As Economy Struggles, Nonprofits Must Get Creative 

With donations and grant funding down, charities turn to "social entrepreneurship" to help pay the bills.

Times are tough. But for organizations that survive on generosity, grants, or discretionary incomes, times are downright bleak. "I'll sum it up for you," said Peggy Bush about recent Bay Area giving trends. "Down, down, farther down, down."

Bush is the executive director of Vital Life Services, a nonprofit organization that offers a range of programs to East Bay residents living with HIV/AIDS and other critical illnesses. "We have longtime donors calling us saying, 'We're so sorry, but we can't afford to give this year,'" Bush said. Meanwhile, foundation grants are disappearing and government funding has decreased every year for the last five years. "You can't depend on it. It's a shrinking pool and a bureaucratic rat trap."

But there is hope amid the storm. Some foundations are giving more, despite the recession. And others, like Vital Life Services, are taking steps to ensure their survival before closing doors becomes imminent. After all, going under is not an option for Bush, a kind-eyed woman with a loud voice, strong laugh, and undeniable charisma. But with every segment of her group's donor profile dropping by the day, Bush knew she needed a plan. So Vital Life Services is going to barbecue. If it works, her plan will be the key to the charity's survival.

"Q," a mobile barbecue and catering company that sports the slogan "finger lickin', world changin' good," will debut in coming months. "We've got this planned down to a gnat's eyelash," Bush said of Q. With all-natural chicken, a fabulous recipe, and a passionate pit master, the new business will give 100 percent of its proceeds directly to Vital Life Services. According to the group's business plan, Q will allow Vital to become less dependent on giving trends by generating an estimated $200,000 per year, a substantial portion of the group's $750,000 budget. The catering arm of the business is up and running and efforts are underway to raise the $125,000 needed for the mobile unit.

Such "social entrepreneurship" has long been a buzzword among nonprofit trendsetters and community-conscious business folks. But now, more than ever, social entrepreneurship — the creation of a for-profit business to support a cause or nonprofit organization — may mean the difference between life and death for some of the Bay Area's nearly 40,000 nonprofits.

More than a year ago, development experts began to theorize about what would happen to charitable giving if the United States found itself in the midst of a full-blown recession. Unfortunately, many of those doomsday predictions have come true. As profits fell, corporate giving shrank. Foundations cut back grant making because assets and returns on endowments took a nosedive. And individuals began giving less, citing unemployment, economic insecurity, and even previous giving to the Obama campaign as reasons for keeping purse strings tight. Bankruptcy or dissolution has already reached the doorsteps of many Bay Area nonprofits.

Although no one appears to track statistics on the number of nonprofits closing, examples are everywhere. The American Musical Theater of San Jose went under in November, choosing to use the bankruptcy code rather than dissolve, as most nonprofits do. Copia, Robert Mondavi's organization dedicated to fine food and wine in Napa, also collapsed after accumulating more than $78 million of debt. And countless others are beginning to consider cutbacks, layoffs, and mergers.

Sadly, the outlook for the future remains grim. Foundations in the United States have reported losses as large as 30 to 40 percent in the last 18 months, which means they are "cutting back hugely in their giving," said Jan Masaoka, the director and editor in chief of the online nonprofit news site Blue Avocado in San Francisco.

In 2009, foundations will be required by federal tax law to pay out 5 percent of their asset value, as calculated on December 31, 2008. Since values slid so sharply in the last quarter of the year, cuts are inevitable. Yet, there are foundations stepping up their giving, despite the economy. The Bill and Melinda Gates Foundation, the nation's largest, announced last month that it would increase giving to 7 percent of its assets, despite a 20 percent drop in value. More than 50 other foundations have already committed $100 million in grants related to foreclosures, food banks, and homelessness.

No genre of nonprofit has proved impervious to the pinch, but experts say that art and culture organizations will likely be denied funds first as donors rally around health and human services during these tight times. "Human services feel the most crunch because as funds dwindle, demand goes up," Masaoka said.

As the news out of Washington remains dim, the nonprofit community awaits any sign of progress and change from the Obama administration. But some say Obama himself is partly to blame for the lack of contributions from individual donors, thanks to his undeniably successful social marketing efforts. In total, 3 million donors gave more than $500 million to Obama last year. His average donor gave more than once, in increments of $100 or less.

"I gave $100 to both the children's museum and the rape crisis center in 2007," said Wendy Cline, 41, a nurse in Berkeley, who said she gives regularly to charity. "But in 2008, Obama got all of my donation money."

Fund-raisers throughout the Bay Area say they've heard that claim repeatedly from donors. "To some extent I'd say it is true," Bush said. "But in a lot of cases, I think people just reached deeper and gave more, so it wasn't a straight bleed."

Carol J. Silverman, director of research at the University of San Francisco's Institute of Nonprofit Management, believes this complaint betrays flawed thinking. "In the past, assumptions like that have been proved wrong. They said it about Tsunami giving, Katrina giving, and now Obama. But it just doesn't work that way."

On the bright side, the Obama camp can be credited with changing the culture of giving in America. And now, smaller groups are experimenting with social marketing through online groups like Facebook's Causes section, which boasts 12 million users supporting more than 80,000 nonprofits worldwide. In 2008, the section's first year on Facebook, reports indicated that more than $2.5 million was raised for 19,445 charities.

Increasing visibility online could delay a cash hemorrhage within a struggling nonprofit, but won't necessarily stop it. So, it may just be that desperate times do in fact call for barbecue.

Q has already breathed new life into Vital Life Services, which recently moved into the building that once housed Your Black Muslim Bakery on San Pablo Avenue in Oakland. Kurt Zimmerman, who purchased and renovated the building, has been a benefactor of Vital for more than twenty years. "Where others saw disrepute, we saw opportunity," Zimmerman said recently in a video statement. That ability to create opportunity for itself, be it in real estate or in BBQ, will likely be what keeps Vital Life Services alive.


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