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Board of Directors

How an Assessment Propels a Nonprofit Forward

nonprofitSometimes I work with nonprofits that are really stuck.

They have been spinning their wheels for months (maybe years) and can’t seem to get out of a vicious cycle that might include insufficient funding, a disengaged board of directors, struggling programs, or an inability to articulate their value to outsiders. They continue to have the same conversations month after month, wanting to do more and be more, but unable to figure out what’s holding them back.

When that is the case, a Financial Model Assessment can be really instrumental in moving the nonprofit forward.

Last week, I led the culminating meeting of a Financial Model Assessment for one of my clients. In this meeting I bring board and staff together to discuss my findings after a 3-4 month assessment of how every aspect of their nonprofit (strategy, vision and mission, board and staff structure, marketing, etc.) contributes to (or detracts from) their ability to bring sustainable money in the door.

This meeting is always my favorite part of the process because it starts to move a nonprofit forward in several ways:

Taboo Topics Are Uncovered and Discussed
Let me be clear, this is a challenging meeting. Through the course of the Assessment, I often uncover one or two things that are happening at a nonprofit that everyone knows about (and may even be discussing privately) but no one is willing or able to address as an organization. Perhaps the nonprofit is running a program that drags the organization down, or the board is not pulling their weight, or the staff is not structured effectively. In this meeting, nothing is sacred. Anything that holds the nonprofit back is fair game. It can be incredibly helpful to have someone finally put everything out in the open for the organization as a whole to discuss. Because if you don’t articulate and analyze the problems, you have no hope of overcoming them.

Board and Staff Are Energized
Once those problems are out in the open, there is often a palpable energy that begins sparking around the room as individual board and staff members begin to realize that there is a better way. It may not be easy, and it may push them and the organization in new, challenging ways, but it is exciting and hopeful and energizing. Every single time I have led one of these Assessment meetings a noticeable energy beings to build. It’s the acknowledgement among board and staff that they don’t have to be stuck anymore.

A Clear Path Emerges
And the reason they don’t have to be stuck anymore is because the Assessment lays out a path forward that frees the nonprofit from the spinning wheels. Suddenly board and staff have a set of steps and a strategy that they can discuss, analyze, and execute. They may not agree with or integrate every recommendation I make, but they at least have a future path around which they can mobilize.

Change Begins
This meeting, and the Financial Model Assessment that instigates it, can often be the first step in a new direction. It can be the inflection point at which board and staff finally recognize together, as a critical mass, that the status quo just won’t work anymore, and they must come together to chart a smarter, more strategic future course. It is the place where everyone acknowledges that change — true change — is necessary and possible.

If you want to learn more about the Financial Model Assessment I conduct for nonprofits, check out the Financial Model Assessment page here, or download the benefit sheet here.

Photo Credit: Till Krech


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Advocating for the Value Nonprofits Create: An Interview with Tim Delaney

UntitledIn today’s Social Velocity interview I’m talking with Tim Delaney, President and CEO of the National Council of Nonprofits, the nation’s largest network of nonprofits.

The National Council of Nonprofits helps nonprofits identify emerging trends, engage in critical policy issues, exchange proven practices across state lines, and advance their missions through advocacy. Previously, Tim served as a partner at a large law firm (helping prosecute the impeachment of a Governor and leading the firm’s government relations practice), Solicitor General and then Chief Deputy Attorney General (leading his state to win several cases in the U.S. Supreme Court), and founder of the Center for Leadership, Ethics & Public Service (championing ethical leadership and civic engagement).

Nell: Historically, “advocacy” has been a dirty word in the nonprofit sector. Organizations have been afraid of getting into trouble with the IRS for pursuing too much lobbying behavior. But that seems to be changing. What are your thoughts on how involved in advocacy 501(c)(3) organizations can and should be?

Tim: Yes, it’s perplexing that using words like “advocacy” and “lobbying” could get a nonprofit employee’s mouth washed out with soap. But seriously, advocacy is not just a right for nonprofits that is protected by the First Amendment; it’s a profound responsibility and effective tool to advance nonprofit missions.

