The root of the problem is that the market forces that provide feedback in the business world generally don't do so for nonprofits.
In economic downturns, businesses adjust production, pricing, marketing, and staffing based on demand for their products. They also use research and development to improve their efficiency, product quality, and competitiveness. Their shareholders have a financial interest in ensuring that necessary adjustments are made.
By contrast, a nonprofit's revenue comes mainly from the voluntary contributions of individuals, foundations, and government. During economic downturns, demand for the "products" of nonprofits - especially in the case of social-service organizations serving the most vulnerable - tends to increase even as funding diminishes.
Nonprofits' decisions about programs, staffing, and sustainability generally are not based on research about their comparative effectiveness or the viable alternatives. Given their tight budgets, nonprofits are unlikely to pay for research and development even in a good economy.
Moreover, the "shareholders" of nonprofits - those who serve on their boards, as well as the community at large - are not necessarily direct investors and therefore may lack a direct financial stake in ensuring that necessary adjustments are made. And in a weak economy, nonprofits' survival becomes even more dependent on their ability to appeal to a cadre of supporters who are committed to carrying out the mission.
There is a better way. As counterintuitive as it may seem, nonprofits must focus now - in the short term - on their long-term fiscal health. They need to have frank discussions with donors about the crucial value of capitalization, and about avoiding slow starvation by investment in infrastructure and overhead.
