Archive for May, 2013

Overcome your board’s allergic reaction to the financials

“Having clear, readable financial information means that board members, even those who are allergic to budgets and numbers, can assume their rightful responsibilities as trustees,” claim Cash Flow Strategies coauthors Richard and Anna Linzer.

I smiled when I read this quotation in the Linzer’s new book, Cash Flow Strategies. When I was a board chair in my past life and we would review the financials, the reports were always quickly approved no matter how much my executive committee tried to engage the board in the finer details. The Linzers’ depiction of board members’ allergic reaction to financial reports is all too familiar.

We’re currently featuring this essential read at CausePlanet with a Page to Practice™ summary and live interview on June 27. Financial certainty in uncertain times is an ongoing challenge for administrators and board members especially when reporting has lost its utility and readability.

One of the strategies discussed in Cash Flow Strategies focuses on making financial reports more useful for the board and staff through the application of footnotes. “Cash flow budgets that are accompanied by footnotes can make a remarkable difference in the degree to which everyone understands your budget. The cash flow budgets by themselves are a boon to comprehension, but the addition of detailed footnotes can assist even the most fiscally challenged board member,” assert the authors.

In our recently featured book, Storytelling for Grantseekers, author Cheryl Clarke also promotes budget footnotes as an important strategy for helping funders understand your financial reports. “Budget notes can and often should be used, for they help explain and clarity the information contained in the numbers story,” Clarke adds.

Clarke says financial footnotes are especially useful whenever:

a program expense represents five percent or more of the total estimated costs for the program. For example, if the program budget is $100,000 and one line item exceeds $5,000, include a note to explain or justify that expense item.

a particular line item might be unclear to the reader or might require additional narrative detail. For example, “a line item labeled ‘miscellaneous’ practically begs for a note to explain what is included under this category.”

Join us for an author interview with Richard Linzer about cash flow and working capital for nonprofit organizations when we’ll take the discussion far beyond the footnote: Thursday, June 27 at 11 a.m. CST.

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Pete, repeat and me

Pete and Prepeat sat on a fence. Pete fell off and who was left? Repeat.

I don’t know about you but I always found that saying annoyed me more that it inspired me. I got a fresh take on the power of repeat just last week during a gathering of the Consultant Leadership Forum sponsored by CausePlanet and The Denver Foundation. Six times a year we gather to learn from and with each other as we read a selection from CausePlanet’s Page to PracticeTM library. On deck this month was Repeatability: Build Enduring Businesses for a World of Constant Change by Chris Zook and James Allen (Harvard Business Review Press, 2012).

Our discussion revealed that the three key principles outlined in the book are apropos for nonprofits as well as consultants. Zook and Allen’s research revealed that sustainable companies applied three core principles. They have:

  1. A well-differentiated core – clarity of distinction
  2. Clear nonnegotiables – clarity of values
  3. Closed-loop learning – clarity of learning

These principles resonated with me as they speak to the importance of a sustainable nonprofit business model and a successful nonprofit strategy. Where to start? With book in hand, you begin with clarity about what makes your nonprofit unique and what it does well (and what it doesn’t do). You reinforce those via learning from customer and market feedback. Once you set up the learning process you can check-point your core and nonnegotiables to ensure relevance for the future. That’s what Repeat had – and Pete never quite mastered. No wonder Repeat has staying power.

By Karla Raines, Principal, Corona Insights

Read more Radiance blog posts at Corona Insights about nonprofit strategy

CausePlanet members: Register now for our next live author interview with Steve Rothschild on May 29 at 11 a.m. CST.

See also:

Forces for Good: The Six Practices of High-Impact Nonprofits

Do More Than Give: The Six Practices of Donors Who Change the World

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

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Donors: Help your causes ask the right questions

Erica McGeachy Crenshaw

“The sector has fallen into a trap we created. By focusing on what we DON’T spend, and not on what has been accomplished, we have completely missed the mark in our messaging. We are part of this problem and it’s up to us to educate our way out of it,” asserted Paulette Maehara, former president of Fundraising Professionals in Dan Pallotta’s groundbreaking book Charity Case (Jossey-Bass 2012).

I recently re-watched Dan Pallotta’s highly popular TED Talk about Charity Case and was energized by such a credible and well-researched argument about the commonly misinterpreted topic of administrative costs and overhead. Unfortunately, we’re working against a flawed philosophy reinforced for decades by donors and nonprofit executives alike. Consequently, this week’s post is a message to nonprofit donors and contains some of Pallotta’s main points worth repeating.

Stop asking the flawed question and get to the heart of what really matters

Donors have to stop asking the question, “What percentage of my donation goes to the cause versus the overhead?” Pallotta argues this question is flawed in several ways:

1) The question makes us think overhead is not part of the cause but it absolutely is.

2) It also promotes the notion that overhead steals from the cause, forcing charities to obsess over keeping short-term overhead low at the expense of long-term solutions.

