As a strategist, I’m often asked by colleagues for my ideas and predictions about “the next big thing.” When I was younger I answered this less from expertise than from an internalized obligation to prove my value. Yet age has taught me I’m not an oracle: for one, I definitely did not see Covid-19 coming! And wow, do those few people who, in April 2020, accurately predicted the outcomes of the pandemic have an amazing crystal ball.
Nevertheless, I’ve learned a bit over the years about planning ahead. To start, there’s rarely one Big Thing. Rather, many things unfold in parallel; we don’t know for sure what will stick, so our job is to plan for multiple scenarios within dynamic and rapidly evolving social, economic and political landscapes. Also, we commonly assume the next Big Thing will be tech based, but this isn’t necessarily the case. For instance, the long-overdue acknowledgment and pursuit of DEI initiatives has nothing directly to do with technology.
As we look ahead to 2022 and beyond, a number of intersecting trends are creating urgency for nonprofits to start (or continue) experimenting with new, innovative operating models. In this post, I’ll share a brief overview of these trends, as well as concrete ideas for how your organization might consider adapting.
The likely challenges we face
In spite of hopeful signs in the collective global response to the pandemic, nonprofits continue to experience many dramatic shifts in their competitive environment. The resilience and openness to change that characterized our sector in 2020 and 2021 will continue to serve nonprofit executives well in responding to the following:
Mergers and consolidation in distressed parts of our sector
The pandemic, its related social and economic challenges, and the racial reckoning of the past 18 months have had a dramatic but uneven impact on nonprofits. Some organizations have seen increased demand and funding, while others have suffered from a change in donors’ priorities. Particularly in parts of our sector that have faced bigger setbacks—for instance, educational institutions and arts organizations—we are likely to see a shakeout that involves groups folding, merging or consolidating in response to continued financial distress. Take, for example, a recent merger between the two philanthropies that fundraise for San Diego’s beautiful Balboa Park. Or mergers between these two pairs of local United Way chapters.
A potential winnowing in organizations receiving high-dollar investments
We’re noticing interest among philanthropists in giving larger amounts of money to a smaller group of nonprofit grantees—usually with an eye toward making a more immediate impact on issues requiring an urgent, and big, response. In particular, these philanthropists are targeting “high-impact” organizations that have a demonstrated ability to handle the operational weight of big-ticket investments. Meanwhile, grant seekers that lack the capacity to effectively manage a large influx of funds may lose out on opportunities—as well as those that do not present ideas and ask for the major investment.
The MacArthur Foundation and its 100&Change initiative are at the leading edge of this trend. Many social problems are too large to be solved by grants at the size that foundations typically provide. In response, the foundation launched a competition for $100 million to be awarded to a single grantee to achieve transformational impact in a critical issue area (e.g. homelessness; racial equity, refugees). This initiative and increased interest from among ultra high-net-worth donors who want to fund cutting-edge ideas led to the creation of Lever for Change, which unlocks fresh capital investment —all thoroughly vetted by a trusted partner—without the donors having to start their own foundations. A similar approach to funding a small number of targeted organizations is being deployed by the Bezos Earth Fund.
Incursion of the private sector into social change issues
Many big private sector companies are steering heavily into social issues long championed by non-profits—but with a speed and agility most non-profits (as of today) will never compete with. At the same time, the social enterprise sector continues to grow, driven by the desire to solve pressing social problems through market-based solutions. Neither is a bad thing: Given the herculean levels of innovation and change required to get to net-zero carbon emissions by 2050, for example, all hands must be on deck (indeed, a UN partnership has predicted that 70% of the investment needed to meet net-zero goals could come from profit-seeking investors!)
The impact of this growth in private investments is uncertain for the nonprofit sector. Will funding continue to pour into the 501c3 space as it always has? In the world of nonprofit medical research, we mostly see venture philanthropy complementing (rather than upending) nonprofits’ more traditional focus on basic scientific research, giving drug companies access to a new funding source for early stage trials. The presence of a financial bottom line can lead to a results orientation that is in many ways welcome. And venture capital has a history of tolerating lots of risk in its search for a world-changing win—helpful for overcoming the nonprofit sector’s natural risk-aversion. Yet there are tradeoffs too; nonprofit leaders will need to watch these market movements carefully.
Intense competition for top talent
An exceptionally strong labor market is making it harder for some nonprofits to retain their highest-performing employees—many of whom are burned out after a long pandemic period of operating in “survival mode.” Fierce competition for talent will continue. Nonprofit HR teams have always struggled to compete with the compensation packages that private businesses offer, but their challenges are now compounded by growing competition from companies expanding their social and environmental initiatives.
Growing expectations for seamless digital experiences
We’ve written often about how the pandemic has hastened a digital revolution, not only within our organizations but in our personal lives. We spend more time online than ever before. This means that our stakeholders expect quick, friction-free digital experiences—just like the ones they get from their favorite private sector brands. This demand is not going to shift. And it applies equally to employees and their experiences in the increasingly digital workplace.
The emergence of Web3 technologies
Web3 is the emerging term for a plethora of technologies that are based on public blockchain. “In a Web3 world,” writes NPR, “people [will] control their own data and bounce around from social media to email to shopping using a single personalized account, creating a public record on the blockchain of all of that activity.” In the process, they get to sidestep big tech giants like Facebook, Twitter and Google. Buoyed by cryptocurrencies and the rise of NFTs, Web3 technologies are bound to grow in the coming years; nonprofit leaders will have no choice but to stop and take notice.
Potential strategic responses to these challenges
Effectively responding to these challenges requires that nonprofit executives be willing to consider bold new approaches—ones that, in many cases, deviate significantly from the status quo in our sector. While specifics will vary by context, below are strategies worth considering to boost organizational capacity and secure long-term resources to support your mission.
