May 27, 2012

Seizing a Crisis: How Great Nonprofits Grew Amid the Economy’s Challenges

Andy Dean

City Year, Feeding America, and Habitat for Humanity took bold actions at a time when many nonprofits were paralyzed.

What makes a nonprofit great is no easy question to answer in good times. But it’s even tougher—and more important—as America’s nonprofits adjust to a new austere financial reality.

We started asking this question in the mid-2000s—a boom time for the nonprofit world—as we gathered research for our book, Forces for Good: The Six Practices of High-Impact Nonprofits. We wanted to know how a dozen successful nonprofits had rapidly increased their reach in recent decades, and in 2007 we published our findings about what made them great. That year, philanthropy would peak at its all-time high.

As we prepared to issue a new edition of our book, we wondered whether the groups in our study had weathered the recent global economic crisis and, if so, what they might teach other nonprofits about how to survive in difficult times.

The biggest lesson, it turns out, is that by seizing the crisis as an opportunity, some of the nation’s most effective groups are achieving even more impact during the downturn.

Along the way, the majority significantly increased their revenue as well—which truly surprised us.

Teach for America, for example, vaulted from $41-million in 2005 to $277-million in 2010—and landed as No. 136 on The Chronicle’s Philanthropy 400 by 2011. Four other groups we studied essentially doubled in size (the Center on Budget and Policy Priorities, City Year, Habitat for Humanity, and the Heritage Foundation). And almost all the others grew at healthy clips.

It was counterintuitive to us that these nonprofits managed to expand both their impact and their budgets during the Great Recession. Here are a few lessons we learned about how they did it:

Accelerate in a downturn. Instead of causing setbacks, the recession became a force that seemed to propel high-performing groups forward. Rather than putting their foot on the fundraising brake, as so many nonprofits did, most of them accelerated their development efforts.

For instance, in 2006, Habitat for Humanity set an ambitious goal of growing from $1-billion to $4-billion across its global network of affiliates; although it had fallen short as of 2011, it still doubled its annual global revenue to $2-billion.

City Year’s transformative growth was also dramatic: Two years before the recession, its chief executive, Michael Brown, led an intensive strategic-planning exercise. At the time, City Year was operating on $40-million annually with sites in 21 cities and continued to lobby to defend and promote AmeriCorps, the national-service program that financed a good part of City Year’s growth. But Mr. Brown felt that City Year “needed to show that national service wasn’t just nice but necessary.”

To do that, the group decided to stop trying to solve a multitude of community problems and instead focus on just one: improving student performance in challenged public schools. This required that City Year drop its traditional corps-member volunteer activities that weren’t education focused—a difficult move, given the group’s 20-year track record doing things the old way (and the many supporters who were invested in the approach).

Yet already, the signs of success are positive.

Schools with active City Year corps members saw significant increases in student attendance and other factors that led to improved academic achievement and graduation rates. What’s more, the charity’s new approach helped the group persuade city governments to pay for City Year corps members to work in public schools and was a key reason it won a grant in the federal government’s highly competitive Investing in Innovation competition—awards typically reserved for nonprofits focused exclusively on school reform.

Instead of backing away from making major changes in a tumultuous period, City Year took a bold approach that paid off in helping students, and the results are reflected in its current annual budget of $80-million.

Many of the other nonprofits we studied recounted similar tales of counterintuitive growth and success—often pushing forward with new strategies and campaigns to increase donations at a time when most nonprofits were cutting back.

Stay close to your donors. The moment Edwin Feulner Jr., CEO of the Heritage Foundation, recognized how severe the recession might be, he instructed his development team to call every one of Heritage’s major benefactors.

“But don’t ask for money or for confirmation of their support,” he advised. “Instead, ask: 'How are you doing? How will this downturn affect your giving?’” From those conversations, Heritage deduced that donations from its larger supporters would drop by about 10 percent in 2009.

