Nonprofits have faced unprecedented budget cuts this year. To cover their budgets, they may be looking to adopt new revenue streams. But when nonprofits change their business models, are they risking their identity?

The financial troubles facing the global NGO sector today are profound. Overseas Development Assistance (ODA), according to one recent estimate, will shrink by 28 percent in 2026, compared to 2023, the last year for which a complete picture is available. This translates into billions of dollars in lost grants for civil society groups, alongside a catastrophic drop in direct assistance to feed the hungry, fight disease, and make inroads against poverty worldwide. The unimaginable scale of need this represents means that demands on NGOs will rise steeply even as funding falls off a cliff.

Against this backdrop, the human rights sector faces $1.9 billion in cuts, a 28 percent loss of ODA funds, or a 17 percent drop in total funding, assuming private philanthropy stays steady—an uncertain assumption at best. Such cuts pose an existential threat to many organisations, especially to small, grassroots groups as well as some large, high-burn-rate international NGOs that rely on large government grants. But the pain will be felt widely, and we are all asking how we can possibly fill the revenue hole that declining foreign assistance funding is causing. I have been in several such meetings to strategise about the changing funding landscape. Ideas for alternative revenue streams come up, from creating investment income opportunities to launching social enterprises. ‘Business models’ is an oft-repeated phrase.

Changing Nonprofit Business Models: Balancing Mission, Organizational Capacity, and Capital Structure

Discussion of new business models puts me in mind of Clara Miller’s classic article: ‘Hidden in Plain Sight: Understanding Capital Structure.’ The article brilliantly shines light on the interconnected triad of functions that underpin organisational effectiveness in the nonprofit sector: mission, organisational capacity, and capital structure—that is, the specific configuration of funding streams and types that keeps each organisation afloat in its own way. Miller paints a clear picture of why keeping the three in balance is essential. Revising the mission can necessitate changes in organisational capacity that, in turn, change capital needs. And likewise, sudden changes in capital structure can effectuate changes that impact the other elements of the organisation.

Read the full article about changing nonprofit business models by Devon Kearney at Alliance Magazine.