Protecting the Future of Nonprofits

— by Paul D'Alessandro

On October 19, 1987, I started a journey in the nonprofit sector for a greater good, leaving behind a career in law. My first week as a fundraiser began on Black Monday when the DJIA lost almost 22% in a single day, triggering a global stock market decline. I took a job as part of an Advancement Team at the University of Notre Dame to raise $450,000,000 for one of its major capital campaigns. The financial world took a breath for a moment, but in the coming years, the market recovered, and the University exceeded its goal and has exceeded its goals ever since.

I didn't know much about the nonprofit sector and how people thought about giving, but I learned quickly. People and human behavior haven’t changed much since, but how people give and the questions they ask have changed. In 1987, there were over 400,000 registered charities in the United States. Estimates for 2020 are that approximately 1.6 million charities are now registered with the IRS. In other words, the sector has experienced considerable growth and competition for the charitable dollar.

A single example of the scope and profitability of assisting nonprofits in managing data and fundraising activities in the U.S. is the publicly traded company Blackbaud. Its non-GAAP revenue for 2019 was $880 million to $910 million. This activity, along with direct mail, website development, social media, direct marketing, event planning, and staffing, demonstrates the resources needed to attract dollars to fund mission work.

Giving USA 2019 reported that $427.71 billion was given to charity in the United States. Those numbers also reflect dollars sent to Donor-Advised Funds(DAFs). The billions of dollars going into DAFs have not been matched by the outflow of dollars going to fund the missions of charities. More money is flowing from individuals and foundations, but is it making the impact that it could if there was consolidation in the sector and deployment of resources to solve critical problems?  Specifically, for purposes of this white paper, it is a consideration of solving the problem of faith-based charities competing against each other for resources from Christian donors.

I've long said that all the money in the world exists to solve all the problems of the planet. As you can see from the information above, resources don't necessarily go to the end user but are either parked assets (assets under management) for future good or used to fundraise for nonprofit charities. Everywhere I go in the United States, however, I meet someone who has had something put on their heart to make this world a better place. They know that it will require dollars to and commitment to make something change.

Recently, I was at a gathering of marketplace leaders and ministry partners to learn about the issues that they are trying to address. Each ministry present was given 10 minutes to tell its story, which ended in the need to fund the mission. Most executives did not get into their work for a greater good with any real experience on how to raise money or even run a business.

In every city in the U.S., I meet people who are trying to address issues such as human trafficking, the sanctity of life, Christian education, homelessness, youth ministry, promoting the gospel, and a myriad of other activities. Unfortunately, most of these nonprofits are under-resourced and spend a great deal of time raising support to further their missions. Little time,  however, is spent on taking a look at the activities in each city and seeing where there is duplication of services. How can these charities work together? Whether it's human resources, legal, accounting, fundraising, or shared office space, there is a lack of much-needed consolidation and collaboration in the sector.

Let me give you an example of where consolidation has worked. Several years ago, I met a young man whose mother had passed away from colon cancer. He was a musician but the tragedy in his life impacted him so much that he decided to put his life's work into finding a solution to colon cancer. Without any real business acumen, he was able to bring the charity to an annual operating budget of $2.5 million. The biggest challenge, however, was meeting monthly payroll. Across town in Washington, DC, was another colon cancer nonprofit with an annual operating budget of $5 million. They were in direct competition for the same donors. Eventually, the boards met, and over two years, they merged. Today that one charity is the largest colon cancer charity in the country with over $10,000,000 in annual revenue and a unified front.

What I typically see, however, are multiple services provided in the same community who do not collaborate. I recently received a call from a crisis pregnancy center board member in a large city in the U.S. He was also on the board of a client of ours, where we were raising $150 million in a capital campaign. Knowing of my experience with raising money, he wanted to know how to deal with the multiple requests he was getting from these charities. Once the charities knew he supported life, they all began to approach him. I suggested he bring all the charities together and talk about consolidating services. It was too daunting of a task to undertake, as the charities are sadly too busy competing with each other for support and covet their donors.

Unfortunately, many nonprofits work in silos and feel that they have the optimum opportunity for success. Consequently, this dilutes the use of charitable dollars and strains the major gift donors in the community. It seems that the same names continually show up in communities of those individuals who could help make a difference.  

These are my observations, having been working with charities for the last 30 years. Consolidation was the name of the game for businesses from the mid to late 1980s. My belief is that at the same time, the nonprofit sector continued to grow and was unaffected by what was going on in the business marketplace. Now we're at a time where the competition for charitable dollars is fierce, and there is an absolute need for a unified front, especially with faith-based charities. 

An example of this is the over $500 million Planned Parenthood has at its disposal to further its mission. There are an estimated 2,300 to 3,500 crisis pregnancy centers operating in the U.S. while there are only 1,800 abortion clinics. Most of those crisis pregnancies centers, however, act independently, raising their own support and often competing against each other. 

Another example is the competitive marketplace for healthcare charities that focus on diseases. The quest for charitable dollars pits charities against each other. There are traditionally two ways to fund the mission: you either dominate fundraising and find new donors or take away market share from other charities

These are two simple examples of competitiveness for raising money in today's marketplace. It is my opinion that to have a more significant impact in the communities we serve, nonprofits must consider mergers and consolidation as a means of future survival. It will require people getting in a room together and making some hard decisions about leadership, donor integrity, and shared resources. Several communities I've visited recently have gathered nonprofits in a common space to share conference rooms, technology resources, and in some cases, personnel. The collaborations have maximized the impact of the donors' charitable gifts.   

One project that I'm particularly excited about working with today is the Generous Life Platform created by Generosity NY. This platform brings together donors from around the country to talk about the things that matter most to them for a collective impact. My feeling is that donors drive change. Since nonprofits are slow to take advantage of pooling resources, consolidating, merging, acquiring other nonprofits, the donors will look to create a scenario where that solution will be the best for the community. Today in New York, for example, Generosity NY brings donors together to learn about topics such as artificial intelligence, blockchain philanthropy, homelessness, Christian education, sacred life, movie production around faith issues, and impact investing. When donors gather in a collective environment to hear what is going on in the community, we find that generosity increases. They see the nonprofit resource and impact problem as twofold. The first challenge is the need for consolidation in the marketplace. Secondly is the need to bring donors together to work collaboratively in solving some of our communities' most significant challenges.  

God has placed it on my heart to work intently with leaders to help promote the change that is needed. For too long, charities have continued to do business as usual. The fundraising climate has changed dramatically in the last few years, and without a look to the future, it will become even harder to thrive, especially if there is a market downturn.

This is one of the 2020 CEF Whitepapers. For more information on the Christian Economic Forum, please visit their website here.

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