Although the organization had just ratified a new strategic plan and approved its annual budget, Mr. Feulner announced a hiring freeze and a cap on salary increases, which enabled the organization to withstand the short-term set-back.

Donors appreciated Heritage’s high-touch approach and cemented their long-term commitment to the cause.

“You’re the only one that’s called to ask us that,” many donors told Heritage fundraisers.

Then Heritage took another bold step: It ramped up fundraising and intensified its direct-marketing campaign.

“We went full force,” says Mr. Feulner. “Those who do well in recessions come out strong. We didn’t want to show weakness.”

The result? Heritage’s first-quarter revenue in 2009 was the best the organization had seen in years. From 2005 to 2010, the organization doubled in size to $81-million and nearly tripled its dues-paying membership base from 250,000 to more than 700,000 members.

Find opportunity in crisis. Fred Krupp, president of the Environmental Defense Fund, made the point succinctly when talking about the 2010 Gulf of Mexico oil spill: “Don’t let a good crisis go to waste.”

It’s advice that many of the nonprofits we studied have taken to heart. The Gulf Coast oil spill clearly had a horrible impact on the local economy and environment, but immediate action taken by the environmental fund and other groups resulted in the “biggest ecosystem restoration effort ever in the history of the planet,” says Mr. Krupp. “The attention given to the Gulf by the spill has created an opportunity to [advocate] with others. ... Congress introduced a bill that would dedicate billions of dollars of BP’s penalty to restore wetlands in the Gulf.”

The other nonprofits we studied also managed to coax positive results from bad situations. Habitat for Humanity was instrumental in responding to Hurricanes Katrina and Rita and to the Indian Ocean tsunamis in 2004.

Although these events took place during our initial research, it was only in hindsight that they proved to be pivotal moments in the nonprofit’s evolution—bringing together the board, donors, staff, and volunteers in the response and altering the organization’s strategy.

“Of course, we all pray that there will be no disasters,” says Habitat for Humanity’s chief executive, Jonathan Reckford, who took the helm just before those crises hit. But, he says, when Hurricanes Katrina and Rita battered the Gulf Coast and the tsunamis struck the Indian Ocean, they caused the organization to rally to expand its work and “kill cultural sacred cows.”

Habitat built 25,000 homes in response to the tsunami and 2,000 in the Gulf region after Katrina.

Similarly, in response to the recent spike in U.S. unemployment, Feeding America has met skyrocketing demand by increasing—by nearly 75 percent—the amount of food it distributes.

Today, Feeding America and food-bank volunteers annually move 3.3 billion pounds of food to feed millions of hungry people. They’ve worked with their traditional corporate supporters, such as ConAgra and Kraft, but also have forged new partnerships with big-box retailers such as Wal-Mart and Kroger. And Feeding America now works directly with farmers to create markets for crops like certain kinds of potatoes, which farmers would otherwise plough under in these unforgiving economic times because they stand to lose money by harvesting and selling their produce at deflated prices.

High-performing nonprofits like Habitat for Humanity, the Environmental Defense Fund, Feeding America, and the others we have studied tackle very different causes and work on budgets of extremely different sizes.

But every one of them continues to follow the practices we first identified as leading to success in good economic times: They tap into the power of business to create sustainable ways to serve the public good, and they influence government policies to achieve wide-scale change. And they constantly build movements of volunteers and supporters while working collaboratively with their nonprofit peers.

Most of all, in these turbulent times, they’ve expertly demonstrated the art of adaptation—letting go of sacred cows to make way for new opportunities and adopting alternative strategies that may seem risky but ultimately yield bigger rewards. As a result, they’ve not just weathered the economic storm. They’ve come out stronger—and helped improve the lives of millions in the process.

Leslie Crutchfield is a senior adviser at FSG, a philanthropy consulting company. Heather McLeod Grant is a senior practitioner at Monitor Institute. Together they wrote “Forces for Good: the Six Practices of High-Impact Nonprofits,” which has just been reissued to add updates on coping with the bad economy.