Posts Tagged ‘sustainability’

Beyond the obvious: what a “funding problem” may reveal about a nonprofit

Ask any nonprofit board member or executive director what poses the greatest challenge to his/her organization and you are likely to hear this: “We need more funding.” While s/he may not be able to offer a complex analysis of the organization’s financial circumstances, the conclusion is…well, obvious: Not enough money is coming in the door to meet the cost of delivering our programs.

At the root of the problem?

It is my belief that for many nonprofits, funding shortfalls are not the core problem. Rather, fiscal stress is a symptom of other, more deeply-rooted problems that lie beneath the surface of monthly profits and losses. If your organization falls into the category of the financially-challenged, what might this reveal about other aspects of the organization? Below are four questions a board should ask to properly diagnose the root cause of the seemingly obvious.

1. Do we have a coherent resource strategy?

Writing more grants isn’t always the solution to a budget deficit, though it seems to be a popular response among nonprofits. The same is true for traditional fundraising: The answer isn’t always to go out and raise more money. The fact is grant writing and fundraising are pieces of an overall resource strategy that may include government contracts, fee-for-service,earnings from investments, in-kind gifts, volunteers and bartering arrangements. Some nonprofits have generated revenue through alternative ventures, such as the mental health agency in my hometown that opened a sandwich franchise that produces revenue while providing employment to its clients. A full exploration of all funding options will help the organization identify the possibilities and the limitations before it, which in turn provides the proper context for the development of a fundraising strategy.

2. Do we have a targeted fundraising strategy?

Deciding that your organization needs to raise money from individuals and corporations as part of its resource strategy is a good start. But the real work of strategy development is in knowing where you are likely to be successful: Who is likely to support you? What do they need to know about your organization? How can you best solicit the actual gifts? And while nonprofits like to claim to be the best-kept secret in town, the ability tocraft and deliver a compelling story is what separates the successful organizations from the frustrated ones. Absent these deliberations and subsequent choices, nonprofits will continue to “fish with a net,” hoping to nab the big fish that just happens to be in the right place at the right time.

3. Do we have the infrastructure to support the fundraising strategy?

Having the board members instruct the executive director to go raise money and let them know if s/he needs their help does little more than increase the pressure on him or her to do even more with already-constrained resources. Indeed, some nonprofits view fundraising as the addition of another glass of water into the large bucket of organizational activity. But fundraising is an orientation, more akin to adding a drop of food coloring into that bucket of water. It changes everything. So before rewriting the executive director job description or hiring a development director, nonprofit boards need to engage in a realistic inventory of the human, financial and technological resources available to support the fundraising strategy. Especially in the age of social media, the ability to connect the right message to the target audience becomes key. Without adequate infrastructure, fundraising may actually deplete more resources than it produces.

4. Are we still relevant?

In the for-profit environment, the market will determine the relevance of a particular business. Are there too many gas stations? Not if they can all make a profit. Is the family-owned hardware store relevant in the age of the big box store? Again, the market will answer that question. Having no similar market mechanism in place, nonprofits may continue to function long after their market position has begun to evaporate. Loss of funding or the inability to attract additional funding may indicate an external perception that the social good produced by your organization no longer matters relative to other priorities. Complicating the analysis of relevance is the ability of struggling nonprofits, through desperation appeals, to attract just enough funding to live to see another month or year. But nonprofit boards need to recognize that maintaining an organizational pulse is not the same as meeting a social mission.

Conclusion

Even in good times, the unpredictability of external funding requires vigilance in monitoring the financial standing of nonprofits. And there is no reason to expect that funding challenges will subside any time soon. Only through proper and thorough diagnosis will nonprofits be able to respond effectively to the root causes ofthe financial challenges they face.

See also:

The Zone ofInsolvency: How Nonprofits Avoid Hidden Liabilities and Build Financial Strength

The Cash FlowSolution: A Nonprofit Board Member’s Guide to Financial Success

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

Image credit: 123rf.com

Leave a reply

Is your nonprofit worth saving unconditionally?

 

I can only think of one time you promise for richer or poorer, in sickness and in health. And it’s never applied to a nonprofit organization, let alone a business. If your nonprofit has sickly or feeble programs and is in a poor financial state, is it worth saving unconditionally? Should nonprofits rise above our treatment of failing businesses simply because they have a worthy mission?

This week’s article by Raylene Decatur, called “Should we strive for sustainable organizations?” is a must read. She and I recently discussed the occasionally misguided goal of sustainability, and I’m delighted she put pen to paper for a larger discussion. Raylene addresses the issue we as nonprofit leaders continue to orbit but rarely touch. Decatur says,

“Rather than investing so much energy in discussing and developing sustainable nonprofits, we should instead have a more animated dialogue about the best way for nonprofits to go out of business. Why should there be an aura of perpetuity around nonprofit endeavors? In 2010, 824,920 nonprofit organizations filed reports with the Internal Revenue Service. What percentage of these organizations is making documentable progress on their missions? Some may have made a real and permanent difference, and their mission can now be retired. Why is it acceptable to open a restaurant that might fail, but not acknowledge that a new nonprofit may not succeed?”

I would suspect that you agree with this statement but are you willing to accept the reality? Perhaps the collective conscience of our nonprofit sector is already tracking this logic as we watch the stage of mergers grow to a cast of thousands. There are a lot of different reasons mergers and alliances have grown as a popular alternative.