Nonprofits provide a way for Americans to come together to solve problems, large and small. And they often do so through advocacy: simply standing up and speaking out for something they believe. Americans came together through nonprofits to advocate successfully in securing the right of women to vote (via suffragist groups), establishing Social Security (spearheaded by Townsend Clubs), desegregating schools (leadership by NAACP), securing civil rights (Dr. King delivered his “I Have a Dream” speech and undertook much of his work as President of the nonprofit Southern Christian Leadership Conference), and so much more.

But advocacy is not just for social movements. Advocacy includes standing up for your nonprofit’s right to be paid reasonably for services it provides under a government contract. Advocacy includes telling the story of your nonprofit’s impact to a reporter. We see advocacy as the answer to one key question: who can I talk to today to advance my nonprofit’s mission?

A barrier many nonprofits run into comes from what I call the “3 As” –uninformed academics, accountants, and attorneys who advise nonprofit boards by passing along false lore that there “might be legal problems” if a nonprofit does “too much” lobbying. Nonprofit staff come back from advocacy training fired up, but boards extinguish that passion based on false lore. After hearing stories like this from across the country, we’ve decided to turn advocacy training around. The traditional approach of “it’s legal” sought to counter the false lore, yet too often it led people to focus on arcane issues more remote than the fine print on your airline ticket or apps that you never read. Therefore, we now focus on “why” advocacy is essential to mission advancement and “why” nonprofits need to be engaged at the state level to protect against government attacks on tax exemptions, nonprofit independence, and charitable giving incentives.

As part of our effort to get nonprofits past those old barriers, we’ve joined together with Alliance for Justice, BoardSource, Campion Foundation, the Forum of Regional Associations of Grantmakers, and Knight Foundation to create Stand for Your Mission, a free website that provides nonprofit board members with information they need to be effective advocates in advancing nonprofit missions.

Nell: The National Council of Nonprofits has been on the forefront of the movement to get government to recognize the importance of funding nonprofits’ indirect costs. The recent OMB ruling mandating a minimum 10% indirect rate on most government grants and contracts with nonprofits seems like a watershed moment, but 10% is still pretty low and many nonprofits don’t understand the implications or how to benefit. What are your plans at the Council of Nonprofits to continue to move this issue forward?

Tim: As you noted, the 10% of modified total direct costs is just the minimum. For tens of thousands of nonprofits, just getting to 10% will make a huge difference. In its most recent State of the Sector Survey, Nonprofit Finance Fund found that 57% of nonprofits are being paid indirect cost rates of 9% or less. And Urban Institute found that of nonprofits reporting a problem, a quarter said that governments were paying them zero for indirect costs.

Now compare those paltry sums against research from Bridgespan showing that a more accurate range is about 25 to 35%. Certainly each case is different, but being reimbursed nothing or just 5% year after year when your real legitimate costs are always higher is debilitating, eroding effectiveness. Delivering sustained impact is impossible. So getting those nonprofits up to just the minimum will enhance sustainability to make a difference in their communities.

Importantly, 10% is just the floor. If a nonprofit is properly allocating costs and documenting its indirect costs, it can receive reimbursement for whatever those costs are, whether they are 20, 30, or even 40%. Getting paid for the true costs of delivering services can reduce burdens on nonprofits to fundraise for the difference, which frees funders from having to subsidize governments and allows nonprofits to dedicate more time to missions instead of diverted to filling funding gaps.

Seeing the OMB Uniform Guidance go into effect is just the beginning and underscores the importance of nonprofit advocacy. The mere issuance of OMB’s mandate doesn’t mean that the tens of thousands of local, state, and federal employees scattered across multiple departments, agencies, divisions, and offices will follow it or apply it properly. First, they need to become aware of it (which still has not happened), then receive training (same), and apply it consistently (same). Plus, states and localities often have contrary laws and policies on their books, requiring advocacy to change them to conform. OMB’s mandate involves a giant systems change, but the federal government still has not informed the system of what is required and the need to change policies and practices to abide by it.

David Thompson and Beth Bowsky on our team have been conducting dozens of in-person presentations and webinars across the country to ensure nonprofits are aware of their rights and how to advocate for proper implementation of the Uniform Guidance. Plus, we have been working with multiple state and local government associations to spread the word, and written numerous published pieces, including an overview, “Know Your Rights … and How to Protect Them,” that highlights potential compliance challenges.

