The coronavirus crisis is hobbling social enterprises around the world, leaving many fighting for survival at a time of profound need.
Since the pandemic hit, donations have fallen for more than two-thirds of nonprofit organizations, and 10 percent have halted operations, according to a recent survey by the Charities Aid Foundation of America. A staggering 97 percent of respondents expect their funding to decline during the next 12 months as the struggling economy and social distancing hurts fundraising efforts.
What can nonprofit leaders and donors do? Faculty members affiliated with the Social Enterprise Initiative at Harvard Business School shared advice for nonprofits facing dire financial challenges.
How can donors support social impact organizations through a recession?
Michael Chu: Support proven organizations with broad impact
First, the COVID-19 pandemic is not a recession (like 2008) but a depression (like the 1930s.) Accordingly, we must be prepared to act in ways we’ve never done before.
Second, just as doctors in overburdened hospitals, we need to triage with iron discipline. Our support must go to programs delivering proven interventions to large numbers of people that will risk closing their doors without our aid. Because COVID-19 affects the entire economy, to triage this way requires donors to urgently look in an unfamiliar place: for-profit models delivering high-impact interventions.
To illustrate with an example, in Mexico, Ver de Verdad is a chain of 106 eyeglass stores that to date has delivered word-class eyeglasses to 1.5 million people at the base of the pyramid at an entry price of under $15, when previously this was only available at $125 or more.
It was profitable and readying for massive expansion when in March COVID-19 halted all retail sales. If the economy remains shut for more than a couple of months, the enterprise will not survive. A creative donor rushing in with debt at low rates and a grace period may decide the future access of the majority of Mexicans to good vision.
Michael Chu is a senior lecturer of business administration.
Rosabeth Moss Kanter: Get involved in any way you can
Stay engaged. Accelerate financial contributions that you might have made later. Ask where the greatest needs are, and see if you have other ways to offer support, such as opening doors to new partners or new kinds of resources.
Tap your non-tangible assets to show appreciation, which might be as mundane as providing staff with recreational opportunities to relieve stress. Showing that you care can sometimes make a critical difference in the organization’s ability to keep going.
Rosabeth Moss Kanter (@RosabethKanter) is the Ernest L. Arbuckle Professor of Business Administration.
F. Warren McFarlan: Donations matter more than ever
This is the time when tangible support really matters as the funding sources are drying up for so many social enterprises. Your support may be the margin of survival. Always welcomed is practical advice on how the social enterprise can restructure or redeploy its staff to be more effective. Preserving cash is the dominant issue.
F. Warren McFarlan is the T.J. Dermot Dunphy Baker Foundation Professor of Business Administration, Emeritus.
Euvin Naidoo: Help organizations providing critical care
Over these challenging times, the need for organizations that form part of the social support net is key. Yet, it is at these times that social impact organizations are the most vulnerable. The first crunch being faced by organizations across sectors is liquidity.
Donors, who may have allocated funds and budgets ready, should deploy these early to their portfolios of mission-driven organizations, especially those that may be providing critical care to those in need. High quality, well-run social impact organizations are critical now and need to be supported by creating a runway that supports continuous operation through to the post COVID-19 world.
Euvin Naidoo (@EuvinNaidoo) is a senior lecturer of business administration.
Brian Trelstad: Prioritize nonprofits closest to the front lines
Donors need to prioritize organizations and step up their philanthropy. It is not practical for all people to give more to all of the organizations that they support, but donors should consider giving more to those that are closest to the frontlines and serve the most vulnerable. And unrestricted donations versus restricted donations are the most needed.
Brian Trelstad (@trelstad) is a senior lecturer of business administration.
What should nonprofit leaders do as they face an economic recession?
Lynda Applegate: Think like an entrepreneur
I have been interviewing non-profit and for-profit leaders to identify how they are innovating through crisis to—not just survive—but thrive. I find that entrepreneurial leadership is key. To attract people to work with you, it is important to demonstrate that you are taking steps to address the crisis.
At the same time, they must inspire people to find innovative ways to solve compelling problems that enable them to fulfill their mission and accelerate through the crisis. We are finding that there are three stages of addressing a crisis:
- Stabilize and defend your core business by engaging employees, customers, suppliers and members of your community to identify and address immediate, critical problems. Identifying a crisis command team that represents the interests of key stakeholders and expertise required is critical.
- Identify opportunities to address compelling problems that will enable you to accelerate through the crisis. In evaluating potential opportunities, I encourage leaders to leverage their strategic positioning and relationships and their core capabilities and expertise. Given the complexity and uncertainty, sequencing and timing of the projects needed to execute these new opportunities is critical. So too is the ability to establish a process of experimentation and learning while doing.
- Anticipate the future and prepare to lead transformation. While it is still not clear how long the health crisis and resulting economic crisis will last, most agree that the world will be different in the future. Use the insights you are gaining from your fast-cycled crisis response learning as we emerge from crisis.
Lynda Applegate is the Baker Foundation Professor, Sarofim-Rock Professor of Business Administration, Emerita.
Chu: Hold on to cash and cut costs
First, they should understand that they are facing a certain and deep recession.
