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Financing

Building a Sustainable Nonprofit: A Case Study

nonprofit strategyI consider myself incredibly lucky because I get to work one-on-one with some amazing social change leaders.

One of the clients I’m working with right now is the Muslim Public Affairs Council (MPAC). This is a group of incredibly smart and passionate people who are committed to improving public understanding and policies that impact American Muslims by engaging the government, media, and communities.

The challenges they face as a nonprofit organization are not unique. So I’d like to share their story as a case study.

I met MPAC in 2013. While they had been around for 25 years and aspired to be a truly national organization, MPAC struggled to build a diversified financial model and a donor base beyond southern California. At the same time the organization lacked a coherent strategy for their future work. They wanted to expand their national presence, grow their networks and influence, strengthen and diversify their funding sources, and ultimately increase their impact on a vibrant American Muslim community, but they didn’t know how to get there.

MPAC hired Social Velocity to conduct a Financial Model Assessment to determine what was holding the organization back from growing their revenue and diversifying their funding sources. I interviewed board and staff members and some external constituents to uncover what was holding MPAC back. I also analyzed MPAC’s past financial history, board and staff structure, marketing materials, fundraising activities and more to understand what was working and what was not. I delivered to board and staff a 30+ page assessment that described how MPAC could strengthen their financial sustainability.

One of the biggest things holding MPAC back financially was the lack of a future organizational strategy around which they could rally donors. Upon hearing my findings, the board voted unanimously to undertake a strategic planning process to chart a focused future direction. We then worked over the next 6+ months to develop a 3-year strategic plan to increase MPAC’s impact and financial sustainability.

Because of the new strategic plan we created, MPAC has focused their efforts and resources and are now working to implement the strategic plan and financial model recommendations. They are working to identify outside investors to help fund a growth campaign, expand the board, hire a Development Director, and streamline operations. Board and staff are excited about the new direction and are actively working to bring it to fruition. And to help MPAC in this critical change and growth phase I am coaching staff and board on how to implement the plan and set the organization up for success.

Outside guidance is sometimes critical to moving an organization forward. As Salam Al-Marayati, MPAC’s President and CEO put it:

Nell’s assessment illustrated how we were wasting resources and not connecting prospective donors with a clear message. After the board and staff read the report, we all decided to proceed with a strategic planning process. That exercise, which spanned over 6 months, opened everyone’s eyes. We now have buy-in from our most important stakeholders in the organization – the board – for change. We realized that in order to achieve growth, we have to change internally. Nell helped us to navigate the road to becoming a national organization by changing how we operate internally. Nell’s experience in nonprofit management and fundraising proved to be invaluable in our planning process. We are now beginning to implement the strategic plan are excited about this new era for the organization.

It doesn’t have to be so hard. The mission your board and staff are so passionate about can be achieved in a sustainable way.

You can learn more about how I work with nonprofits on my Consulting page, and you can read more case studies on the Clients page. If you’d like to discuss how I might work with your nonprofit, let me know.

Photo Credit: Evelyn Simak

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5 Fundraising Delusions Nonprofits Suffer

fundraisingFundraising is, for the most part, a fundamentally misunderstood activity. There are a lot of misconceptions, among nonprofit leaders, board members — even donors — about effective ways to bring money in the door.

Here are are a few of the worst delusions about fundraising that persist in the sector:

  1. Events Are Fundraisers
    Very few nonprofit events generate a net income after you factor in the direct (food, venue, invitations, entertainment) and indirect (board and staff time) costs that go into them. They simply are not profit-generating activities. If you are looking to your events to bring in a profit, calculate the cost to raise a dollar to see if they actually are. Some nonprofit leaders argue that events generate value beyond profit, vague terms like “awareness” or “goodwill.” That may be, but unless you follow-up with individual event attendees to turn that increased “awareness” or “goodwill” into money, there is little financial value to events. Turn your energies instead to low-cost, mission-focused cultivation and stewardship events for your major donors and major donor prospects, then you might have something.

  2. Crowdfunding Creates Revenue
    Nope, it doesn’t. Revenue is the on-going money you need to keep your doors open and your operations running. A crowdfunding campaign, by definition, is a one-time deal. It is organized around a specific need or timeframe. Therefore the money it generates is not easily or regularly repeated. Crowdfunding could make sense for a nonprofit hoping to raise startup, growth or capacity capital (all one-time infusions of money). But that Kickstarter campaign is not going to keep the lights on, so look elsewhere (like a financing plan) for sustainable revenue.