Two in particular are the fall of the subprime market in 2008 and the explosion of nonprofits in the last 10 years. In fact, The End of Fundraising author, Jason Saul, claims there are approximately 1,000 nonprofits for every type of cause. These systemic events have exposed feeble nonprofits and prompted them to look at integrating service delivery or tapping into peer organization’s strengths, says Tom McLaughlin, author of Nonprofit Mergers & Alliances.

Perhaps mergers or alliances at their worst are the palatable alternative to failure in our sector. Furthermore, self preservation could be more insidious than we think because it’s veiled as doing the greater good.

In contrast, Tom McLaughlin says the best time to consider an alliance or a merger is before it’s necessary. For the healthy organizations truly investigating mergers for the exchange of mutually beneficial gains, I give you McLaughlin’s Life Cycles of Nonprofit Organizations. Examine the stages below to discover your readiness for collaboration:

Formless: In this stage, there are not enough comparable nonprofits to constitute a recognizable type. Different groups respond to similar social needs and economic realities in similar ways without necessarily understanding why or even communicating with each other. Affiliations of any kind are virtually out of the question.

Growing: There is at least a general recognition that the particular nonprofit service is needed but most energies are devoted to building capacity and solving operational problems.

Consolidating: At this stage, the general type of organization is recognized and accepted by society and the nonprofit sector itself. Some organizations take on a leadership role while others struggle to come into being in order to cover geographic gaps left by the early types. The groups create formal associations and other support entities, and a recognizable national identity begins to emerge.

Peaking: As a field and as individuals, these nonprofits enjoy newfound acceptance and growing influences. The pace of new entrants slows, but those already in existence experience previously unimagined success in areas such as operations, public relations, financial and political. Mergers occur for strategic purposes when strong players take over the few weak ones, which falter.

Maturing: Maturing nonprofits have long ago hit their peak and are beginning to lose some of the strategic momentum they had earlier. The services they offer are now being offered at least in part by others or are no longer perceived as necessary. No one can doubt their collective influence, but some are beginning to doubt their future.

Refocusing: Once past maturity, some nonprofits find they must reinvent themselves in order to survive. Some do; others fade gradually away or merge what is left of their services with compatible groups at an earlier stage of development.

Is your cause worth sustaining in perpetuity? If you say, “Sure it is,” I would add, “But to what end?” What measurable and incremental results are you accomplishing? Are your efforts truly addressing the upstream systemic causes? And finally, ask yourself if your nonprofit would be saved by a merger or would it be strengthened by a merger. The ideal union is when both parties share their compatible strengths. If your nonprofit is looking for a savior in its merger, perhaps you should call off the wedding.

See also:

Why Charities Should Have an Expiration Date

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

Nonprofit Mergers & Alliances

Leave a reply

Model statement versus mission statement: Do you have both?

When engaged in decision making, nonprofit leaders typically look at financial sustainability and programmatic sustainability in isolation from one another. Because a blended approach is seldom used by boards and leaders, important decisions are made out of context, leaving the organization at greater risk for future viability.

In Nonprofit Sustainability, the authors demonstrate how to use an adaptable tool called the “Matrix Map,” which is extremely helpful in visualizing what programs merit nurturing, require dissolving or compel us to maximize them based on their profitability and impact. Matrix mapping can be used for simple decisions, complex collaborations, mergers, planning and fundraising feasibility. The authors claim that Matrix Maps foster discussion, facilitate strategic options and ensure that decision makers keep both aspects of sustainability front and center.

Nonprofit Sustainability uses three fictitious organizations to illustrate how to use the Matrix Mapping tool and introduce the concepts of business models, sustainability and financial viability in the nonprofit setting. According to the authors, financial sustainability is not only a legitimate goal, it is a necessary and intrinsic goal. Furthermore, most nonprofits are now employing hybrid revenue strategies where they combine donations, earned income, contracts, grants and other income types. Consequently, financial goals must be set and managed differently for each revenue stream.

Whether it is purposeful or not, every nonprofit has a business model, say the authors. Even though every program is managed individually, each must operate within an overall strategy. The authors assert that leadership’s role is to develop and communicate that strategy so all the activities operate within one vision, which makes the business model viable.

CausePlanet: One of the most intriguing imperatives I read in this book was the importance behind describing what success will look like. So I asked Bell, Masaoka and Zimmerman “What is the best use of a business model statement as it relates to the mission statement?”

Zimmerman: “Mission statements discuss what the organization wants to accomplish typically in broad, inspirational terms. Business model statements are more specific and provide details not only on how the organization carries out its mission but also how it pays for it. So, for example, an early childhood education center’s mission statement might be:

“To support the intellectual, physical, spiritual and emotional development of children so they become self sufficient, contributing members of the community,”

but their business model statement might read:

“We provide early childhood education and daycare services for children ages three to five supported by government funding and subsidized through the generosity of individuals.”

The statement acts as a guide for the board in explaining the business model and helps focus them on the programs and revenue strategies that create a successful organization.

For more discussion about Nonprofit Sustainability, you can follow the authors: Jan Masaoka at Blue Avocado (www.blueavocado.org), which is an online magazine for nonprofits where the discussion on this topic and many others is continuing. Both Jeanne Bell and Steve Zimmerman contribute there and can also be reached via their respective organizations: Compasspoint (www.compasspoint.org) and Spectrum Nonprofit Services (www.spectrumnonprofit.com).

 

Leave a reply

Welcome! Please provide your log-in information below.
Forget your password?
Enter your email or user name and your log-in information will be sent to the email on file.