Episode 113: 2023 Predictions in the Nonprofit Industry

It's wonderful to welcome you here to the year-end of 2022, looking ahead into year 2023 on "Around with Randall". And of course, I'm Randall. Today we're going to try to peek into the future a little bit like we do at the end of each calendar year to see if we can figure out what might be coming and how you can be prepared for it.

As I kind of prepared for this podcast in, I don't do a lot of writing, most of it's off the top of my head when I do the podcast, but I've got a note or two in front of me. I frankly got a little bit down. There's going to be some headwinds, in my opinion, in 2023, that are going to challenge us in the nonprofit sector. And by the way, probably just economically overall. And as I wrote down a couple thoughts I'm like, gosh there's a lot of negatives. The great thing about the nonprofit world, charity, and the work that we do is that we fill gaps, and when things get tough and maybe there are a few more gaps it's more opportunity for those of us as Leaders to plug in to our community and help those in need.

And today I'm going to start with where I usually finish my favorite saying, some people make things happen, some people watch things happen, and there are those who wondered what happened. You normally hear me say that at the end. I think 2023 is going to be the beginning of some conversations around how do our nonprofits, how do we as nonprofit leaders help those most in need? The love of mankind, the definition of philanthropy, and that's going to be challenging with maybe some of the things that are going to occur, and that's what I want to talk about.

Crystal ball, Karnak the Magnificent, to steal from Johnny Carson with my envelope from Funko waggle funkenwagglesport those of you who aren't old enough for like what's he talking about go watch Johnny Carson and Karnak the Magnificent. So let's start off. Let's get going. What are we going to be looking at in 2023? Let's start economically because I think that's going to play a large part. So when I talk about economics, I'm talking about inflation, and I'm gonna, that's gonna lead into issues involving the stock market, corporations, and things of that nature. And actually five different thing, or excuse me, four different things that come out of this idea of economic challenges.

First and foremost, inflation is going to continue to be an issue. We're seeing gas prices drop, which is terrific. But we're also seeing still immense challenges in the supply chain. Maybe you have a child or have a grandchild who's had a little bit of an illness. It's tough to get Tylenol for kids right now. All of this is leading to this conversation of inflation. So let me start with the big issue. I think because of inflation, in particular, issues involving basic necessities from housing unless you have a fixed-rate mortgage, to food, to possibly gasoline, more, one bad international incident from having gas prices go up quickly to clothing to all kinds of other things that we're going to see a drop in GDP, I think.

And when we get to the Giving USA numbers in June and July, August, we will look back and see it drop. I think we're going to see it drop maybe to 1.9, 1.85 percent of GDP. This last rating or time frame which we could look at was 2.11% the year before that. During the pandemic was 2.4%. I think we're going to see a drop. I think people are going to be less willing to give, in part because they're using the money for personal things. And so the largess, the intent is good but the application or the ability to give I think will be diminished.

Number two is I think that inflation is going to push individual opportunities for purchasing power downward and that's going to put pressure on corporations. And we're going to see a drop in the stock market. I don't think it's going to be terrible, but I wouldn't be surprised if it gets down to 28, 29,000 sometime in 2023, in part because businesses are going to start reporting out not as positive financial indicators, which means several things in terms of philanthropy. Number one, people will be less likely to give stocks because if they've lost money they would rather sell them and take the loss against their taxes. Number two, I think there'll be a drop in potentially corporate giving as they see less profits. They're going to start looking at cost cutting measures themselves, and philanthropy normally is near the top of that list. So we're going to have a challenge when it comes to both private individuals and corporations. I think this is an opportunity, if you're smart, to really leverage planned giving conversations as people are concerned about their own financial challenges. They tend to retrench a little bit on the economic front. They save a little more, don't spend this quite as much. They still have assets, and we probably need to work with our finance office, with our budget planning, with our our strategic planning to help them understand that planned giving may be one of our great opportunities to have people who want to make a difference in our organizations still be able to feel like they are. But it's delayed gratification, and unless you're doing something like a charitable remainder trust or something of our annuity, most likely most 90 some percent of the of estate gifts come from the bequests or specific intent out of someone's trust after they're gone. So the shift in terms of stocks and recession and other things maybe towards planned giving is, we see a decrease in the markets as well as corporate giving. With that said, I think one offshoot of, by the way if the stock market drops foundations also probably pull back a little bit because there were investment portfolios aren't as great, I think they're still going to be immense pressure. I'm not sure we're going to see it legislatively because of the confusion, which seems to be normal in Washington. But I think there's going to be immense pressure on donor-advised funds to start pushing out more money, that the timetable of well there is no timetable, no end date of a Donor-advised fund being able or being required to push money out into the community. Some don't advise funds. We've seen numbers, and I did a podcast on this recently with Community foundations of 200 billion dollars just sitting not sure what to do with it. I think there's going to be a big push. I'm not sure anything they'll get done legislatively, but we're gonna hear more about the pressure for individuals to relinquish some of those funds and Donor advised instruments and for Community foundations to be a little more aggressive on pushing people to do so as well.

