How Recession-Racked Charities Emerged Stronger Than Before

On the worst day of her career, Sharon Lawrence woke up with the flu. It was February 2009, deep in the Great Recession, and Ms. Lawrence was to present to her board the financials for Voices for Children, the nonprofit she had led for 12 years. The numbers were as sickly as she was, with contributions, the group’s primary source of revenue, down by roughly half. Ms. Lawrence thought: I could be fired.

Layoffs followed, sweeping out a quarter of the 36 staffers. The organization held to the goal it had set just three years earlier — to provide every foster child in San Diego County with a volunteer court advocate — but the crisis forced a reckoning. Without a robust development operation and major-gifts effort, the board concluded, that goal was a pipe dream.

Within the year, board members had committed individually to raising money, and the group began building out its skeletal development shop. Ms. Lawrence courted and hired a seasoned fundraiser from the arts world, offering a salary bigger than she had paid anyone else.

Today, the organization’s budget is approaching $6 million, double its prerecession total, and its payroll has swelled to 73 employees. Last year, the University of San Diego’s School of Education and Sciences gave the board its nonprofit-management award, noting how it bravely invited change. By next year, the group expects to provide advocates for more than 3,000 foster children — three times the number from before the recession. It’s now a stronger organization, better positioned to weather the inevitable next downturn, and perhaps to spare Ms. Lawrence the pain of layoffs.

Hopeful Lessons

Don’t be fooled by the Voices for Children rebound. The recession’s long shadow still looms over many nonprofits. Most have regained at least some measure of financial stability, but their health is tenuous, particularly in hard-hit parts of the country. What’s more, the nonprofit world is beset with inequalities like those afflicting post-recession society as a whole. “The bigger, wealthier, whiter metropolitan organizations are doing better than the poorer, rural organizations and those for people of color,” says Jan Masaoka, head of the California Association of Nonprofits.

Still, as the Voices for Children rebound illustrates, the recession’s legacy offers hopeful lessons. “A crisis is a terrible thing to waste,” the economist Paul Romer once said (words famously echoed during the recession by Rahm Emanuel, then an adviser to President Obama). Mr. Romer was being playful, but the words look like a pearl of Ben Franklin wisdom when you consider how recession-driven moves by some nonprofits paid off in the long run.

John Trice

Facing apparent disaster, some executives found the will to fix longstanding problems. Others discovered that the stresses of the downturn revealed fundamental weaknesses holding back their organizations. And some, by sheer luck, adapted to the crisis in ways that strengthened their groups for the long haul.

For some organizations, the recession provided the impetus to clean house and eliminate staff and programs that weren’t contributing to the mission or the bottom line. “It was really a chance to shape up,” says Katie Smith Milway, a partner with Bridgespan, the nonprofit consultant to charities. “A lot of organizations now run leaner, in a muscle-driven way.”

Not every fruitful change was seismic. The development office at Beth Israel Deaconness Medical Center, for example, considered reconfiguring its DNA as a major-gift operation and doing a lot of events, direct mail, and other broad-based fundraising efforts that seemed recession-proof. Instead, it diversified its base of loyal big donors and, following two years of giving declines, has now posted three straight record years.

Among its moves: ramping up a “grateful patients” program. Gifts from those patients, which used to represent 10 percent of the center’s individual giving, now account for nearly 40 percent, says Kris Laping, senior vice president for development. “That will be our primary growth strategy. We see a lot of untapped potential.”

Leake & Watts, a human-services group in the Bronx, N.Y., was facing budget deficits and warnings from state regulators even before the recession. With the state moving away from paying for residential foster care, one of the group’s core operations, it developed a diversified array of youth and family services — and, importantly, an extensive system to measure program outcomes. “Demonstrating positive impact is absolutely a critical piece to any organization’s survival,” says Alan Mucatel, who joined Leake & Watts as executive director in late 2008. Revenue has nearly doubled, from $56 million in 2009 to more than $90 million in 2014.

Partnerships Born of Need

In some cases, recession woes prompted nonprofits to swallow hard and look afresh at collaborations — always a thorny issue. Denver is encouraging collaborations through shared-office arrangements. Local international-development groups rehabbed an abandoned 19th-century horse-trolley barn to create the Posner Center, a 25,000-square-foot office hub that now houses nearly 60 nonprofits, some with just a handful of employees. Cost-saving benefits include shared conference rooms and fundraiser-event space, but Posner’s staff also develops joint projects and training on topics such as raising money and measuring impact. The center recently awarded $60,000 in grants to fund partnerships among its tenants, including one between Engineers Without Borders and a group that builds footbridges in Guatemala.

Erin Preston

Three Los Angeles foundations, meanwhile, launched an effort to help groups consolidate back-office operations, jointly manage programs, or even merge. The work continues and has been surprisingly popular, says Fred Ali, head of the Weingart Foundation, one of the sponsoring grant makers. “The shock of 2008 and 2009 turned out to be much more severe than people had anticipated,” Mr. Ali says. “Nonprofits correctly decided, We have to look at all options.”

With the white-knuckle crisis of the Great Recession over, some nonprofits may not feel compelled to test new management ideas or plan for their long-term stability. That would be a mistake, says Albert Ruesga, president of the Greater New Orleans Foundation. The next disaster — whether it’s a funder’s retreat, a dramatic demographic shift, or a new recession — is always just around the corner. “Nonprofits live in a kind of virtual recession all the time,” he says. “They’re always in crisis.”