  3. Major Donors Can Be Recruited En Masse
    Major donors are secured through a long-term, systematic, one-on-one process. There is no quick way to bring large donors on board. My issue with mass major donor fundraising programs (like the Benevon model) is that when you ask people as a group to pull out their checkbooks, you are leaving money on the table. The check someone feels compelled to write after watching a 20-minute presentation with their friends pales in comparison to the one they will write after you’ve built a one-on-one relationship with them over time. Put together a strategic major donor campaign, along with the infrastructure and systems to execute on it, and you will create a long-term major donor base (and its corresponding revenue stream) for years to come.

  4. Skimping on Fundraising Staff and Systems Saves Money
    While you may save a few thousand dollars in salary by hiring a novice fundraiser (instead of an experienced one), you will cost the organization hundreds of thousands of dollars in missed revenue. The same is true with cheap fundraising systems like an ineffective donor database, an unresponsive website, a cumbersome email marketing system, or a poor (or non-existent) marketing strategy. Figure out what it will really cost to build the fundraising team and systems you need and then raise the capacity capital to get there.

  5. Endowments Solve Money Woes
    Let’s face it, an endowment makes sense for very few nonprofits. Even if you were able to convince donors to let their money just sit in a bank account (which is a big “if”), that money won’t really impact your bottomline. Even if you raise an endowment of $1 million, it will only generate $50,000 (assuming a 5% return) of operating revenue each year. Instead raise a much smaller amount of capacity capital which you could use to strengthen your fundraising infrastructure (more staff, better technology). Those improvements could increase your annual revenue by many times more than $50,000.

It’s time to face the facts. There are smart ways to raise money and there are delusional ways to (not) do it. Embrace the power of money and use it as a tool to create a more effective, sustainable organization.

Photo Credit: TaxCredits

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Speaking With Social Change Leaders

Nell EdgingtonOne of the things I love about my job is that I get to travel to different parts of the country talking with groups of social change leaders about how to think about their work in new ways. I speak to nonprofit and philanthropic conferences, events, groups, even boards about trends in the nonprofit sector and how social change leaders must adapt.

Recently I have spoken to groups in Portland, Seattle, Sacramento, Dallas, and Idaho. You can see a video of me speaking to the Seattle Association of Fundraising Professionals Conference below (or click here) where I was talking about one of my most popular topics, How to Move From Fundraising to Financing.

I speak about any of the topics covered in the Social Velocity blog, but here is a general list of topics:

  • Speaking Engagements One SheetMoving From Fundraising to Financing
  • The Future of the Nonprofit Sector
  • Overcoming Nonprofit Myths
  • Reinventing the Nonprofit Leader
  • The Power of a Theory of Change
  • Getting Your Board to Fundraise
  • How To Raise Capacity Capital
  • Creating a Sustainable Financial Model
  • Messaging Impact
  • Creating a Succession Plan
  • Honest Conversations Between Funders and Nonprofits
  • The Critical Connection Between Mission and Money

If you want to learn more about having me come speak to your event or group, download the Social Velocity Speaking One Sheet, or visit the Speaking page to learn more.

Photo Credit: Social Velocity

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The State of the Nonprofit Sector in 2015

nonprofit sector surveyEarlier this week the Nonprofit Finance Fund released the results of their 7th annual State of the Sector survey about the financial health of the American nonprofit sector. This on-going survey, now in its 7th year, has become a fascinating marker to gauge how the nonprofit sector is evolving amid a changing economic climate.

The Nonprofit Finance Fund launched the survey in 2008, when the economic crisis was just beginning. This year results from 5,451 respondents show some positive signs of adaptation and growth, but also recurring challenges that continue to face the sector.

You can see the full results of the survey here and slice and dice the data yourself with their Survey Analyzer Tool here. But here are some of the key findings of this year’s survey.

Nonprofits are unable to meet a growing demand for their services:

  • 76% of nonprofits reported an increase in demand for services – the 7th year that a majority have reported increases.
  • 52% couldn’t meet demand, the third year in a row that more than half of nonprofits couldn’t meet demand.
  • Of those who reported that they could not meet demand, 71% said that client needs go unmet when they can’t provide services.

Nonprofits still (not surprisingly) struggle to make ends meet. While some nonprofits are achieving financial sustainability (47% ended 2014 with a surplus, the highest in the history of the survey), many still face real challenges:

  • 53% report three months or less of cash-on-hand.
  • 32% find achieving long-term sustainability a top challenge.
  • 25% struggle to be able to offer competitive pay and/or retain staff.
  • 19% can’t raise funding to cover their full costs.

And these financial challenges are due in large part to the catch-22 funders place nonprofits in by routinely covering only a portion of the full costs of the programs they intend to support:

  • 70% of survey respondents receiving Federal funding report that the government never or rarely pays for the full costs of delivering services.
  • 68% of respondents who receive state funding say the state government never or rarely pays for the full costs of delivering services.
  • 47% of respondents who secure foundation funding report that foundations never or rarely cover their full costs.
  • While 89% of nonprofits are asked to collect data to capture the effectiveness of programming, 68% of funders rarely or never cover the costs associated with measuring program outputs or outcomes.