Second, they should do exactly what every enterprise must do under these circumstances: ensure the survival of the organization. For this, cash is king. Accordingly, the immediate priority is to halt the outflow of cash. Any dollar leaving the organization is a high-level decision and any payment that does not lead to an immediate cessation of key services must be deferred (e.g. rent). Next, reduce fixed costs, starting with salary cuts that commence at the top and the furloughing of all non-essential staff. Finally, reorganize to operate with a permanent lower fixed-cost base.
Third, they must protect the mission. This requires urgent triaging, identifying the programs that are on the mission’s critical path and separating them from the important and the nice to have. Then, until the crisis is over, direct all funds current and future to the former.
Lastly, remember that these steps are not sequential but concurrent.
Kanter: Find partners to increase impact
Readiness is key. Obviously, some belt-tightening is in order, determining how to operate leaner. This is also a time to increase communication with employees and key stakeholders, and solicit their ideas. That can keep innovation (and spirits) going by hearing ideas about improvements, efficiencies, and missed opportunities that could be addressed.
This is also a time to strengthen partnerships with other organizations in a similar space. Rather than compete, you can find ways to multiply your impact by working together. You can even become a stronger force to lobby for more government aid or community support.
John J-H Kim: Rip up old plans and look ahead
Nonprofit leaders should focus on new ways of delivering and meeting their core mission. A common mistake that all leaders make during a crisis is to make slow decisions. It is human nature that we value and thus hold on to plans that we made previously far longer than we should, hoping that the world will return back to “normal.”
With the far-reaching impact of COVID becoming more clear by the day, nonprofit leaders need to be clear about their core mission, fearless in ripping up the well-developed plans from the past, and galvanizing their teams to try new services, ideas, or approaches (even if most of them may fail) that will meet the challenges in this new normal.
John J-H Kim is a senior lecturer of business administration.
McFarlan: Conserve cash and stay strong
Carefully scrutinize expenditures to conserve cash in all possible ways. Pin down whatever balance sheet strengthening, if any, that can be attained. Keep a realistic, but positive public demeanor. Fear is contagious.
Naidoo: Use the Agile approach to stay nimble
Accept how challenging these times are, balanced with the reality that now, more than ever, the mission of many non-profit organizations has never been more critical to communities being served. This may be time to re-emphasize the mission and to work to move mindsets as soon as possible from “survive” to “thrive.”
The nonprofit sector in many markets, both developed and developing, often support underserved communities and regions that at this time need the most support. Adopting an Agile response, with a leadership model that provides a focused set of actions combined with an operating system that iteratively is able to respond and adapt to the changing environment is key.
Trelstad: Hold virtual fundraising events and engage loyal donors
Organizations need to think quickly and practically about cash flows and revise their scenarios for getting through the crisis and then a less optimistic 2021 scenario. Most organizations will be hit by the triple whammy of:
- Limited cash reserves. Many non-profits have less than 6 months of cash.
- Historic reliance on in-person fundraising events that will no longer be possible. Many organizations have a signature event that is a major fundraiser and focus of fundraising communication.
- The back-ended nature of giving. A significant amount of philanthropy comes in the fourth quarter.
Cutting costs while maintaining program quality, holding virtual events, and reaching out to consistent and loyal donors and asking them to contribute earlier in the year (sensitive to the fact that many of them may be affected by the recession and/or approached by many organizations with the same request) are what nonprofit leaders should consider doing.
How can leaders focus on long-term missions in a pandemic that requires short-term adjustments?
Kanter: Gather ideas for post-crisis impact
Keep repeating the purpose at every opportunity, and make sure that short-term decisions don’t undermine the longer-term message. Have a clear set of strategic priorities with the long-term mission in mind. Dedicate some time (and perhaps a team) to imagining the future even while you are scrambling to survive in the present.
Remember “Kanter’s Law”—that everything can look like a failure in the middle—and don’t make it a self-fulfilling prophecy by getting bogged down in crisis details. Think about impact beyond the crisis and have a stockpile of ideas to roll out when the time comes.
V. Kasturi Rangan: Harness public health and provider expertise
We all know that only collective action can bring lasting solutions for chronic social challenges. It is often the government that sets the rules of play, the social entrepreneur who creates the many experiments, and the private sector (for profit or nonprofit) that garners the technology to address the problem at scale. The collective interplay is refined through trial and error over a long period of time.
All this goes through the window in a crisis like the one we now face. There is no time to set the rules, no time to carefully experiment, and no time to negotiate the incentives. The only thing everybody can agree on is the desirable end result.
In the current crisis, the silver lining has been the civil society: the thoughtful public health officials; the incredibly brave health workers, doctors, nurses and compassionate volunteers; and the civic-minded hospitals and research institutions. On the back of their selfless work, we must remain optimistic that a solution will be found and provided for all.
If civil society, more than government or the private sector, has been the little engine that has pulled us from the brink, shouldn’t we look for it to also lead us to better health when we are over the crisis? Not just in terms of social justice, but economic prosperity as well? As the most trusted player, shouldn’t civil society have a pivotal role when we get back to reimagining capitalism, when the going gets good?
V. Kasturi Rangan is the Malcolm P. McNair Professor of Marketing and co-chair of the HBS Social Enterprise Initiative.
About the Author
Danielle Kost is a senior editor at Harvard Business School Working Knowledge.
[Image: PeopleImages]
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