Well, it means that if you are in a crisis, this is the best time to make changes – especially those things that have been most difficult to change in the past.  For this reason President Obama is moving quickly on many fronts:

• Financial regulation
• Health care
• Early education & child care
• Negotiations with countries in the Middle East

…and the list goes on….

For nonprofit leaders, it does seem counter-intuitive to tackle big changes at a time when your organization is facing financial problems; yet, that is the best time to do it.  To understand why, we need to understand the variables in this change formula:

Change = D x V x 1st < cost

Michael Beer at Harvard developed this formula, which states that for change to happen, one needs to have D (high dissatisfaction with the current situation or condition) as well as V (a vision of how things might be better in the future) and 1^st (the first steps to move one from dissatisfaction to that vision of the future).  And, the cost (emotional, energy, financial, etc.) of doing this must be perceived as being less than the cost of staying as is.

What makes today a great time for change are the first and last variables of the formula.  Most people are dissatisfied with the current economic situation and the dissatisfaction is high enough to make staff, board and volunteers more accepting of a potentially high cost of making the change.

Now is a good time for making major change in a nonprofit because board and staff leadership do not need to convince people it is time to make a change – they understand why the times demand that organizations cannot operate as they always have. 

This heightened awareness also increases the perceived cost that people are willing to take on to make the change happen.  They will expend more time, money and energy in order to get to a better place – that is, the vision provided by the leaders.  In other words, staff and volunteers will cooperate more readily with leadership to make change happen.

So this dynamic is what people mean when they say “never waste a good crisis.”  It is all about willingness to make change if you believe that there is a big problem.  This is a great time to make those changes that leadership has been unable to make during good times.

What other factors make this a great time to make change?

Foundation endowments are not worth what they were a few years ago and are not generating the same level of returns.  Many foundations determine the amount they will give away each year on a rolling three-year average of the value of their endowment.  So even as investments (stocks, bonds, real estate) start to rise, the amount foundations can give away lags behind the market recovery.

Foundations are also changing the ways they typically grant funds in response to a smaller pot of money.  Three typical responses are:

• Cut funding to all grantees across the board by the same amount
• Focus the funding on a few targeted areas where the foundation wants to make a difference and stop funding the rest
• Do a combination of the above strategies

As for individual giving, it has remained somewhat flat (an overall 3% decline) during this past year.  What makes this statistic somewhat misleading is where the decline has occurred.  Giving has continued to be flat or, in some instances, growing with religious institutions. Translation: the decline has been deeper in the rest of the nonprofit sector.

One problem area is with large donors who have reduced their giving because it has typically come from their investments (which are down) rather than from their current income.  This decline in investment gifts (I would guess that there is a similar trend with planned giving gifts) has hit nonprofits hard.

Finally, government budgets are being stretched to the limit and annual contracts with nonprofits are necessarily less.  One ED complained, “They want me to do more with less money, as if I have a bunch of reserves somewhere!”   This last comment speaks to the perfect storm.  At the same time funding is down, the need for services is on the rise.

Given the current funding environment for nonprofits, the million dollar question facing those in the leadership hot seat is: “What should we do with resources down and demand for our services as great as it has ever been?”

The answer, as I often find, may be counter-intuitive.  While many are hunkering down, sticking to their knitting, and hoping that the perfect storm will pass and they can come out the other side, I think that an organization may be able to actually attract resources at this time by being bold, standing up and calling attention to themselves.

How to be bold?  Here are three things I think the successful nonprofit needs to do to distinguish itself to funders and investors:

1. Show that your organization’s work is making an important difference in the world. This means you need to have the capacity to document what outcomes are being achieved through your efforts, not just what you hope to achieve or what activities are performed.  If you have been doing some outcome evaluation all along, you are well positioned to make a strong case for getting more resources.  If you do not have this information related to your programs, start compiling and analyzing data as soon as possible.  Don’t forget that sometimes you have the information available; you just have not pulled it together.  So you may not be starting from scratch.  One nonprofit I work with does an outcome study once a quarter and extrapolates from that study to identify outcome numbers.  This saves them from having to count outcomes all the time.
2. Demonstrate that your organization is relevant today. This means that you are not living on past relevance, but that you are a good fit with the issues that people are facing today.  To demonstrate this you will need to show a considerable demand for what you do among a constituency in need.  The need that your organization is addressing should be widely recognized, understood, and significant.  This will make your case for being relevant powerful.  To illustrate your relevance you can show that you are filling a gap that others are not meeting or that you are addressing an issue in a unique way compared to others.  One ED told me that in order to prove relevance, he pulled together an advisory group of clients/customers to make certain that he was always addressing their most important needs.
3. Prove that you are flexible enough to change in response to your environment. This means that you are willing to constantly look at what you do and how you do it, and consider doing things differently.  An organization that is willing to refine its program model(s) on a regular basis in order to provide services as efficiently and effectively as possible, demonstrates that board and staff leadership is focusing on accomplishing its mission and takes very seriously its stewardship responsibilities. 

If an organization shows that it pays attention to the above, it will distinguish itself in the eyes of investors who have to make difficult decisions about where to put their precious money.

Does this fit with your view of what investors are thinking?