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The Critical Alignment of Mission, Money and Competence

By Nell Edgington



It occurs to me in my work with social impact organizations that the struggles and challenges they face all come down to one key problem:  a misalignment of mission, money and core competencies.  For any organization (nonprofit or social business) three things must be aligned:  1) their mission, or reason for existing 2) their core competencies–what they can do better than anyone else in the world, and 3) their revenue engine–all the ways in which they sustain themselves financially.  So that an organization, at equilibrium looks like this:

Mission, Money, Competency

The mission is supported by the organization’s core competencies which both feed into how it generates money.

Jim Collins calls this the “Hedgehog Concept,” Mark Moore, a professor at the JFK School of Government at Harvard, calls it “The Strategic Triangle.”  It’s such a simple and powerful concept, but it seems to be one that is often left on the bookshelf, a better theory than practice.  But how transformative would it be if this concept were dusted off and applied to the challenges an organization faces? When one or two of these three elements are out of alignment, chaos can ensue.  For example:

Mission is misaligned: An organization that can generate money and operates great programs, but can’t bring it all together in a coherent single purpose, this is otherwise known as “mission creep.”

Core competencies are misaligned: An organization that has a great, clear idea of what they want to do (mission) and can raise money around it, but can’t deliver. This is reminiscent of the dot com era when there were countless businesses with fabulous ideas that successfully raised VC and angel money, but didn’t really have a core competency or product to deliver and eventually went bust.

Revenue engine is misaligned: This final misalignment is probably the one nonprofits are most familiar with.  An organization has a great mission and can produce great results, but they can’t find a way to make the organization financially sustainable.  FORGE, a nonprofit working with African refugee camps, which I wrote about earlier this Fall, is a great example of this misalignment.  Their mission and programs are solid, but they struggled with the right revenue engine (switching from individual fundraising to web-based fundraising without having the core competencies to make the switch). The end result was a $100K deficit.

And there are various other combinations of misalignment where two, or all three, areas are out of sync.  But I think often it is the revenue piece that causes the most problems. Revenue misalignment is so difficult for nonprofit organizations to overcome because the sector is undercapitalized.  It can seem impossible, at times, to nonprofit EDs, who tend to be focused on the program and mission they are trying to deliver, to integrate a sustainable revenue engine into their work.  And indeed, many foundations and government funders will pay for programs and mission, but not a sustainable overall organization.  The incentives do not reward an organization in alignment.

But there are solutions.  If an organization can take a step back and look at all three elements and how they fit together they can start to make strides toward better integrating all three activities.  The mission of an organization needs to be one that they can generate financial support around, but it also needs to be something that they can deliver on better than anyone else.  And the financial support that an organization generates needs to complement and support, not detract from, the mission and core competencies.  And they need to integrate what they can do really well with what their reason for existing and ways of raising money are.  No longer can the fundraising staff be sequestered in a separate part of the building, only spoken to when there is a new program the organization decides it needs to raise money for.  No longer can a board of directors say that fundraising is not their role.  No longer can a strategic plan be created without a corresponding financial plan that is sustainable.  All three voices must be at the table finding a way forward together.

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About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.

Wednesday, March 11th, 2009 Financing, Fundraising, Nonprofits

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23 Comments to The Critical Alignment of Mission, Money and Competence

Sean Stannard-Stockton
March 12, 2009

Great post, Nell. I agree that revenue misalignment is the most frequently encountered problem. But it seems to me that it is also the most fixable. The problem is that fixing the revenue model often means making a large investment in the model, which of course requires cash… which the nonprofit is already having problems raising!

But this gets to the core of the revenue vs. growth capital issue. You don’t need “revenue” to fix the revenue misalignment, you need “growth capital” to fix it. But what is interesting is that from a funders perspective, giving money to an organization with mission or competency misalignment can be a waste of money. Whereas the very act of granting growth capital to an org with a revenue misalignment can fix the problem.

This of course was my point when I made my case for providing growth capital to FORGE.

Nell Edgington
March 12, 2009

Thanks for your comment, Sean. But I disagree with your assessment that fixing the revenue misalignment problem can be done through growth capital. Revenue misalignment is not simply a lack of cash. Rather it happens when a nonprofit is not aligning their ways of generating ongoing operating revenue with their core competencies and their mission. Giving an organization with revenue misalignment growth capital is a mistake. If I were a funder I wouldn’t give FORGE growth capital until they had a plan in place for aligning their revenue engine with their mission and core competencies, otherwise growth capital is a waste of money. If any of the three elements are misaligned, a funder should not invest. The point is that nonprofits need to be strategic about all three elements and make sure they are aligned. Once this happens getting to the next level with growth capital can be achieved.

Nathaniel Whittemore
March 12, 2009

I think that FORGE is an instructive example of both your points, but also might challenge them.