Invest in your organizational capacity
As funders increasingly require robust, scalable operations in exchange for big-ticket investments, your power comes from building a strong culture of operational excellence. In order to grow the business, you have to run it like a business—not just in programmatic work, but across the board. This is especially true for organizations that have central departments that support multiple programs. Communications, finance, development and IT all exist to facilitate the impact of programmatic work. None exist in isolation, and this should be recognized with greater investments in coordination, both in terms of team cohesion across departments, and in strategic technologies that support digital transformation throughout the organization (rather than better software tools for their own sake).
Create an internal incubator for new ideas & programs
Many nonprofits struggle to develop fundamentally new approaches to serving their constituents, due to pushback from funders or risk-averse cultures. Yet fresh ideas are critical for success as our organizations face growing demands with limited resources. One way savvy nonprofits can boost innovation is by embracing an “incubator model”: creating a specialized container, set apart from normal business operations, to build out new programs or business offerings. Empowered with unconventional autonomy, flexibility and resources, groups operating within the incubator are able to innovate and test out new approaches without hitting the familiar wall of “we don’t do things that way here.” Successful ideas and programs can either be adopted by existing units, or launched as independent, affiliated organizations, like Lever for Change in the case of the MacArthur Foundation. (For more guidance on how to launch an incubator or innovation lab within your nonprofit, check out this helpful resource.)
Partnerships offer an opportunity for two or more groups to work together toward a shared mission, without legally merging distinct organizations. Lower in risk and complexity than an acquisition, partnerships can be particularly effective in areas where nonprofits’ skills and expertise are complimentary, rather than redundant.
It’s likely that you and your nonprofit already collaborate with many like-minded entities. Can you expand your reach, save administrative costs, improve services, or strengthen your brand by strategically partnering with another organization whose work is aligned with yours—or by deepening an existing partnership to unlock even more value?
In our client work, we often reflect on how direct service nonprofits would benefit from greater strategic access to the expertise of think tanks and policy organizations—and, likewise, how the relevance and impact of policy groups is strengthened through deeper working relationships with implementing organizations. Likewise, we believe more nonprofits would benefit by considering joint applications for grant funding. Why compete ruthlessly for limited philanthropic dollars when you can stand shoulder-to-shoulder with partners that have complementary areas of expertise, potentially securing more financial resources for both organizations in the process?
Consider strategic acquisitions
Mergers and acquisitions are common in the private sector, but not to the same degree in the mission-driven space. Many smaller, niche nonprofits likely won’t have the wherewithal to survive the intense fluctuations expected through the next five years. Yet other organizations, capable of surviving independently, would benefit greatly from the additional resources, energy and operational support that can come with a strategic merger. By absorbing the capacities of a like-minded group, organizations can expand their reach and impact without necessarily duplicating successful programs that already exist on the ground. Moreover, acquisitions help nonprofits get a running start when entering a new geographic region or program area, sidestepping some of the start-up lag that often comes when building a new internal capacity from scratch.
Assuming there’s strong mission alignment, the biggest issues in bringing two complementary nonprofits together will be cultural. For example, does one have a start-up mentality, while the other is more hierarchical and risk-averse? Do the Executive Directors have complementary outlooks and personalities? Differences aren’t necessarily bad, but they need to be carefully managed. An external consultant can often be helpful in bridging divides, bringing people together, and working through legal and logistical barriers.
Cultivate a marquee event that positions you as “the convener”
While many nonprofits halted in-person events and conferences during the pandemic, competition in our sector remains fierce for the time and attention of decision-makers. And for good reason: through their convening power, hosts get to act as the “glue” in the relationships of their key stakeholders. Thus, they benefit from an intangible flow of ideas, resources and connections that results in long-term value creation.
Is there a way to leverage your existing events machine to create something bigger? For inspiration, consider the World Economic Forum: it was a single event before becoming WEF, an independent organization that pumps out research reports and policy content, and hosts summits far beyond the scope of an annual meeting. Your organization may be local, or much narrower (and humbler) in its scope. Still, there may be an opportunity to expand or sustain the momentum of your marquee convening beyond its traditional bounds.
Keep a close eye on new technologies
In 2006 I signed up for an “online desktop interface” called gooey. I could not even find a link anymore for this service. The point is that, in 2006, local desktop applications were still the dominant paradigm for how we worked. Today, other than the pre-installed Apple applications, I do not use any local “desktop applications” and imagine you are using very few as well.
Web3 is not yet well understood and certainly not the dominant paradigm yet. But just because the space is volatile at the moment doesn’t mean it is not moving forward; rather, it is just finding its legs. At a minimum it is worth spending some time reading about what is happening in this space to get a better handle on what is being built. There are marketplace and publicity advantages for early adopters as well. Consider the first non-profit to accept crypto or use an NFT for a fundraiser? The world will hear about it, regardless of the longevity of either tool as a funding mechanism. Additionally, getting your digital asset house in order is something you can do now, and will serve you well today and into the future.
At the same time, we need to remember that new technology is intended for one specific purpose: to make our work more effective. If you end up working in service of a technology, or wondering why you are not gaining value after a year of use, it’s time to consider if you have the right tool. New is not always better—the hammer has been around for a really long time, and it is still amazingly effective at getting a nail into just the right place when hanging holiday lights!
A call to embrace more innovative operating models
One thing we know for sure: the future will continue to be complex, and require a nimbleness and flexibility that’s often challenging for large, long-established nonprofits to muster. As professionals who care deeply about the success of our mission-driven sector, we see an urgency in nonprofits overcoming our sector’s temperamental resistance to change, and embracing more innovation in how they execute strategy. While it is not realistic for organizations and cultures to completely change how they do business overnight, charting a long-term path to transformation is a possibility for every leader.