In addition, we’re creating a series of short training modules for nonprofits to better understand their indirect costs. The key is for nonprofits with government grants and contracts to stand up for their rights to fair indirect cost reimbursement and to let their local state association of nonprofits and us know when governments are not living up to their obligations. Working through our network gives a nonprofit cover (so it isn’t fighting alone and having to worry about backlash) and strength in numbers to protect those rights.

Nell: This issue is also part of the larger movement to overcome the Overhead Myth in the nonprofit sector, the idea that “overhead” (or indirect costs) are bad and should be limited as much as possible. How close are we to truly overcoming this myth both among nonprofit donors and nonprofit leaders (who often keep themselves in these handcuffs)?

Tim: We still have a long way to go. OMB’s Uniform Guidance is a huge step forward because the federal government has now expressly acknowledged that indirect costs are legitimate and necessary. The sector needed a powerful external validating voice to overcome decades of treating mythology as orthodoxy. It’s inspiring to see that many private grantmakers have now adjusted their own policies or started to re-examine their past policies that unfairly limit payment for indirect/overhead costs.

However, the anti-overhead culture is deep seated and will take a long time to root it out. That’s true on both the funding side and the nonprofit side, given the powerful disincentives against claiming full costs. Nonprofits were forced to keep overhead artificially low by underinvesting in their infrastructure, staff training, and many other necessary expenses. Until we get so-called “watchdog” groups and reporters to stop using overhead ratios as false proxies for nonprofit efficiency (and get them to stop reporting overhead ratios as if they are a problem), and until all nonprofits are communicating with donors about their impact and what it truly costs to deliver that impact, everyone will still have work to do.

Nell: In both of these areas (advocacy and overhead) and in many others, nonprofits are treated like a second-class citizen. How do we get to a place where the critical role nonprofits play in our economy and in solutions to social challenges is recognized, and nonprofits are fully supported with the tools they need to be successful?

Tim: First and foremost, nonprofits must embrace our role as the place Americans come to solve problems and resolutely assert our role as advocates for the people and our communities. We often are on the front-line of vexing social challenges, giving us front-row seats to see the problems and the solutions. Who are we to hoard knowledge of solutions that could help our fellow neighbors? With the knowledge we hold and the clout we have (10% of the American workforce), we deserve a seat at policymaking tables. We need to proudly stand up, step forward, claim our space, and speak out for government to leverage its resources to solve problems at their source.

We need to tell the full story, not just of how many people were fed or acres preserved, but also the economic impact of the sector as a whole. For instance, CalNonprofits (the state association of nonprofits in California) published Causes Count about the economic clout of California’s nonprofits, and Donors Forum (the state association of nonprofits and grantmakers based in Illinois) released research on Social Return on Investment, showing the economic and social value of dollars invested in nonprofits.

As for being “fully” supported, that’s much more difficult. According to Nonprofit Finance Fund, last year – for the second year in a row – a majority of nonprofits didn’t have the resources to meet demand for their services. That’s going to be tough to turn around, especially as many nonprofits continue to be sliced by government budget cuts. Even as studies boast that individual giving is getting back to pre-Recession levels, that doesn’t make as much of a difference as most people think. Despite the focus on individual giving, it makes up only 9.3% of the sector’s overall revenue. Foundations are an even smaller percentage: 1.9%. Government grants and contracts make up a much larger portion – 32.3% – of the sector’s revenues. That’s why our focus in this area is so important.

Photo Credit: National Council of Nonprofits

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3 Signs of a Bad Nonprofit Strategic Plan

nonprofit planningI’ve been leading several strategic planning processes lately, and as we wrapped up the last planning meeting for one of my clients (who had been encouraged to create a strategic plan by a funder) my client announced:

“I have to confess that when we started this process 6 months ago I inwardly rolled my eyes because I thought it would be a pointless process, full of silly buzzwords and with little value. I have completely changed my mind. I can already see how this new plan is making us smarter, more effective and more sustainable.”

Yep, I completely get it.

Strategic planning, when poorly done, is just a joke. But, when strategic planning is done well, it can completely transform an organization.