So we still have a long way to go.

But those nonprofits who are faring well in this environment are those being strategic. As one human services nonprofit leader put it:

“Sustainable funding continues to be our greatest challenge. Our actions to address this challenge include developing and adhering to a strong and dynamic strategic plan; diversifying our program funding streams as much as possible; developing and communicating a strong community impact statement for our programs; and focusing on increased donor engagement in order to increase fundraising dollars.”

You can dig further into the data from this and past years’ surveys here.

Photo Credit: Nonprofit Finance Fund

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The Strategy of Social Change [Podcast]

nonprofit podcastI’ve gotten a few requests lately to participate in social change podcast series (see my podcast with Panvisio). I love discussing the many issues in social change work, so I’ve really enjoyed being part of these discussions.

This month Greg Cherry of The Philanthropy Hour asked me to participate in a podcast conversation with him as part of his ongoing podcast series with social change leaders.

In the podcast, among many topics, we discuss:

  • How leadership is the best ingredient for social change effectiveness.
  • What true leadership means.
  • What a Theory of Change is and why it’s crucial to any social change organization.
  • How to develop a Message of Impact and create a Case For Investment.
  • The importance of moving from fundraising to financing and what that shift looks like.
  • Debunking the “overhead myth.”
  • And much more…

Below is the podcast, or you can click here to listen to it.

 

Photo Credit: Ilmicrofono Oggiono

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The Nonprofit Sector’s Crisis of Confidence

rosieI sometimes wonder how many of the nonprofit sector’s challenges stem from a fundamental lack of confidence. Don’t get me wrong, there are deep structural dysfunctions at play in the nonprofit sector. The sector is held back by a lack of adequate financial resources and an on-going grantor/grantee power imbalance, to name just two.

But how much is a lack of nonprofit leader confidence also to blame? How much further could we go in the sector if more nonprofit leaders confidently stood up for what they believe, what they need, and the value of the work they do.

I am a huge believer in confidence. In fact, I think that those who exude confidence, even when they don’t necessarily feel it, are far more likely than those who don’t to be taken seriously and get what they want.

But often in the nonprofit sector that confidence is absent.

I think this lack of confidence stems from a fundamental feeling of inadequacy that pervades the sector. Nonprofit leaders are subjected to a recurring litany of false beliefs that include, nonprofits: “live beside the economy“, “aren’t as capable as business“, only “do good work,” and “should be grateful” for whatever they get.

But nonprofit leaders must free themselves from those crippling shackles. You must stand up and demand (nicely if you’d like) what you truly need. And you start by articulating the value your organization provides.

Let me give you an example.

A nonprofit leader whose organization had long provided critical services for a school district was fed up with not being paid for those services (they had to privately fundraise for the costs of the program). The nonprofit leader did her research on how much money her organization was saving the district (in increased student attendance, additional staff and instruction time, etc.) and how much the district was investing in other inferior solutions.

She put together a confident, thoughtful and decisive presentation, secured a meeting with the superintendent, and made her case for increased investment. The end result was a superintendent blown away by the evidence and the nonprofit leader’s presentation. For the first time ever the superintendent included significant, multi-year support for the program in the district budget.

This nonprofit leader could have simply swallowed the fact that the school district didn’t value the services her organization provided. But instead she pointed out the disconnect between value provided and money invested and stood up for her organization.

I would guess that most nonprofit leaders lack that kind of confidence. And in fact, for many years even the nonprofit leader above didn’t have it.

But there is so much to be gained from a confident approach. Aside from the potential of securing more resources, when you become a confident player you start to identify strategic partners (like the school superintendent above) who can be your equal in the work of social change.

Because partnerships are infinitely more successful when they are forged by two equal entities coming together to create value. This is true for partnerships between your organization and your vendors (like the school district) but also your funders, board members, advocates, policymakers — anyone that you need on board in order to get the work done.

Confidence isn’t just about getting more of what your nonprofit needs. It’s ultimately about effectively creating social change. And you can’t create social change with your head down and your voice low.

So stop living in the shadows. Arm yourself with data, a compelling argument, an army of advocates and, most importantly, confidence to forge what you need in order to create change.

Photo Credit: Library of Congress

 

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10 Great Social Innovation Reads: March 2015

social changeWhat a great month March was. Just as the weather started to turn to Spring (I hope it did where you are too), there was a whole host of great reading to digest. From analysis of the new breed of philanthropists, to controversy about contest grantmaking, to mission investing progress, to tips and guides on nonprofit finance, leadership and financial advocacy, there was lots to read.