I talk to a huge number of young organizations about whether they should be for-profit or non-profit, and effectively what I keep coming back to is the question of “what is the type of value you creates, who tends to be willing to pay for that type of value, and why?”

In the case of FORGE, they had this figured out pat before their model shift, right? Students each fundraise $5,000 in order to participate in the programs. From the perspective I laid out above, the value that FORGE was creating was certainly about refugee empowerment, but it was also about helping anxious and passionate undergrads have a hand in that, and it turns out that it was that latter value that people were really paying for. It was the hook.

When the model switched rather abruptly, FORGE lost the value that it had spent four or five years learning about how to capture, harness, direct and support, and were thrown into a situation in which they had to quickly find new types of people to support the value that they wanted to create.

This was of course really hard. There are a lot of great nonprofits out there and it turned out that FORGE’s new strategy – giving people the opportunity to directly fund refugee-create projects – either wasn’t on its own enough of a reason for the number of people they needed to take out the wallets, OR at least they weren’t able to get that opportunity in front of enough right people in the time they had. To some extent, this could support Sean’s thesis about growth capital. Had FORGE been able to hire a consultant or more support to help them do the aggressive 24-7 fundraising outreach it takes, it might have been different.

But to Nell’s original point, FORGE was making a move that they believe to be better aligning the mission, yet it messed them up. I don’t think that this disproves your point Nell, and I certainly don’t think Kjerstin was wrong to recognize that the way her organization was operating wasn’t getting at the true difference they wanted to make.

At the same time, its worth noting that what helped them get back in the game was another “hook,”- this time the “beacon of a new era of transparency” effect – that helped them tap into a fundamentally different pool of people who cared about a different type of value. Sean didn’t say “oh man, this is the most bloody brilliant refugee support organization in the world and refugees matter so much to me,” right? He said “this is a great organization that’s doing meaningful work that should be sustained and who’s founder has taken a radical, important, and emulable step towards a new era of transparency.”

I guess my point is that in a world where there are a seemingly infinite number of problems and organizations to address them, what the “revenue engine” often looks pretty weird and ends up being more about the context that you weave on top of your good work in order to find the hook that connects you to pools of people willing to pay for what you’re offering. I don’t think this is a particularly good thing, but I think it is a reality and one we need to spend more time addressing.

Thanks for the great convo guys!

Nell Edgington
March 12, 2009

Nathaniel, I absolutely agree with you and think that in saying “the revenue engine ends up being more about the context that you weave on top of your good work in order to find the hook” you are describing exactly the alignment of mission, money and competence. That “hook” is an organization’s ability to harness their competencies in order to create a revenue engine around their mission. That harnessing absolutely takes place within the context of the market economy. However, it remains to be seen whether FORGE can translate that market opportunity (the new era of transparency) into a sustainable revenue engine. Sean and others invested, yes, and it looks like FORGE is ok for now. But what will really allow FORGE to find sustainability is if they can successfully integrate a new, sustainable revenue model into their work. Sean and others may have been attracted to FORGE because of the market opportunity FORGE seized, but it remains to be seen if that’s sustainable.

Sean Stannard-Stockton
March 12, 2009

Nell, you make a good point in your response to me. Throwing growth capital at a revenue misalignment does NOT automatically fix the problem. What I was trying to say is that having mission and core competency alignment does not require access to growth capital, while building an aligned revenue model DOES require capital. So I was trying to point out that funders are best positioned to help organizations that only have a revenue misalignment. Clearly, I overstated my case.

Re: FORGE. The jury is definitely still out. My investment in FORGE was a high risk grant.

Nell Edgington
March 12, 2009

Great debate, guys! I love it. Your investment in FORGE, Sean, was a high risk grant, but I don’t fault you for investing at all. We need more high risk investments in the sector. I’m hopeful that FORGE will take this opportunity (and the investments you helped them raise) to better align their money, mission and competencies. It will be interesting to watch.

Kjerstin Erickson
March 12, 2009

Nell, thanks for the great topic. I think we all agree that the element FORGE has yet to crack is the revenue engine that immediately aligns with our mission & core competencies. As you’ve pointed out, we did previously have a revenue model that aligned with our core competencies but as not completely with our mission, and we chose to take the risk of shifting from that. We’re still alive, but as you said, still searching for an aligned & sustainable revenue engine. And yet, since making that shift a year and a half ago to better serve our mission, I’ve never felt more energized by FORGE’s work or more confident that we will be able to find our way.

