As Individual Donors Decrease, Smaller Nonprofits Need to Prepare
Smaller donors are giving way to larger donors
This article on the Barron’s website really caught my attention this week. In her piece, Abby Schultz talked about how new research is showing that smaller donors are starting to slip in their giving and those smaller donors that are remaining are being more selective in the places they donate.
The article discusses the evolving landscape of philanthropy, highlighting shifts in donor behaviors and the growing significance of foundations and corporations in the sector. It also touches on the decline of individual donations and the increasing role of wealthier donors and institutions. This changing environment has profound implications for smaller nonprofits, necessitating a strategic response to ensure sustainability and effectiveness.
Adapting to a More Institutionalized Philanthropic Environment: As philanthropy becomes more affluent and institutional, smaller nonprofits must adapt to these changes. They should familiarize themselves with the preferences and giving patterns of larger donors, including foundations and corporations, and tailor their approaches accordingly. This might involve aligning their projects with the interests and values of these donors, such as focusing on environmental, social, and governance (ESG) criteria.
Diversification of Funding Sources: With a decline in individual giving, it's crucial for smaller nonprofits to diversify their funding sources. This could include exploring crowdfunding, social enterprise models, and other innovative fundraising strategies. By broadening their financial base, these organizations can reduce reliance on traditional donations and create a more stable and sustainable financial structure.
Building Capacity for Impact Measurement: The article points to a trend towards a more rigorous approach to measuring impact. Smaller nonprofits should invest in their capacity to track and report on the outcomes of their work. This involves not only quantitative measures but also qualitative assessments, as noted by Kardos. Developing robust evaluation frameworks will make these organizations more attractive to donors who are increasingly focused on measurable impact. Even basic tools like a logic model for each program can make a huge difference.
Engaging with Trust-Based Philanthropy: As the article suggests, trust-based philanthropy, which involves providing unrestricted funding and recalibrating the power imbalance between donors and nonprofits, is gaining traction. Smaller nonprofits should be prepared to engage with this approach, which may require them to articulate their long-term goals and strategies more clearly to potential donors.
Investing in Relationships with Donors: With the rise of more personal and value-driven philanthropy, especially among younger and female donors, smaller nonprofits need to invest in building and maintaining strong relationships with their donors. This includes regular communication, transparency, and demonstrating alignment with the donors' values and goals.
Exploring Program-Related Investments: As mentioned in the article, some donors are looking at using their endowment assets for charitable purposes, including program-related investments. Nonprofits, especially those with a social enterprise component, should be aware of this trend and consider how they might attract such investments.
Leveraging Technology and Innovation: To remain competitive and appealing to a broader range of donors, smaller nonprofits should embrace technology and innovation in their operations and fundraising strategies. This might include digital marketing, social media engagement, and leveraging data analytics for better donor targeting and impact assessment.
Preparing for Reputational Risks: As nonprofits diversify their funding sources and engage in more complex financial arrangements, they also need to be aware of potential reputational risks. This calls for a strong ethical framework, transparent operations, and a commitment to adhering to the highest standards in all aspects of their work.
In summary, smaller nonprofits must recognize and adapt to the shifting philanthropic landscape by diversifying funding sources, enhancing impact measurement, building strong relationships with donors, exploring new investment opportunities, leveraging technology, and maintaining a strong ethical stance. These strategies will not only help them remain sustainable but also increase their effectiveness in achieving their missions.
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