Below are my picks of the 10 most interesting reads in the world of social change in March, but as always, please add to the list in the comments.

And if you want a longer list, follow me on Twitter, Facebook, LinkedIn or Google+.

You can also see the 10 Great Reads lists from previous months here.

  1. Call me biased, but I think the biggest social change news in March was the launch of the Performance Imperative, a detailed definition of a high-performance nonprofit, by the Leap Ambassadors (of which I am one). Many reviewed the new tool, including Phil Buchanan from the Center for Effective Philanthropy who wrote that nonprofit performance is a “moral imperative.” And if you want to learn more, there is a webinar drilling down on the PI later this month.

  2. Who says online debate never results in change? There was a big discussion on the Chronicle of Philanthropy‘s site this month over the Council on Foundation’s plans to hold a “Shark Tank”-like contest for nonprofits. Many felt this contest would be a step backward, forcing nonprofits to perform for money, so the Council scrapped the contest and created instead a panel discussing the positives and negatives of contest-style grantmaking.

  3. F.B. Heron Foundation CEO, Clara Miller (formerly of the Nonprofit Finance Fund) is a true nonprofit finance visionary, and this month the Foundation passed the halfway mark on their goal of putting ALL of their capital toward mission. And writing in The Guardian, Tim Smedley would seem to agree with their goal when he makes the case for mission investing.

  4. Chris Gates (from the Sunlight Foundation) and Matt Leighninger (from the Deliberative Democracy Consortium) wrote a fascinating letter to the editors of the Chronicle of Philanthropy taking issue with Diana Aviv’s comments on recent Independent Sector research about technology and nonprofit institutions. Gates and Leighninger argue that there is great opportunity in technology if nonprofits embrace it effectively, as they put it, “It is true that the rise of the Internet is forcing institutions like governments, foundations, nonprofits, and professional associations to rethink how they operate. They have to adapt to the needs and goals of 21st-century citizens or perish. But ultimately, people want the same things they always have: to belong to a community, to have a voice, and to make an impact…if institutions can provide those things in this interconnected time, they will thrive.”

  5. American educators and education funders have focused in recent years on science and math to create a more effective and competitive American education. But Fareed Zakaria, writing in the Washington Post, thinks that’s a big mistake, “As we work with computers (which is really the future of all work), the most valuable skills will be the ones that are uniquely human, that computers cannot quite figure out — yet. And for those jobs, and that life, you could not do better than to follow your passion, engage with a breadth of material in both science and the humanities, and perhaps above all, study the human condition.” Amen!

  6. The fourth installment of Tom Watson’s on-going series about the changing face of American philanthropy focuses on the class of new, entrepreneurial philanthropists, those young, tech wealthy donors who are pushing for data-based social change. And Pascal-Emmanuel Gobry takes it even further arguing that “effective altruism,” what he calls this data-centered approach to philanthropy, is only one potential method of investing in social change, not the only or best approach. As he puts it, “making the world a better place is an inherently speculative behavior — if we knew how to do it we’d have already done it. Therefore the most prudent collective thing to do is to try a very wide swath of different approaches rather than a single one.” And as one of these new philanthropists, Facebook founder Mark Zuckerberg’s investment in Newark public schools continues to come under fire.

  7. The National Committee for Responsive Philanthropy put out a fantastic report on the need for more philanthropic investment in nonprofit leadership development. This should be required reading for every philanthropic and nonprofit leader in the country.

  8. The National Council of Nonprofits developed a guide for nonprofit leaders to advocate for their funding rights, particularly around indirect rates, with government funders.

  9. And there were lots of great tips and tools this month for becoming an effective financial leader. The Nonprofit Finance Fund released a list of tips to help “keep business and finance an integral part of decision-making.” And Kate Barr offered 6 Takeaways from the Nonprofits Assistance Fund’s annual Nonprofit Finance and Sustainability Conference.

  10. Finally, Jocelyn Wyatt from IDEA.org argues that general funding for nonprofits is the “future of innovation”. Yes please!

Photo Credit: BibBornem

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The Changing Nonprofit Landscape [Podcast]

nonprofit podcastEarlier this month I participated in a podcast conversation with Joed Lopez of Panvisio as part of their on-going Q2 Podcast series with social sector leaders.

We talked about:

  • How broken fundraising is
  • A more effective financing approach
  • Nonprofit fear of money
  • The passion of nonprofit leaders
  • The need to articulate a nonprofit’s message
  • Capacity capital
  • Social entrepreneurship
  • Nonprofit boards
  • And much, much more…

I really enjoyed the conversation and hope you will too.

You can listen to the podcast below, or click here to listen to it on the Panvisio site.

 

Photo Credit: Makingster

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