And there are three key places where a bad strategic plan falls short:

  1. Your Strategy Isn’t Big Enough
    To create an effective strategic plan you have to start with the big picture. You must analyze and articulate who your target audience(s) are and your theory of change. Then you must look externally to understand the needs, the competitive landscape, the funding, the changing factors in the marketplace in which you operate. Nonprofit leaders sometimes mistakenly think they are creating an effective strategic plan when they sit in a room, look around at their fellow board and staff members, and ask each other what they think they should do. It is also a mistake to think that in such a rapidly changing world you can simply develop a status quo strategy. In order to stay relevant and sustainable you have to understand how you interact with the forces outside your walls and outside your control. And here’s a little secret: the more you think about the bigger world out there, the more excited your board and funders will be by the plan. Your nonprofit doesn’t exist in a vacuum, neither should your plan for the future.

  2. Your Strategy Isn’t Small Enough
    But the other danger is to get too big and neglect the small part — the execution and monitoring of the plan. It’s great to have a bold vision and ambitious goals for the future that flow from an exciting theory of change. But that’s not enough. How will you implement it? How will you break down tasks, and responsibilities? What’s the timeline? And what is your process for determining, on a regular basis, whether the plan is actually coming to fruition? A good strategic plan, one that will actually transform your organization, requires operational detail and a process for monitoring it over time.

  3. Your Strategy Ignores Money
    There is no effective strategic plan that neglects to answer how you will finance it. That’s why a good strategic plan devotes one of its goals to money. How much will it cost to deliver on all of the goals of your plan? How will revenue (and capital if you need it) flow to meet (or exceed) those expenses? A good strategic plan forces nonprofit leadership to become financially savvy (when they may not have been before) and begin to use money as an integral management tool.

How does your nonprofit’s strategic plan stack up? Is it big enough, small enough, and well financed? If you want to learn more about what a strategic planning process looks like, check out my Strategic Planning page or download the Strategic Planning benefit sheet.

Photo Credit: ESO/H. Dahle

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Why I’m Excited About the Independent Sector Conference

independent sector conferenceLater this month I will be heading to Miami for the annual Independent Sector conference. I haven’t been to this conference before, so it’ll be new for me. And I’m excited about it for a number of reasons.

First, former CEO of Independent Sector Diana Aviv spent the last six months on a “listening tour” talking to nonprofit leaders around the country to get a sense of the trends and challenges they face. She recently announced her departure from Independent Sector to lead Feeding America. This will be her last chance to report on what she’s learned and where the sector should focus moving forward. She’s gathered the data, and she’s on her way out, so I imagine she will have lots of interesting things to say.

Because of Aviv’s listening tour, Independent Sector has organized this year’s conference around six key trends she found shaping the sector: 1) Disruption from inequality and environmental degradation, 2) Greater ethnic diversity and new generations of leadership, 3)Technology transforming learning, gathering, and associations, 4)Swarms of individuals connecting with institutions, 5)Business becoming increasingly engaged in social and environmental issues, 6)New models for social welfare and social change.

Beyond these trends, I’m also excited about the conference because it will be one of the first large, national discussions about the Performance Imperative. Launched by the Leap Ambassadors earlier this year, this new definition of a high-performing nonprofit has certainly been shared and discussed widely (including on this blog), but this is one of the largest presentations of the PI among so many nonprofit and philanthropy leaders. It will be interesting to hear what they have to say about it.

The schedule also includes some fascinating breakout sessions, like the one where Hewlett Foundation’s Daniel Stid and GuideStar’s Jacob Harold will discuss nonprofit cost structures and why we need to Pay What It Takes to Get Results. Amen! And philanthropic visionary, Lucy Bernolz’s Future of Philanthropy session should be eye opening.

Finally, this conference will be an incredibly impressive gathering of 1,000+ thought leaders and social changemakers. There are so many people on the attendees list that I’d love to meet. Perhaps I can convince a few of them to participate in a future Social Velocity blog interview.

So that’s where I’ll be the last week in October. If you can’t make it, you can view the livestream here, or follow the Twitter stream #ISEmbarks2015. I’ll be Tweeting and blogging from the conference, as time allows. If you are planning to be there, let me know, I’d love to see you!

Photo Credit: Independent Sector

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Charting a Nonprofit’s Future Direction: A Case Study

Engaging News ProjectI guess I am on a case study kick this week. I do think that actual examples of the paths other nonprofits followed in order to become more effective or more sustainable can be really helpful to other nonprofit leaders in the trenches. So in that spirit, I offer a case study of a small, startup nonprofit ready to grow their impact and their sustainability.

