,” Ryerson said.
He cited the Kodak as a good example of what could happen. In 1976, it had 90 percent of the market share in the photography industry. The company failed to embrace new technology as photos went digital and the company filed for bankruptcy in 2012. Some nonprofits did not make it past the 2008 economic downturn.
“Most healthy organizations with a plan in place weathered that storm,” Ryerson said.
Ryerson said monetary donations to nonprofits have remained at 2 percent of the gross domestic product since 1970.
Perception from donors also needs to be addressed if nonprofits are going to be healthy and have a positive impact.
“There is a culture out there that people are hypercritical of nonprofits and are willing to pull their money at the slightest (offense),” Ryerson said. “In fairness, there is a lot of reason for that … a lot of nonprofits do not have their houses in order.”
Perceptions of younger adults who will hold the majority of the United States’ wealth in the next two decades are different than those of their parents, Ryerson said.
“These two generations look at charities and nonprofits very, very differently,’ Ryerson said.
He said it is important for nonprofits to address this difference and adapt, or they will not survive.
Many young people are cause oriented and focused but do not or cannot give to these causes. In order to get these younger adults’ attention, organizations will need to do a better job explaining what they do and who they help, Ryerson said.
High unemployment and the threat of losing tax breaks associated with donating are also having a negative effect.
“If they got rid of that tax-exempt benefit, we would see a shift in giving — dramatic,” Ryerson said.
Those who give large amounts each year are donating more, but smaller gifts are decreasing.
“That is majorly problematic because it puts a major amount of pressure and emphasis on those who are giving a lot versus those who are spread out at the bottom,” Ryerson said. “Those who are spread out at the bottom have an extraordinary amount of power.”
Ryerson cited the ALS ice bucket challenge and fundraising campaign as an example.
In order to be successful and continue work into the future, nonprofits need to change the way overhead costs are perceived by current and potential donors.
He said nonprofits have been proud of low overhead costs because more money is going directly into services.
“We act like overhead is the enemy of the cause, when the reality (is) overhead contributes to the solution of the problem,” Ryerson said. “The reality is the talent that you can recruit with a $40,000 director is not anything compared to what they can do in the private sector. Your talent pool is limited … If we want to cure cancer, if we want to bring poverty down, if we want to reduce homelessness are we really willing to invest in it and draw in talent?”
Innovation is also needed to accomplish positive progress in solving social issues.
Ryerson said many nonprofits are trying to determine the role that social media should play in fundraising efforts.
“Social media poses all kinds of problems, because we have less control over our message,” Ryerson said.
Nonprofits need to find ways to use social media and mobile platforms, such as smartphone applications, to support awareness and fundraising efforts, he said.
Nonprofits also need to evaluate their programs to measure their impact, and generate data on which to base decisions and possible changes.
“Are we measuring the impact? From a business term, what is the return on investment?” Ryerson said.
Money management, vision and a good CEO are crucial to nonprofits affecting social causes, Ryerson said.
Having multiple funding revenue sources makes an organization stronger. Direct donations are the most important for nonprofits. Ryerson said building relationships with potential donors before asking for donations is the best model. He said while grants can be very helpful to an organization, many “have strings attached” and “require overhead.” Product development is also important for nonprofits. Ryerson said his favorite example of nonprofit product development is Girl Scout cookies.
He said fundraising is “the worst way to raise money for a nonprofit.”
Sometimes the overhead in holding the event does not get offset by what is made.
“What is almost never talked about is the staff time involved. If you are taking people from the mission to do this work, make sure there is a cost benefit,” Ryerson said.
Strategic planning is crucial to ensure that programs and spending support the organization vision.
“Just waving a flag” to show there is a problem will not make a nonprofit effective, Ryerson said. They must do more to garner financial support, such as provide detailed plans, explain how money is spent and implement positive change.