3) This question ironically gives the donor really bad information. It tells nothing of the charity’s quality of work, shares nothing about how it defines the cause, leads donors to discriminate unknowingly, gives the wrong overhead figure because it’s measuring against the wrong result.

Help your charities advertise, take risks and give reasonable time to build sustainability

Pallotta further argues nonprofits have to operate under a separate and discriminatory rule book from businesses. For example, in the area of advertising and marketing, charities can’t build demand for donations to their causes while businesses advertise until the last dollar no longer produces a penny of value.

On the topic of risk taking in pursuit of new donors, while it’s okay if the movie industry spends $100 million on flops, a $5 million charity walk that doesn’t show a 75 percent profit in the first year is considered suspect. Consequently, nonprofits shy away from large-scale fundraising ideas and cannot benefit from powerful learning curves.

Yet another example relates to time horizon. New companies can go six years without returning any profits to investors in the interest of building market dominance while charities that have long-term goals are expected to yield short-term, direct services. If they don’t deliver, they are pariahs. You can help dismantle some of these rules by leveraging your dollars on projects that raise much-needed awareness, allow for calculated risk and long-term growth toward meaningful goals.

Nonprofits are starving financially

You can help by asking new questions like “What kind of impact are you able to accomplish with your cause?” or “What meaningful progress are you making toward systemic change?” Help charities break the starvation cycle of what feels like mandatory low or no overhead. Leverage your donor investments in new ways to get the community looking at the cause differently or to accommodate long-term systemic change.

by Erica McGeachy Crenshaw, President/CEO of Execute Now!

See also:

Charity Case by Dan Pallotta

CausePlanet blogs about Charity Case

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Uncover new donors by creating economic value

“To be market driven, you have to determine who your customer is. And interestingly enough, it may not be the people your organization is dedicated to serve–your clients. Your customer is the one group from among all your stakeholders who, more than anyone else, determines your survival and your success.”

Steve Rothschild’s seven principles of success in his book The NON Nonprofit are rooted in his revelation of consistent methods he has implemented as an accomplished business leader in a Fortune 100 company and as a CEO of a thriving nonprofit that succeeded in creating economic value from social benefit.

If phrases like “Be market driven” (principle #3) and “Create economic value from social benefit” (principle #6) have you thinking you’re reading from a business book, think again. After creating the seven principles in the corporate world, Rothschild tested them in his own nonprofit, Twin Cities RISE!, and observed them in many other sector examples he discusses in The NON Nonprofit.

I asked Rothschild to explain his view of creating economic value in his own nonprofit:

CausePlanet: Principle #6 (Create economic value from social benefit) addresses the notion that “we are accustomed to thinking about social good in terms of moral imperative rather than economic benefit. But every improvement in social good does in fact have monetary value—to the participant, the state, or some other stakeholder.” Jason Saul, who authored The End of Fundraising, would wholeheartedly agree with you on this point. What did you determine was your “marketable” social benefit at Twin Cities RISE!?

Rothschild: Twin Cities RISE! trains underemployed and unemployed adults, primarily black men, with multiple barriers to employment, including low academic skills, criminal and addiction backgrounds, and poor work histories for living wage jobs. Over the last 15 years, it has been successful in boosting graduates’ pre- to post-training incomes from an average of @$5,000 to @$25,000. As its graduates’ incomes have increased, they pay more sales and income taxes and use less low-income health care, childcare and housing. They also save corrections costs. These cash benefits to the state of Minnesota and also the federal government derive directly from the social value that was created by lifting individuals and their families out of poverty.

What is your marketable value are you creating in your organization? If you can identify your marketable value, Jason Saul argues that you can pursue an entirely new set of stakeholders. He calls this new set of stakeholders “impact buyers,” who are willing to pay for social outcomes. Saul identifies the three highest value outcomes these funders want to buy and we highlight them in the Page to Practice™ summary.

See also:

Forces for Good: The Six Practices of High-Impact Nonprofits

Do More Than Give: The Six Practices of Donors Who Change the World

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

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Small but mighty: game-changing strategy in small to mid-sized nonprofits

Many nonprofits use periodic strategic planning to tune up their strategies or make adjustments to their route along a fairly steady course over the near-term future. Sometimes, however, organizations have a bigger, bolder agenda, often driven by a big challenge. My recent column on “Game-Changing Strategy” in The Nonprofit Times (February 1, 2013) examined this phenomenon through the lens of our consulting work with large, national nonprofits and foundations.

Since its appearance, I have been asked if the only groups suited to developing game-changing strategies are these big, well-resourced institutions. The answer, most emphatically, is “no way!” Game-changing strategy is available to any nonprofit facing a need to change direction, respond to a major challenge, or seize a new opportunity if it has the capacity and the courage to undertake a large, sometimes daunting change process.