The thing I love about my job the most is that I get to work one-on-one with super smart people who are coming up with innovative solutions to making the world a better place. In particular, lately I’ve been lucky enough to work with some groups in the civic technology space, a really exciting emerging area where innovative technology solutions are used to make government, and ultimately democracy, more effective.

One of these groups, The Engaging News Project (ENP) is a startup nonprofit aimed at helping news organizations better meet their democratic and business goals in a digital age.

While ENP enjoyed success and the support of some key funders over the past two years, they were ready to move from the project phase to an established organization with sustainable funding and a long-term strategy for achieving impact on the digital news industry.

So ENP hired me to lead their strategic planning effort. With my guidance, ENP created an advisory group of staff and key stakeholders. I led the group to analyze the external environment in which ENP operates, develop their theory of change, define the audiences they want to target, and articulate the goals and objectives and corresponding financial projections of the next 3 years for the organization. I also helped staff create a year 1 operational plan to help execute and monitor the strategic plan.

The end result was a clear 3-year strategic plan with accompanying financial model and an engaged and excited staff and group of advisors.

Because of their new strategic plan, ENP has focused their project development efforts, clearly defined where and with whom they want to work, and detailed their goals for the next 3-years.

They are now working to implement the strategic plan. They are identifying new funders to help support the growth of the organization, expanding their collaborative partners, creating a formal advisory board, and streamlining operations. ENP staff are excited about the new direction and are actively working to have a greater impact on the future of digital news.

As Talia Stroud, Director of the Engaging News Project put it,

As a new entity, we had been doing more of the day-to-day work and hadn’t taken the time to think about the bigger picture of where the Engaging News Project was headed and how to get there. Social Velocity helped us to chart a future direction, hone our messaging, and develop a clear plan for our organization. By working with us to figure out our targets, potential collaborators, and goals, Social Velocity helped us to systematically figure out a strong path forward. I can’t wait to see what we’ll be able to accomplish with these plans in place.

I’m excited to see where the Engaging News Project goes from here and the growing impact they will have on our democracy.

Photo Credit: Engaging News Project


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The Fundraising Event Debate Rages On

512px-Carter_and_Ford_in_a_debate,_September_23,_1976Predictably, my post last week arguing that nonprofit events aren’t efficient fundraisers caused some controversy. In particular, fundraising consultant, Gayle Gifford and I had an interesting (and very polite) debate about the post.

The exchange with Gayle really made me think and further refine my argument (which is really the point of debate, right?). What our exchange made me realize is that my issue with nonprofit fundraising events goes far beyond my belief that they are inefficient fundraisers.

Rather, my distaste for events stems from the fact that they often perpetuate the charity mindset, a destructive approach that keeps the work of social change sidelined and impoverished. The world is changing rapidly and the “charity” model doesn’t work anymore. And in fact, that model holds nonprofits back from becoming more efficient, more sustainable social change machines.

In our debate, Gayle and I discussed how events are merely a symptom of larger changes happening in the economy. As I wrote, nonprofit events are part of a:

“dying mentality that “charity” lives beside,…instead of fully integrated into, the economy. I believe that we are moving to a place where the work of social change (historically the work of “charity”) is fully integrated into the rest of the economy…the work of social change is just as important as the work of making widgets or the work of building roads and everyone understands that in order for all of it to work well, we need to finance it effectively.”

And Gayle argued that what I am describing would be a significant change to the world as we know it:

“I too long for/ and am working for the day when social justice is integrated into our economy as well as our philanthropic life… though that’s going to take some pretty massive restructuring of an economy based on unlimited resource extraction and consumption. But I still hold out that hope.”

But, as I responded, I think that kind of massive restructuring is already well underway:

I agree with you that fully integrating social change into our economy is not going to be quick or easy, but the truth is that it is already happening. There is a real convergence of the nonprofit, for-profit and government sectors and the result is that social change is now rather ubiquitous. At the same time, technology and the ways in which we communicate are changing rapidly as well. Add to that a Millennial generation that bakes social change into everything they do, and I think you start to see the beginnings of the “pretty massive restructuring” you and I are talking about. Nonprofits need to do the analysis and abandon activities that just aren’t effective. And then they need to look to some of these structural changes we are witnessing to find more efficient ways to create a sustainable financial model for their social change work.

