This year, the nonprofit sector stands on the brink of a landscape so volatile that even the Stanford Philanthropy Blueprint, a guiding light for over a decade, has withheld predictions for the first time in its 15-year history. Its author, Lucy Bernholz, captures this sentiment precisely, stating, “The only thing predictable is unpredictability.”
The current climate is marked by several mitigating factors that could shape the future of philanthropy. Advances in artificial intelligence (AI) are poised to revolutionize operations and decision-making processes, yet they also bring forth pressing questions about safety and ethical responsibility. The rise of donor-advised funds has transformed funding streams, offering both opportunities and challenges in donor engagement. Furthermore, the growing embrace of trust-based philanthropy reflects a decisive shift towards more equitable power dynamics between donors and grantees, prioritizing closer relationships.
In this pivotal year, thinking in terms of systems change—rather than mere program design—is crucial. Nonprofits must navigate these waters not by simply tweaking existing models but by fundamentally rethinking their approaches to leadership, funding, and community engagement.
Nonprofits can withstand the storm, and emerge healthier than ever. We know, because they’ve done it before. Past economic crises have taught us that nonprofits are resilient, especially when they embrace innovation and new operating paradigms. It’s worth pulling those lessons from the past into today’s work.
What nonprofits can learn from the past
The economic and social tumults of the 1980s, the 2008 financial crisis, and the COVID-19 pandemic each presented unique challenges and lessons for nonprofit resilience and innovation. By examining how organizations navigated these difficult times—whether through strategic adaptation, enhanced community engagement, or rapid digital transformation—we can extract valuable insights to inform current strategies and future preparedness.
1. The economic challenges of the 1980s
The 1980s were defined by significant economic volatility, characterized by high interest rates, a severe recession, and fluctuating market conditions. This period, notably under the Reagan administration, saw substantial shifts in public policy that greatly affected nonprofits. Cuts to federal and state funding forced many nonprofits to find new ways to sustain their operations and fulfill their missions for communities even more in need of their aid.
To counteract these financial pressures, many nonprofits diversified their funding sources to include more individual donations, corporate partnerships, and revenue-generating activities, or even shifting focus to different sources of government funding. As Steven Rathgeb Smith notes, many nonprofits “compensated for lost funding by tapping new federal government programs, refinancing their programs by taking advantage of growing federal programs such as Medicaid, or increasing their private donations and earned income.”
For example, the YMCA expanded their services, charging membership fees and offering community-based family programming, to reduce their reliance on volatile government funding and private donations. This not only helped stabilize their finances, but also increased the value they provided to a surging community of Baby Boomers.
Moreover, nonprofits like Habitat for Humanity strengthened community ties to increase awareness around their mission. By intensifying collaborations with local businesses and public figures like Jimmy Carter, and increasing volunteer engagement, the nonprofit was able to sustain their housing projects even during the economic downturn of the ‘80s. These partnerships proved crucial in mobilizing local resources and maintaining visibility in communities, skyrocketing Habitat for Humanity into the public consciousness.
Key Takeaway: Nonprofits need to diversify their funding sources and build strong community relationships to thrive amid ongoing economic fluctuations.
2. The 2008 financial crisis
The 2008 financial crisis was a seismic event that rocked economies worldwide, leading to widespread financial instability. Surprisingly, the nonprofit sector exhibited a notable degree of resilience compared to many other sectors, with most parts of the sector recording steady employment growth and increased revenue.
The most significant difference between nonprofits and the general business sector? Nonprofits retained their employees. And they continued to deliver crucial community services, maintain operations, and navigate financial uncertainties thanks to adept management of diverse revenue streams. Communities rallied around nonprofits with increased giving and volunteering. Individual donations held steady in 2009, despite the increased strain on the average American’s wallet, showing that charitable giving holds strong even in (or especially in) times of hardship.
However, not every organization experienced this relative stability. Smaller nonprofits or those not in higher education or healthcare sectors (“eds and meds”) faced greater risks of closure, asset loss, and financial difficulties.
Survival didn’t necessarily mean that nonprofits were thriving, though. In a study by the Center for Nonprofit Strategy and Management at Baruch College, nonprofits that survived the 2008 financial crisis were more likely to freeze salaries, reduce travel, reduce non-service expenses, and decrease employee benefits. While the numbers show that nonprofits were less likely to experience layoffs, nonprofit employees were still placed under a high amount of stress during this era.