Number three inside inflation, as we see some challenges in a decrease in philanthropy, that's going to lead to some cost cutting measures and it really is going to drive a conversation around nonprofits being more like for-profit businesses from a budgeting and planning perspective. And that's going to be hard on us because we're not good at that. In a lot of cases I think that there are going to be some hard conversations internally about the increasing inflation in employment, I.E, salaries and compensation. I talked about this in a blog that a couple of stories I found interesting is that we talk about 25 cents to raise a dollar. We try to keep our infrastructure or our operations as low as possible. Those operational costs may be higher just because of labor costs, and as a result there'll be some critical decisions to be made. There's a great nonprofit here in Omaha, Heartland Family Services, who has already announced for next year they're looking at a four to five million dollar reduction because they just know the money's not going to be present from Grants from corporations and from individual donors. I think we're going to see more of those kind of conversations internally, and then what that means for the community in terms of supporting those and most in need.

I think the fourth thing inside inflation, and this is more exclusively to healthcare maybe a little bit to universities. I think there's a chance in 2023 and if something doesn't change most likely, more more likely, I should say in 2024 where you may see some non-profit hospitals go bankrupt or go into bankruptcy for reorganizing their debt. We have a not a cyclical change going on in the healthcare, Financial areas. I think this is it's a revolutionary upending change and we keep reading about systems losing hundreds and hundreds and even billions of dollars and I don't see that changing. So there's a point at which you can't lose any more money so you're going to have a massive change.

I think the same is true in education, although with the student loan programs that allow an immense amount of debt for people which is another whole conversation. Usually when there's a down economy we see more people go to college. I'm wondering if that's actually going to be true and that's going to put a lot of pressure on small private colleges, so it's something to throw out there. I'm actually not really happy to say that, but I sense there's going to be some problems in healthcare and education in particular because they've been running on revenue streams that just don't exist anymore, and it's going to become a real issue particularly in the smaller non-flexible, maybe rural health or smaller colleges to be something for you just to keep an eye on. Inflation, big picture recession, potentially down stock market, corporate earnings down, that's going to lead to a lot of things including a drop in GDP uh for philanthropic giving, probably below two percent.

Number two, it's going to lead to less corporate giving, more, less Foundation giving, probably more pressure on DAFs to give out more money. There's going to be cost cutting inside of our nonprofits. And lastly we may see some go under, which is going to be trying. So that's the big number one. It's all about the economy and non-profit work. The others may be a little bit simpler.

Number two, overall, is I think there's going to be for the first six months a continuation of some really strong headwinds when it comes to employment in the nonprofit sector. That pay is going to be a big challenge in particular with gift officers. When Hallett Philanthropy published its study when it came to employment at the end of 2021 that was published all over the place we talked about that if there's going to be real pressure for gift officers to receive the kind of compensation that they deserve and then if they don't get it they're moving. And that's exactly what's happened, and I think that's going to continue. The only thing that might pull that back a little bit is, as if the economy continues to maybe sputter an employment, unemployment, excuse me goes up that means more people are forced into potential jobs where they may not have considered it if they have their choice everywhere. So there may be in the second half of the year more employees out there for nonprofits to pull from. And when there's more employees that usually means kind of a lessening of salary pressure. We'll see how that plays, but as inflation increases I think that's going to be something we may have more people to choose from, but we may have less money to spend which makes it a really interesting challenge from an economic perspective.

Number three is I think there'll be a dramatic increase, in particular, with climate kinds of philanthropy. I think that the drought in particular, and you look at the waters from the Colorado River backing up on Hoover Dam, are really going to scare some people and that is an area of the country that is really more of a desert. When you look at Los Angeles, certainly Arizona, you see you have Nevada you have all of these, New Mexico, you have all of these Colorado certainly as well, all these places drawing water from this one source. And I think it's going to become a real issue which is, which has nothing to do with non-profit work just water availability. But that's going to lead to conversations in climate and philanthropy as one of the potential answers in terms of funding change in how we allocate resources and prioritization of resources and things of that nature. I think it will pull a little bit from the diversity inclusion and equity conversations to some degree. And climate's going to start driving. But I think what's happening in the Midwest and in particular as we look down into the Southwest, it's really going to push some conversations about how nonprofits and and charity philanthropy can help, long term, maybe solve some of these situations.

Number four is, I think there's going to be an increase in cyber challenges. We saw that common Spirit health system in particular more on the CHI side so maybe eastern part of their overall Market although it's almost the entire United States was really affected by a breach. I think there's going to be more of this. I think that the Blackbaud breach is not over with yet in terms of of impact. I think that nonprofits are going to have to get more like for-profits in terms of cyber security, which makes things like what I do in terms of data analysis and things of that nature more difficult because I can't get the data. I think that there's going to be some cyber moments where data is just being taken or held hostage and it's going to increase, which is going to put a lot of pressure on nonprofits. They're going to have to look at this more like a for-profit and lock some things down which is going to cause its own challenges.