In my mind, nonprofit fundraising events are anathema because they are symptom of a larger, ineffective way of thinking about nonprofits and the work of social change. Fundraising events are typically run as an aside, a tangential activity that sucks time and money out of a nonprofit and begs otherwise uninterested participants to pay the price of admission. These events keep charity squarely separate from the “real” work of the world.

And I truly believe we have moved past that. There are just too many social challenges to think that benevolent, reciprocity-based “charity” will work anymore. Social change must be bigger, more effective, and more efficiently financed.

When we stop thinking of the work of social change as “charity” supported in part by inefficient, occasional parties, we start creating real investment, real attention, and real change.

Photo Credit: Gerald Ford Library



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Why Some Nonprofits Leap, And Others Don’t

leapI am back after an amazing three weeks away from the world of social change. Don’t get me wrong, I absolutely love my job and the ability it gives me to work each day with incredibly inspiring, passionate, and driven social changemakers.

But as I’ve said before, time away is absolutely critical to feeding your soul and making you a more complete, interesting and effective person. I am so grateful to the amazing guest bloggers who wrote incredible pieces for the blog while I was away (you can read their posts here).

One of the benefits of giving your brain a break is new insight. It occurred to me while I was away that there is a big difference between social change efforts that just exist and those that reach the tipping point of achieving real social change. I work at the nexus between the two because nonprofit leaders often come to me when they hit an inflection point. They desire a big change — to move out of the status quo and take a big leap — but they don’t know how to get there.

Sometimes they make the leap, and sometimes they don’t. And the difference often comes down whether or not they possess (or cultivate) these traits:

Those nonprofits that make it have someone (or a handful of someones) who are the cheerleaders for the change they seek. These are the people who are constantly reminding board members, staff, donors about why change is necessary and all of the great things that will happen if they continue with the hard work. To achieve true change you must have a leader who can see the ultimate goal and rallies everyone together to get there.

To take a big leap (scale your solution, rebuild your board) you must have the confidence that you can do it. And you need the confidence to convince others to join you. You have to “fake it ’til you make it.” Some leaders are really good at this, others are not. It amazes me how important confidence is and how many in the nonprofit sector often lack it. You must fight the fairly normal state in the nonprofit sector of supplication and instead make confident demands for what it will take to achieve the change you seek.

Related to confidence — but different — is a necessary fearlessness. A nonprofit leader I worked with several years ago wanted to dramatically grow her services, and she knew she needed a bigger, more networked board to get there. So she had to get over the fear of asking for new connections. It is terrifying to ask someone to help you in new ways, or to ask for something you’re not sure the other person is willing or able to give, but you don’t get anything unless you ask. The path of change may be really difficult, or it may force you to make hard decisions. But if you want real change you have to face those uncertainties head on.

Changing minds, changing systems, changing habits is really hard work, and you must be dedicated to seeing the change through to the end. I know that the daily work of your nonprofit is already hard work. But I’m talking about a different kind of hard work. It is the hard work of explaining to ineffective board members why they have to resign, or letting poor performing staff members go, or educating donors about how they are holding your organization back, or creating new performance management systems. I have found that those nonprofit leaders who are constantly fighting the urge to settle back into the status quo are the ones who succeed.

It’s not enough to want a bigger, better, more effective organization. You must cultivate the vision, drive, confidence and fearlessness to get there.

Photo Credit: Stuart Anthony

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Guest Post: Nonprofits Must Be Able to Adapt

antony bugg-levineNote: As you know, I am taking a few weeks away from the blog to relax and reconnect with the world outside of social change. I’ll be back later this week, but I have left you in the incredibly capable hands of a rockstar set of guest bloggers. The last, but certainly not least, is Antony Bugg-Levine. Antony is CEO of Nonprofit Finance Fund, a national nonprofit and financial intermediary that works with philanthropic, private sector and government partners to develop and implement innovative approaches to financing social change. Here is his guest post… 

When we asked nonprofit leaders to identify top challenges as part of Nonprofit Finance Fund’s 2015 State of the Nonprofit Sector Survey, 32% said “achieving long-term sustainability,” by far the most popular response.

What does it take to reach the promised land of sustainability? It may seem counter-intuitive, but one of the best measures of organizational sustainability is not stability but adaptive capacity, the ability to act as circumstances require and opportunities allow. A truly sustainable enterprise must have the capacity to nimbly respond to external conditions. A strong balance sheet must allow for flexibility.