I fully agree that this strategic triangle is very applicable to understanding what makes nonprofit organizations sustainable. However, to be useful in application to one’s own organization, I’d have to argue that the unique nature of the nonprofit sector makes for a more complicated negotiation process between the three elements, as in the grander scheme they are not equal. Having experienced what it means to have your mission compromised (however slightly) by your revenue model, we know how damaging it is to the impact of the sector to have revenue concerns influence mission & deliverables. And thus in seeking a new sustainable revenue engine, we would not be willing to in any way compromise mission & results for financial sustainability. Perhaps this will be our downfall, but I’m more optimistic than that that we will find our way. But in short, I believe that instead of seeking possible integration between the three elements as equals, nonprofits must instead seek a revenue engine that aligns with its mission & results.

Obviously, easier said than done. If an organization is simply seeking longevity and sustainability, then perhaps they should be willing to (however slightly) compromise on their mission & competencies/results. We see this happen all the time, don’t we? But if an organization is committed to being the best and most efficient at creating change & impact, the choices in front of them look very different.

Thanks for the fantastic topic. I look forward to sharing this with my colleagues and continuing our discussion about FORGE will find its way forward.

Sasha Dichter
March 12, 2009

OK, I can’t resist jumping in.

Nell, I might be misunderstanding your point, but when you say “But what will really allow FORGE to find sustainability is if they can successfully integrate a new, sustainable revenue model into their work,” it sounds to me like you’re implying that it’s likely NOT enough for FORGE to have a new group of interested donors and an increased level of visibility and relationships, and that this, along with Kjerstin reorienting how she spends her time as CEO, should give the ‘growth capital’ investors the confidence that FORGE (or any other nonprofit) has a “sustainable revenue model” going forward.

Put another way, I sometimes feel like there’s an implicit notion in the (sometimes too theoretical) discussions of nonprofit funding models that downplays the fact that philanthropic dollars can beget philanthropic dollars; that there are very powerful network effects that come from the creation of strong communities of supporters/friends/advisors/Board members; and this itself can be a “sustainable revenue model.”

My fear is that we can be too smart by half in the way we distinguish growth capital, earned revenues, and plain-vanilla donations. In the end a dollar (or a pound or a shilling) is a dollar, and what a funder should care about from a financial sustainability perspective is their own confidence that the organization will be able to generate enough revenues (from whatever source) a year/two years/three years from now to meet its goals — and that the leadership of the organization will be able to execute on these revenue targets in a way that allows the organization to stay focused on its mission and deliver its promised results.

Nell Edgington
March 12, 2009

I agree with you that we shouldn’t spend too much time fretting over the various kinds of dollars raised by a nonprofit, however it is important to understand the source and motivations of these dollars so that we can determine if they might be sustainable. Let’s take Sean as an example for a minute. He contributed to FORGE because he believes very strongly in transparency and really appreciates what Kjerstan did in making her struggles public. I’m sure there were other reasons he invested, but transparency was key. Is that sustainable? And the other donors who stepped forward (I don’t know enough about them) are they investing because at this particular time FORGE’s particular plight is interesting and engaging to them? Or are they investing because they really believe in the mission and how FORGE is delivering on it? And are they in it for the long haul? Will Sean give next year and the year after and the year after that? I don’t know. My point is that in order for FORGE to create a sustainable revenue engine it can’t be based on a moment of transparency (and perhaps it isn’t, I don’t know) but rather it has to be based on a model that they can sustain and grow as the organization evolves. So in that sense it is important to analyze what kind of dollars we are talking about so that we can understand how to replicate them.

Nell Edgington
March 12, 2009

Kjerstin, I’m glad you’ve joined the discussion! It’s great to have your perspective on this.

I have to disagree, however, in your assessment that the three elements cannot be equal when applied to the nonprofit world. Your assertion that “instead of seeking possible integration between the three elements as equals, nonprofits must instead seek a revenue engine that aligns with its mission & results.” The point of equality among the three elements is that no element can exist in a vaccuum and no element can take precedence. Your comment “Having experienced what it means to have your mission compromised (however slightly) by your revenue model, we know how damaging it is to the impact of the sector to have revenue concerns influence mission & deliverables.” The point of the strategic triangle is that no one element should compromise or influence another, rather all three exist in equilibrium, complementing the other two elements. In fact, a situation where revenue is compromising mission and deliverables is simply another example of misalignment. The bottomline, love it or hate it, is that nonprofit organizations exist within a market economy. Therefore any service that a nonprofit provides must be financially sustainable in order for it to survive. You are living this reality right now, I know. It is not a question of letting revenue compromise your mission and services. Rather it is about finding the right revenue model so that your mission and services can thrive and grow.

Sasha Dichter
March 12, 2009

This is fun! Two quick comments:

1. Kjerstin, no mission compromise! If that’s your starting point, then you will hold yourself to a very high standard and maybe from time to time will make a small exception. But if your starting point is thinking you’ll make a few small exceptions, you’ll end up with lots of them and you’ll get pushed off course so fast it will make your head spin.