Number five is I think that there's going to be this kind of give and take, push and pull when it comes to special events that we are going to have to find ways to do hybrid events. That some people have gotten used to not going to events, and may like it. We have others and I've talked about the seven faces of philanthropy by Prince and File, a 1994 study of kind of who are our seven faces of philanthropists. If you haven't read the book it's worth it, a really good academic study, and still very, very true today in terms of its application. I think some people, socialites is one of those groups inside Prince and Files' research want to get back together, and so we're gonna have to create hybrid models to engage those that want to get together but also have other ways in which people can engage without being present, because as much as we talk about the pandemic I hear people say it's over I'm not quite sure I agree with that.

Particularly with what's going to happen in China over the next three to six months as they open their society back up and that'll have implications here as well that hybrid and flexibility. Hybrid events and flexibility is going to be really key if you depend on those special events, so keeping that in mind, creating alternatives, creating different ways people can engage can be highly successful in engaging multiple layers or levels of people, where they're at, and what their opinions are, so it's just something to keep in mind as you look at it.

I think this is number six, and kind of my final one. It's a two-parter. No I think that artificial intelligence is going to be more widely accepted. We're really beginning to press on the importance of prospect identification. If you look at the numbers from 2002 or so today we've gone from two-thirds of the households in the United States making charitable gifts to less than half, so the identification of prospects is critically important to maximize our limited resources. And I think artificial intelligence, some of the work, I in particular want to give credit to Donor Search and the desk goes but really my friend Nathan Chappelle is doing with a Donor Search AI or DSAI is going to change the way we look at our business models in terms of acquisitions, annual giving, major gifts, planned giving, clinician engagement, University alumni membership organizations, and non-profits. That artificial intelligence is going to become not quite the norm in 23. I think we're still year two away, but I would say that it's going to be critical in terms of those that are willing to spend a little bit. And by the way it is not that expensive if you do it correctly. Less than a person. Less than half a person to be able to like better identify based on the factors of who your donors are who, you should be working with, who should be highlighting, which brings into things like donor retention. Because if we see less people giving, retaining those donors is critically important.

Prospect identification, who are the new potential donors that might be in our communities and how do we engage with them? How do our boards then get involved? Grateful patient, alumni, there's membership, there's lots of different mechanisms to figure out how we can engage them. We got to know who they are. If you haven't read it I think it's critically important because that's kind of the part B of this. The Generosity Crisis by Nathan Chappelle and Brian Crimens, Michael Ashley, is a must read and I think that the sub part of this idea of AI, which is a sub kind of the how we identify in terms of radical relationships and radical engagement through the book. I think the book's going to be the most important book we've had in 30 or 40 years. And I think that that will rise up the conversation about, are we transactional, transformational in the type of work we do.

Have it become too transactional? How are we identifying people? How do we build those radical relationships that they talk about? How do we engage them at the donors level to ensure that we're doing all we can to maximize their level of involvement with our organization's generosity crisis I think is going to really change the way we have conversations. And part of that's about artificial intelligence and identification. Part of that's just in base level skill sets. Our gift officers need to really build the best relationships with our donors. It may seem a little depressing. I don't mean it to be. I still believe nonprofit work is the only thing that I would ever want to do because it's changing the world, it's making the world a better place. But I think there's some headwinds and the more you think about how you can strategically plan for these things from Individual gift officer conversations about pipeline and the length of time it takes to cultivate and are the ratios we've tended to use. Appropriate in kind of some challenging, challenging moments to strategy, from budgeting, and revenue, and expenses.

All of these things when we talk about inflation and employment challenges and growth of different areas, of nonprofit support like climate, and the Cyber challenges, and the costs involved with that, and certainly the hybrid nature of events, and then certainly what we need to be doing to build better relationships through AI and the radical, radical transformational communication we should be having with our donors and prospects like Nathan Chappelle and Brian Cremins talk about you need to be planning now. I think these things are very realistic in terms of possibilities and if I'm wrong I'll eat my words in a year, and if they're wrong and everything was hunky-dory I will be the first to celebrate my incorrect predictions. But the more you prepare now the better off you're going to be in the future. And that's what I really want to get across to you today.

Don't forget, if you want to reach out to me podcast@hallettphilanthropy.com. Check out the blogs. I'm going to take a little bit of time off at the holidays but we'll be back strong come January, but there'll be some posted and of course you can get ahold of me directly at podcast@hallettphilanthropy.com if you have a question or thought, something to mention or think I'm just plain crazy. Don't forget the work we do, even if things aren't everything we want it to be next year is more important than ever. And you're making a difference. Your leadership, your involvement, your engagement, your willingness to give of yourself is critically important. and as I started I will end not only this podcast but the year... some people make things happen, some people watch things happen, then there are those who wondered what happened. In the end people who make things happen are philanthropists and people who help those people make things happen are leaders in our non-profit sector. And you're one of those. I thank you for what you do and for what you do for your community. For those that are the misunderstood, the not, hurt, the overlooked, they're the ones who need our help the most. hope we've had a great 2022. I appreciate all the times you've joined me on the podcast. I'll look forward to seeing you around or just past January 1st, 2023 on "Around with Randall". Thank you! Appreciate a great year. Don't forget, make it a great day.