In the nonprofit sector, where pursuit of a mission is paramount, the ability to thoughtfully tack toward progress as funding conditions and community needs change is a hallmark of a success. That does not change the reality that our sector is notorious for restricted funding and hampered by a lack of available enterprise-level investment capital.

So, how do organizations build adaptive capacity?

Here are a few ways that nonprofits can build their adaptive “muscle” and be better prepared to change as the environment demands and opportunities allow.

Know your costs.
Nonprofits must understand the true costs of providing programs in order to make informed decisions about whether grants or contracts are able to cover those full costs, and how much subsidy might be required from other sources to fill the gap.

Many times, we see nonprofits use a grant amount as a starting point, and try to design a program that fits with the award amount. Heights and Hills, which provides services for older adults in Brooklyn and their families, asked us to help them take a different approach. Using customized tools, leadership now understands not only the current costs of running particular programs, but also how those costs change based on a variety of factors.

Like Heights and Hills, nonprofits need to be able to answer questions such as:

  • “Which programs may be too costly if they are not fully supported by direct revenue?”
  • “How do our costs change if we expand a program and need to hire additional staff?”
  • “What if the amount of grant funding changes?”
  • “Where might collaboration with another organization serve us well?”

Just say “no.”
The social sector attracts passionate activists who have a knack for seeing solutions where others see problems, and who are often driven by a deep inclination to say “yes” to those in need. But in order to build and preserve adaptive capacity and to truly remain mission focus, leaders must protect the nonprofit enterprise and its ability to continue its work. The common practice of accepting pennies on the dollar to deliver programs perpetuates unhealthy funding patterns and expectations. Armed with data about true costs makes it easier to say “no” to opportunities that ultimately detract from an organization’s ability to move the needle on mission.

New York’s Committee for Hispanic Children and Families did just that, and declined to pursue a large government contract because it sapped too many “indirect” resources. While at first glance, it seemed that the small allotment for “overhead” was enough, the amount didn’t nearly cover actual costs associated with the time that executive, finance and administrative staff were spending to keep the program afloat.

Saying “no” to a fiscally unhealthy grant preserves the organization’s ability to serve its clients well into the future. If we want to change embedded, unhealthy funding practices — and perhaps even elements of nonprofit culture that fuel these — we must be more willing to say “no.”

Measure outcomes.
Ultimately, the benefit of adaptive capacity is the freedom to pursue what works. Some programs are more easily measured than others, but nonprofits and our funders need to invest in understanding impact. This is especially critical as we move toward an outcomes-based funding environment.

Scenarios USA, a nonprofit that uses storytelling for youth sex education, found a rare partner in the Ford Foundation when it decided to dramatically change its approach. Scenarios was open to asking, “Are our programs working?” and accepted that its core assumptions were inaccurate. With the Ford Foundation’s support, the organization revamped its program to focus on fostering critical thinking, which has tremendous influence on youth behavior.

Evaluating programs, experimenting with new ways of meeting mission and measuring outcomes over time are necessary to positive social change.

Seek support for major changes.
Money for programs is far more plentiful than money for enterprise-level change. Our survey found that nearly half of nonprofits report that they can have an open dialogue with funders about expanding programs, but just 6% feel comfortable conversing with funders about flexible capital for organizational growth or change.

There are exceptions. The California Community Foundation has partnered with Nonprofit Finance Fund and several others to offer strategy, management, and financial services aimed at strengthening the region’s nonprofits and building the durability of the sector. New York Community Trust has launched an initiative to help small arts organizations navigate various transformations and milestones such as leadership succession, business model changes, and facility renovations or moves. And New York’s Change Capital Fund is a collaboration of 17 foundations and financial institutions that is funding five New York community development organizations to help them refocus their strategies and develop new business models to address persistent poverty more effectively.

It is time to challenge the notion that funders aren’t willing to talk about money for adaptation and adaptive capacity, and to make the case for the right kinds of support.

It is hard to know what will be required of our sector in the years to come, but a steady trend of increased demand seems to indicate that the answer will be, “more.” Limited resources make doing more of the same nearly impossible. We must change the way we approach the challenges of our day, and organizations with adaptive capacity will lead the way.


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