Strategy is about making hard choices

I remember an early experience with game-changing strategic change. It wasn’t with a big household-name nonprofit but with a small, state humanities council. As we began the engagement, the challenge was this: We have limited resources with which to pursue our broad mission to promote the humanities across a large, diverse state. In response we currently offer an array of programs, none of which are at sufficient scale. The council had set itself the task of narrowing its portfolio to concentrate more resources on a few core activities. The problem was that the varying interests among the staff and board were aligned in such a way that making hard choices–invest more here and thus less there–was not possible. They were at an impasse. Thus the wide array of poorly supported activities.

At one point early in the strategy process we asked: “If you were building the council from scratch today, what would you make sure to do and what would you avoid?” By moving the discussion away from an unwinnable debate over the relative merits of current programs, we facilitated engagement in the struggle to actually think strategically. The group soon decided unanimously the answer to our question was: “We would make sure to do only one thing and to do it really well.”

Bold thinking pays off

This conversation opened the council’s horizons to think differently and we exploited that opening. For the next few months it considered various ideas for “the one thing.” In the end, it found it, tested it widely throughout the state, even using a public polling firm, and defined a bold signature project: an initiative to engage the entire state in an effort to tell stories about how residents’ families came to live where they did. Whether the family had arrived last week from China, last year from another state, or in the last century from Mexico, it turned out that everyone had a story he/she wanted to tell.

This new effort was a true game changer for the council. As the idea gained traction, the board supported the management’s plans to shed existing programs in a responsible and orderly way, either by transfer to another host entity, spinoff as an independent new nonprofit, or phase-down. The council soon concentrated all its effort on the new initiative. As a result of its intense focus on a winning idea, private funding increased, libraries and schools around the state lined up to implement the project in communities, and the council’s profile rose immeasurably.

Small organizations, big ideas

This was not an isolated instance of courageous thinking reshaping a small organization: far from it. Consider: the merger of two small environmental nonprofits that decided to trade their independence for greater power in pursuit of their shared mission; a half-dozen small and mid-sized human services groups that co-located to save a precious but expensive-to-operate facility for the disabled; or the bold campaign launched by a grassroots HIV/AIDS service organization to redefine treatment as prevention in its community. These groups were not large but their ideas certainly were.

So, if you are a leader in a small or mid-sized organization embarking on an examination of your strategy (perhaps for no other reason than “it is time,” three years having passed since your last effort), here is my advice. Before you begin tweaking your current efforts–”We’ll raise 10% more money” or “We’ll serve 5% more people”–consider for a moment how you would go about pursuing your mission if you were to start your organization over today, free from all impediments to bold action. You might decide you would build the organization just as it is now. But if not–if you can imagine a better way–consider whether it is time for a game change.

See also:

The Nonprofit Strategy Revolution: Real-Time Strategic Planning in a Rapid-Response World

Nonprofit Strategic Positioning: Decide Where to Be, Plan What to Do

Nonprofit Mergers and Alliances

Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant

The NON Nonprofit: For-Profit Thinking for Nonprofit Success

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Seven principles of success from one leader in two sectors

“I don’t want to be told my nonprofit should run like a business,” asserted my colleague. She and I were seated around a table with a half dozen other nonprofit leaders gathered to advise on the development of a training curriculum for nonprofit CEOs. The group was discussing the merits of corporate and nonprofit management topics. My friend bristled at the thought of her own nonprofit being ruled by profit rather than mission.

I distinctly recall her statement because I was shocked by it. Why wouldn’t anyone want to adapt what works in the corporate world and use it in the nonprofit sector?

Fast forward six years. As I reflect on that conversation today, I understand where she was coming from. It’s not only paramount to put the mission first; it’s what defines our organizations and separates us from corporations after the almighty buck. At the same time, our current financial pressures force us to depart from business as usual and innovate using cross-sector solutions.

What companies learn from us

Fortunately, we’ve seen both sectors look at one another and see value in what each has to offer. More companies are taking a look at how their products and services can make an impact through corporate social responsibility or perhaps how green their operations are. There are numerous examples today as compared to a mere six years ago when I sat at that table with my colleagues.

What we learn from companies

Equally important, nonprofit CEOs recognize they need to focus on innovative income strategies to complement their traditional fundraising. Why not adopt some of the earned revenue strategies or performance management techniques that work in the corporate sector as long as your board and staff preserve the mission?

A look inside a success formula in both sectors

Our new Page to Practice™ book feature of The NON Nonprofit is a rare look at seven principles of success developed and tested by a supremely successful corporate executive for General Mills and equally successful nonprofit CEO for an organization he founded called Twin Cities RISE!

Author Steve Rothschild held both of these positions and put great effort into testing these key principles personally as well as identifying nonprofits in the sector that demonstrate their applications. I was excited to feature this book because Rothschild has had a foot in both worlds and come out on the other end to tell us about his successes and hiccups along the way.

I would love to hear your feedback about his seven principles if you read the book or download the summary. Another question for you, “Do you currently apply strategies that would be considered relevant in the corporate world?” If so, tell us about it.

See also:

Forces for Good: The Six Practices of High-Impact Nonprofits

Do More Than Give: The Six Practices of Donors Who Change the World

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

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