2. Nell, I’d really like to push you to be more specific when you say, “Therefore any service that a nonprofit provides must be financially sustainable in order for it to survive.” The service doesn’t have to be sustainable, the nonprofit does. Sure, a group of people who were intrigued by the transparency angle came into support FORGE. Now it’s up to FORGE to translate those relationships, interest and visibility into connections to other individuals/institutions who have deeper pockets AND/OR take a “transparency” donor and turn that person into a rabid advocate for FORGE. People’s giving motives are very complex, and even when a nonprofit has lots of clarity about its business model and its revenue model, people will see what they want to see and give for their own reasons. Put another way, people construct meaning that aligns with their own motivations and worldview. So it might be better to think of an effective nonprofit as a Rorschach than think that there’s a small number of donor types that align with a given organization.

Meryn Stol
March 12, 2009

Can’t raising philanthropic dollars not be considered to be a part of the revenue model? Fundraising could be said to be selling a warm, fuzzy feeling to donors. Indeed, an organization must make sure that the philanthropic market actually wants to pay for the goals the organization is mainly trying to achieve, and pay enough for that “per unit”.

Maybe the one thing Forge must ensure is that they know well what donors like to see happen in this world. This could be a bit different then what – say – Kjerstin wants to see happen in this world. Then there’s also the opportunity of actual salesmanship, and thus convincing donors that what Forge is doing is exactly what they want see happen in this world.

Given this “extended” revenue model, only applicable to organizations with a social purpose, this revenue model still needs to be perfectly aligned with the organizational mission and competencies. That’s a very powerful lesson from Collins.

Nell Edgington
March 12, 2009

Sasha, I think believing that nonprofit fundraising is a Rorschach test is leaving too much to chance. You can’t hope that donors will see what they want to see in your nonprofit and find funding that way. Rather, I think you must be strategic about creating a revenue engine (that can and should include other revenue sources beyond individual donors)and then make the connections (with donors and/or others) that will allow the revenue to flow. I absolutely agree with you that now it is up to FORGE to translate these new relationships into long-term donors. I’m hoping they can do it.

Sasha Dichter
March 13, 2009

Nell, I’m actually saying the opposite: even when you have an aligned revenue strategy, a clear source of funds, a defined constituency, etc., funders (individuals, institutions, government) see what they want to see. That’s human nature and the nature of philanthropy, and I don’t think it’s significantly different from other market transactions

(“Sasha buys an iPod because he wants to have a great Twitter interface. Sean buys it because he’s a tech early adopter who has to have the latest gadget. Nell buys an iPod because she’s sick of carrying around two separate devices….”). The business model, the story, the ability of the “product” to delight at create word of mouth that leads to a self-reinforcing growth path, these all have to be there. But everyone sees what they want to see.

I’ve led up a team that raised more than $85 million in growth capital in the last 20 months from a very diverse set of funding sources, and I can promise you that while there are a core set of reasons that individuals and institutions support our work, if you get below the surface, everyone is very different and in each relationship (even with institutional sources of funds), the funding decision in each case meets a specific (and different) set of individual / institutional needs.

So it’s not “hoping” that people will see what they want to see, it is creating a compelling model that delivers real results, unearthing the right stories to explain that model in a way that consistently connects to people and inspires them to act, finding the right channels (in person, online, whatever) to deliver that story in a way that it will reach the people you want to reach, and then being very successful in telling that story to differentiate yourself in the marketplace. (And even when you do all that, people will still see what they want to see.)

So maybe you and I are saying the same thing but describing it in a different way…

Sean Stannard-Stockton
March 13, 2009

Just to be clear, in my opinion a sustainable “revenue model” can be exclusively philanthropic fundraising. The key to sustainability is knowing that something is repeatable. Earned income can be just as hit and miss as fundraising. In fact, fundraising is less cyclical than most revenue streams.

But *hoping* that you’ll raise enough money isn’t a “sustainable revenue model”. Fundraising is a business and you can build an infrastructure and model that raises a sustainable revenue stream.

That being said, note that total nonprofit revenue is something like $1.5 trillion and donations total only $300 billion, or 20% of total, per year.

Nell Edgington
March 13, 2009

Sasha,

I think we are saying the same thing. I agree that in the end people make their own decisions for their own reasons (and I actually DID just buy an IPhone because I was sick of multiple devices–how prescient you are) but the more you can be strategic about targeting the right people, finding out how to connect with them (how to communicate, how to package, how to demonstrate results, etc.) the better you will be at getting them to invest. You’re never going to have complete control over the transaction or their view of it, but if you take a strategic approach and integrate your activities toward raising money with your activities toward delivering on your mission the more successful and sustainable you will be overall.

I really appreciate your, and everyone’s, time and thoughts on this. What a great discussion!

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