While nonprofits continued to offer services, the high demand for those services outstripped their ability to deliver to an increasingly disenfranchised community. As the Nonprofit Quarterly remarks in retrospect, the nonprofit sector seemed to focus more on the recovery of its own institutions, rather than the longer-term recovery and financial wellbeing of the communities they serve. This shift highlighted a critical aspect of nonprofit management during economic downturns: the challenge of balancing organizational survival with the mission to serve constituents.
Key Takeaway: In times of economic hardship, nonprofits have to be careful not to prioritize the organization’s survival over meeting the community’s needs. Don’t lose sight of your core mission to support your community even during difficult times, and they’ll support you in return.
3. The COVID-19 pandemic
The COVID-19 pandemic disrupted the entire world, and the nonprofit sector was no exception. With stay-at-home mandates and social distancing introducing new challenges, 83% of human services and 93% of arts and culture nonprofits suspended programs. Following this, 57% of human services and 71% of arts and culture nonprofits experienced an immediate decline in donations.
In response to these challenges, the sector rapidly adopted digital platforms to continue to offer services and raise funds throughout the pandemic. Per Independent Sector, 44% of nonprofits have added new online programs since 2020. This digital shift not only allowed nonprofits to continue their services amid physical distancing requirements, but also broadened their reach and accessibility to underserved communities. Nonprofits also shifted to remote or hybrid work, a trend that has persisted to this day; 77% of respondents to the 2022 State of Philanthropy Tech Survey reported they planned to move to a hybrid/remote workplace for 2023 and beyond.
The pandemic also underscored the important role that nonprofits play in crisis response and community support. The government and the public turned to nonprofits for assistance in their time of need, with 71% of nonprofits reporting an increase in service demand according to the Nonprofit Finance Fund’s 2022 State of the Nonprofit Sector Survey.
The introduction of rapidly mobilized federal assistance, such as the Paycheck Protection Program, critically kept many nonprofits solvent and operational during the pandemic. Although participation was limited—with only 38% of eligible nonprofits taking advantage of the PPP—those that did were better equipped to avoid layoffs and continue their operations. The importance of having financial safety nets, such as rainy day funds, became evidently clear, as these resources were instrumental in maintaining staff and services without severe cutbacks.
One thing is certain: Operating with adaptability is a prerogative for nonprofits looking to endure tough times. As Nonprofit Quarterly found, nonprofits have embraced radical responsiveness and centered stakeholders more meaningfully in a post-COVID world.
As Katie Allan Zobel, president and CEO of the Community Foundation of Western Massachusetts writes, “No single sector can advance and sustain equitable change on its own, be it government, nonprofits and philanthropy, or business. Worse, each has too often contributed to the opposite—namely, inequity.” Long-term partnerships with corporate sponsors, foundations, government agencies, and local communities are necessary to pool resources and create more equitable solutions for all nonprofits.
Key Takeaway: Adopting technology that allows nonprofit teams to collaborate efficiently, connect with community members, and manage their programs remotely can make organizations more resilient and agile. Don’t wait for a crisis to hit to put these new systems in place.
2024: A pivotal year for nonprofits
Nonprofits are deeply affected by the broader political, social, and environmental climate they operate within, and 2024 is shaping up to be a pivotal year for American history. As Bernholz says, “This period will go down in history as a rupture…When we think about digital civil society and philanthropy as actors in democratic systems, we must acknowledge and account for the dynamism and uncertainty all around us.”
This is a critical time for nonprofits and social impact professionals to rethink the work you do, and understand the market forces reshaping that work.
The rise of donor-advised funds
Donor-advised funds (DAFs) continue to grow in popularity. These funds allow donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund to their chosen nonprofits over time. While DAFs offer flexibility and tax advantages to donors, they also lead to delays in nonprofits receiving funds, as donors can contribute to these funds without immediately directing where the money should go.
The primary challenge with DAFs is the potential delay between the initial donation to the fund and the eventual disbursement to nonprofits. This delay can make financial planning difficult for nonprofits, as they cannot predict when they might receive funds from DAFs.
Donors can exert significant influence through DAFs without corresponding transparency or accountability. This lack of visibility can lead nonprofits to spend considerable resources on seeking donations without knowing the best strategies or which donors to form lasting relationships with.
It’s time for the mechanisms governing DAFs to evolve to ensure that these funds do more than offer tax advantages; they need to also actively enhance the effectiveness of charitable giving. Simplifying the process by which nonprofits can access these funds, and increasing the transparency of the donation process, would greatly benefit the nonprofit sector.
