by Mal Warwick

Practically everybody in the nonprofit sector is talking about the impact of the fast-spreading worldwide recession on fundraising. There has been a flood of articles, workshops, lectures, blogs, and other commentaries on the topic in recent months. Most of it, in my humble opinion, is little more than opinion-mongering.

To weigh in with a logical analysis and some practical suggestions, my colleague Dan Doyle, CEO of Mal Warwick Associates, and I have written a new paper called “Fundraising in Tough Times”. This analysis takes an unorthodox approach to the topic and includes some advice that many people in the direct marketing field will probably think is heretical.

If you want a fresh perspective, read on. We’re not just going to drown you in statistics or regurgitate the familiar advice you’ve read elsewhere.

How a recession can undermine your fundraising program—and what you can do to combat it

Key Thought: Nobody can predict our economic future. But there are simple steps you can take to ensure that your organization will suffer the least possible damage in this recession–and emerge healthy and poised for renewed growth when the economic crisis has passed.

Let’s cut to the chase.

Our economy is in bad shape, and getting worse. Most informed observers think that the deterioration will continue, perhaps for a long time. So, what can we fundraisers do to minimize the impact on our organizations and maximize our income during this difficult period?

What can we learn from economic history?

Three relevant and overarching questions stand out clearly in the tsunami of recent commentary about the prospects of fundraising in today’s economy:

a) The U.S. economy goes through ups and downs with remarkable frequency—sometimes, like now, with great suddenness. Like clockwork, however, the ups have invariably led to downs, and downs to ups again. The real economic question facing us now is how severe will be the suffering from our current difficulties, and how protracted.

b) During the past three decades, economic reversals have merely slowed the steady growth of philanthropy in the USA. From 1967 through 2007, the average inflation-adjusted rate of growth in giving was 2.8 percent in years of economic recession and 4.3 percent in years of economic growth. (There was only a single year, 1987, when giving actually declined, and that was by just one percent.) However, the question today is whether the current collapse of global stock markets and the U.S. housing market will lead to something much more severe than a recession like those we’ve experienced since the 1970s—something much more like the Great Depression of the 1930s. During the early years of that tragic time in our history, according to the limited data we have available, giving did indeed decline sharply.

c) Experience—largely anecdotal, but compelling nonetheless—makes clear that economic contractions have affected some sectors of the nonprofit world far more dramatically than others, and that some types and channels of giving have been more acutely impacted than others. Today the question is whether an intelligent response to the economic crisis should vary from sector to sector (say, education as compared to healthcare) and from channel to channel (major gifts compared to direct mail, for example).

There are no obvious and compelling answers to any of these three questions, and if anyone—whether practitioner, academic, or self-appointed pundit—pretends to know the answers, we suggest you head for the hills. Futurists and prognosticators of every stripe, professional and amateur alike, have an abysmal record. We prefer instead to take a page from the playbook of major corporations, government agencies, and venturesome nonprofits: the use of scenarios to envision possible futures.

Three scenarios for economic recovery

Simple logic suggests that, broadly speaking, there are three possible financial futures in store for us: things get worse, things stay more or less the same but gradually get better, or things get better quickly. Let’s take a quick look at each of these three alternative futures and how they might affect our work as fundraisers.

Scenario A: Misery Loves Company

It’s 2011, and economic conditions worldwide continue to be gloomy. The bugaboo of inflation has long since fled the scene, with prices for many products falling in the face of continually declining demand and flagging world trade. The U.S. economy is struggling to contain unemployment at 15%. Viewed in historical terms, stock markets around the world are hovering near their all-time lows, though optimists read the signs as pointing to economic recovery within two to three years.

Giving USA 2011 is widely expected to disclose the third consecutive annual drop in philanthropy. Recent reports from the United Way, the American Red Cross, and other prominent nonprofits suggest the fall-off in total giving may be as much as 10%, equaling or even exceeding last year’s record decline. Last year, for the first time ever, the number of nonprofit organizations registered under Section 501(c)(3) actually shrank, and that trend is predicted to accelerate this year, as the accumulated impact of three years’ declining revenues takes its inevitable toll.

Scenario B: On the Road Again

Now, late in 2010, the proverbial light is shining brightly at the end of the economic tunnel. The Standard & Poor’s 500-stock index has been moving steadily upward for months now, anticipating—and reinforcing—the psychological impact of steadily more positive reports of reduced unemployment, stabilizing wages, and recovering export revenues. In many developing economies conditions are still grim, but the leading U.S. trade partners—Canada, Mexico, Japan, China, and the European Union—are showing strong signs of renewed economic health.

After a period of stagnation in 2009 and early 2010, philanthropic revenues are rising in response to the brighter economic outlook, renewed consumer confidence, and rising personal income. The more venturesome observers of the nonprofit sector are now predicting a strong year-end finish for the nation’s nonprofits, and an even brighter year ahead in 2011.

Scenario C: Happy Times Are Here Again

Proving once again that fear can feed on itself and reach truly irrational levels, all signs now in May 2009 point to renewed economic growth following just three quarters of what economists are now terming a mild recession. Resolute government action, much of it internationally coordinated for the first time in history, is  credited with the predicted turnaround.

After lukewarm year-end results in 2008, giving is now clearly on the rise. The widely feared collapse in foundation giving and major gifts has not materialized since financial markets stabilized late in the year, restoring trillions in lost investment value. Response to direct marketing appeals, which was better than expected in December and January, is returning to historically more familiar levels. Even response rates in direct mail prospecting are looking healthier.

These three scenarios represent the logical extremes of the future we may expect to unfold in the months ahead. They’re not predictions. They’re landscapes against which we can examine a range of possible options for fundraising strategy as the year 2008 draws to a close.

So, for simplicity’s sake, let’s examine how three different approaches to fundraising might fare in each of  these scenarios—approaches we might characterize as Defensive, Selective, and Aggressive.

next week: Three Possible Fundraising Strategies – Defensive, Selective, and Aggressive

Mal Warwick is the Founder and Chairman of Mal Warwick Associates.