5 Nonprofit Trends to Watch in 2013

I’m more of an optimist than fortune-teller, but the nonprofit sector is changing in some exciting ways. And I, for one, am excited to see what the new year brings. Following are five trends we should watch for.

1. More demand for outcomes
The biggest trend I see is a growing demand for nonprofits to articulate what results they hope their work will achieve and track whether those results are actually happening. Nonprofits have long discussed the outputs of their work: number of people served, number of services provided, etc. But the sector is increasingly being asked to articulate and track the outcomes that are achieved. How are people’s lives changing because of the work a nonprofit does? Social change has become an increasing demand of funders and other supporters. That means nonprofits must develop their own theories of change (how they use community resources to create change to a social problem) and then measure whether that theory is becoming a reality.

This increasing focus on nonprofit outcomes is leading to the four other trends.

2. Decreasing emphasis on nonprofit 'overhead'
The bane of the nonprofit sector is the meaningless and destructive public perception that you can separate nonprofit programs from the administrative costs (staff, technology, systems, materials, fundraising) to make those programs happen. This separation is so destructive because it forces nonprofits into a misalignment of money, mission and competence, which sets them up for failure. A nonprofit cannot succeed if it doesn’t integrate its operations and moneymaking efforts into its mission. But the good news is more and more people realize you can’t just invest in programs without the staff, infrastructure and fundraising to make those programs happen.

3. More advocacy for the sector as a whole
The nonprofit sector has long been a fractured grouping of organizations of various sizes, business models and issue areas. It has been almost impossible to organize the disparate sector to fight for better government regulations, improved public perception and more funding. But that tide is starting to turn. With the advent of groups like CForward and a growing discussion about how best to advocate for the sector as a whole, I believe that we will start to see the sector organize, mobilize and build the confidence necessary to claim its rightful place.

4. Savvier donors
Because nonprofits are getting more savvy, donors are as well. In addition to an increasing demand for proof of outcomes, donors are slowly starting to understand the difference between two kinds of money in the sector: revenue and capital. They are starting to recognize that nonprofits cannot exist on revenue alone. Nonprofits must have infusions of capital every now and then to strengthen and grow their staff, technology, systems and fundraising. Call me crazy, but I truly believe that donors are becoming more open to making capacity capital investments in the nonprofits they love. That’s because donors are realizing that in such a stark economic environment nonprofits that don’t have adequate infrastructure simply will not survive, let alone be able to adequately address the social problems they were organized to solve.

5. Increased efforts to rate and compare nonprofits
As nonprofit outcomes are increasingly in demand, donors become savvier and the “nonprofit overhead” distinction diminishes, we will increasingly evaluate nonprofits based on the results they achieve, not on how they spend their money. But that requires a whole infrastructure for evaluating and rating nonprofits to emerge, just as it has for the financial markets. This has already started with Markets for Good, GreatNonprofits and the changes Charity Navigator has made to how it rates nonprofits. I think this market for nonprofit rating infrastructure will continue to grow and evolve as we get smarter about focusing resources on the most effective nonprofits.

These are exciting times for the nonprofit sector. It seems that for the first time in a long time everything is on the table. And it's up to nonprofits to understand the trends and where they fit as the sector evolves.

Nell Edgington is president of Social Velocity.