The impact of AI on nonprofits
AI is here to stay. As Beth Kanter, co-author of The Smart Nonprofit: Staying Human in an Automated World, told us: “The toothpaste is out of the tube. We need to start adopting AI. But we need to do it with thoughtful preparation, which includes thinking around the ethics and safety issues and how to do this strategically, responsibly in a way that is very human-centered.”
As nonprofits increasingly use AI to streamline operations, they must navigate the ethical implications that come with its use. Leaders in social impact must develop guidelines and training around AI’s capabilities and limitations in order to enable thoughtful, human-first use.
A concerning prediction Bernholz had this year regarding AI safety: “Donors have sued nonprofits over data breaches. If I were still making predictions, I’d put this down for 2024: A donor will sue a nonprofit for releasing their confidential information to outsiders via the use of an AI-enabled software product.” Nonprofits are trusted to protect the sensitive data of their donors, and a failure to do so—particularly through new technologies like AI—can lead to long-lasting legal consequences that would drastically affect the specific nonprofit involved, and also cast a long shadow over the sector’s ability to safeguard donor data.
The concerns extend to AI-powered software used by nonprofits. It’s up to software providers to ensure that AI functionalities uphold ethical standards, preventing the introduction of bias or inequity. These providers need to adopt responsible AI policies that guide their implementation of AI throughout their systems. Nonprofits should be inquisitive and curious about how the guardrails their software vendors place around AI—as their own credibility and trustworthiness for using those tools is on the line.
A deepening commitment to trust-based philanthropy
Trust-based philanthropy has been gaining traction as a philanthropic approach that emphasizes relationships with grantees, prioritizing multi-year support and unrestricted funding. This approach is grounded in the belief that nonprofits know best how to allocate resources effectively to meet their missions, without the restrictive oversight that typically accompanies traditional top-down philanthropy models.
While most funders agree with the ethos of trust-based philanthropy, many struggle to put that ethos fully into practice. Doing so involves shifting strategies and investing time and effort into building stronger relationships. It can be a lot of change management, and the payoff isn’t instantaneous. Trust-based philanthropy takes patience.
The grantmakers that have fully implemented trust-based philanthropy are proving its value and setting an example for other organizations to follow. Today, community members expect to be a part of the decision-making processes. They are holding funders to a new standard.
Since trust-based philanthropy often involves less stringent reporting requirements and advocates for greater autonomy for grantees, it can be difficult to quantitatively measure outcomes and prove the efficacy of this approach. Critics argue that without traditional accountability measures, a trust-based approach can become little more than a feel-good exercise, lacking in tangible, measurable results. As Pia Infante, one of the founders of the Trust-Based Philanthropy Project, said to the Chronicle of Philanthropy, “We’re seeking to demonstrate more and more that trust-based philanthropy is an effective and strategic philanthropy, not just a ‘nice guy’ philanthropy.”
For trust-based philanthropy to expand and gain more widespread acceptance, advocates will need to develop methodologies for assessing its impact. This could involve more qualitative assessments, case studies, or longitudinal studies tracking the long-term effects of such funding on community outcomes.
One way to get those results? Build deeper relationships. In fact, relationships are so critical to trust-based work that if the founders of trust-based philanthropy had their way, they would have named it “relationship-based philanthropy” instead.
As Shaady Salehi, director of the Trust-Based Philanthropy Project, told us, “The misconception of trust-based philanthropy is that you’re just writing a check and walking away—but actually, no. It’s a mutually beneficial experience where funders actually get deeper information about what’s going on, getting deeper learnings about the work.”
As trust-based philanthropy becomes the new standard, aim to build deeper relationships within your community. If you’re not sure where to start, learn from the organizations who’ve made the transition. And if you’re already on your trust-based journey, look for ways you can help other organizations do the same.
Create predictability in an unpredictable time
As we navigate the uncertainties that each year brings, the lessons from our past reveal a clear pattern: resilience and innovation are both key to not just surviving, but thriving. And to be successful over the long term, we must be always looking forward and backward, pulling those lessons from the past into the future.
Nonprofits must lead with courage and vision in these unpredictable times. Now is the time for organizations to champion innovative practices that not only address immediate needs, but also build long-term sustainability. By doing so, they can weather the storms of uncertainty, and emerge stronger, more impactful, and more aligned with the communities they serve.
In times of unpredictability, it’s not just about responding to the next crisis, but a chance to redefine what it means to be a resilient nonprofit.
Hsing is a content marketer and ex-journalist who writes about tech, DEI, and remote work. Beyond the screen, she enjoys building custom mechanical keyboards and playing with her dog. You can find more of her work at hsingtseng.com.