FYI Blog

Pay Attention to That Canary in the Coal Mine

A few weeks ago, in his first day as the new Federal Reserve Chairman, Jerome Powell watched the stock market drop nearly 1,200 points.

That day was memorable for me, as well—but for other reasons. That market plunge took me back to 2007 when the housing market imploded and the Great Recession began.

Back then, many nonprofits circled the wagons—cutting acquisition programs and scaling back marketing outreach in an attempt to conserve much-needed resources and prepare for an unpredictable economy.

What sets today’s financial turmoil apart from the events of 2007 in terms of fundraising is that now we know the signs to look for: the canaries in the coal mine that alert us to be proactive and help our clients insulate their programs from the short- and long-term effects of economic volatility.

When the last recession hit, the first impact after the stock market drop was that major donors put the brakes on their support, having been the first to feel the pinch of the contracting stock market. Next, nonprofits began to protect their resources – most significantly by pulling back on acquisition investment. Interestingly, lower-dollar individual donors contracted much less significantly, often outperforming other parts of the file.

Revisiting several Avalon clients’ master file analysis slides from that time, we see a dip around the Great Recession in both number of donors and revenue—but most importantly in the number of new donors. Most clients cut acquisition, only to spend years painstakingly reinvesting to restore growth. It was a bit of a slog.

Some weathered the storm better than others. For example, the League of Women Voters had learned from program declines after 9/11, when they cut acquisition for six months, and vowed in 2007 to reinvest faster. LWV got back in the mail sooner and doubled down on investments, gaining enough momentum to recover much faster than other organizations whose files were decimated by the Great Recession.

Today, we need to be proactive to protect our programs from the ups and downs of the economy. This means watching for those canaries in the coal mine—most importantly, monitoring your major donor behavior, because their pulling back can be a harbinger of what is to come. And start talking to stakeholders now about the importance of staying the course with acquisition, to avoid the financial consequences of short-sighted cuts in investments. Because given the current political and regulatory climate we’re in with this administration, there will be many more volatile days to come.