Good Lessons for Nonprofits from a Bad Economy

By Randy McCabe

A bad economy can be one of the best things to happen to your organization. That seems paradoxical, but times of constraint – when revenues fall or simply do not meet budgeted expenditures – force hard decisions that do not even seem like options during periods of prosperity and largesse. Samuel Johnson, the celebrated 18th century English author, once said, “There is nothing like the prospect of being hung in a fortnight to concentrate a man’s mind.” Limitation breeds creativity and innovation that can result in a more efficient, better run organization that serves more people and generates stronger impacts.

This economic downturn has affected nonprofits quicker and more painfully then previous episodes. Two key factors have combined in a sort of perfect storm that has slowed giving at every level, from small to major donors.

First, the housing bust has produced equity losses across property and the markets, and tightening credit has restricted access to money. This has the largest direct impact on the major donor end of the spectrum, as well as foundations and some government programs.

Second, the dramatic rise in food and gas prices directly impacts a donor’s cash flow on a daily basis and, in turn, ability to donate. These are not just paper losses, but instead, significantly increased basic living costs. When that is compounded with the inability to get cheap credit and the sense of diminished wealth, it is not surprising that one of the first things people reduce or eliminate entirely are charitable contributions.

As a nonprofit organization, it is easy to feel helpless in these conditions as you watch response rates, average gift and total revenue decrease. Most smart organizations are realizing they need to cut costs, while at the same time continue to invest aggressively in fundraising, especially new donor acquisition, to mitigate rising attrition rates.

There is a powerful opportunity here. With the limitation of lower revenues and the pressure to cut costs, this is a perfect time to innovate around your operations and systems costs, while still funding programmatic activities and, yes, increasing investment in donor development.

In recent years, organizations from Fortune 500 companies to the U.S. Navy have been broadly adopting open source software. This shift has provided numerous benefits, with one of the most important being a 40-70 percent reduction in software and associated costs without a loss in reliability or functionality (For detailed breakdowns on how to compare costs that validate these savings, see the Canadian Government study at http://www.tbs-sct.gc.ca/fap-paf/oss-ll/foss-llo/model-eng.asp and David Wheeler’s often cited paper on free and open source software at http://www.dwheeler.com/oss_fs_why.html#tco). Organizations using open source software don’t pay licensing fees and gain greater flexibility and freedom to tailor their systems to meet specific needs because these solutions enable a user to modify the software’s code to create the exact functionality he/she needs for his/her organization.

If you could reduce software and systems costs by 40 percent or more over the next 12 months, you would have the freedom to reinvest those savings where it is most needed, for example, underfunded programs and services. You could alleviate all sorts of budget shortfalls during a period of declining revenues due to less giving.

The city of Washington, D.C. recently switched all of its desktop computer applications from Microsoft Office to Google Apps and Open Office, two open source (free of charge) solutions that can open, modify and save documents in the Microsoft Word, Excel, PowerPoint and other formats. This has saved the city millions of dollars in licensing fees each year.

Really, it all comes down to a basic principle of physics, which tells us that efficient systems are based on the concept of not wasting energy by attempting to focus energy inputs directly toward energy outputs. That is why the model that savvy governments and leading companies have migrated to is one where you get the platforms and software for free, and invest your money instead in the activities that deliver results.

As innovation and technology help us all become more efficient, it is a natural evolution for nonprofits to stop forking up money for software licensing fees and instead invest those dollars in fundraising and campaign execution where it can actually produce results.

Your constituent relationship management (CRM) or donor management software should be at the top of your list for change. The huge upfront investments and significant ongoing costs required by proprietary vendors are dollars that can and should be spent on programs or actually executing fundraising campaigns. Moving to open source software and flexible systems is a creative, tangible and immediate way for today’s nonprofits to both cut costs and free up dollars to re-invest in programs, services and fundraising.

The limitations and challenges that a bad economy foists upon us are often the catalyst to the breakthroughs that create significant and lasting change for the better. Nonprofits should seize this opportunity to embrace innovations like open source software that are becoming the standard for the future.

About the Author

Randy McCabe is the founder and CEO of MPower, which provides the most open, flexible, and powerful suite of software and services for fundraising and constituent relationship management for today's nonprofit. For more information and also to download and begin using MPower without licensing fees, please visit www.mpoweropen.com