I am amazed by the reaction of some nonprofit leaders when faced with a budget shortfall. Some simply shake their head in innocent confusion, some blame an “inexperienced” development director or a “checked-out” board, and others throw together a knee-jerk fundraising event in order to stem the tide.
But a much better approach, when you don’t have the money your nonprofit needs, is to step back and assess the viability of your nonprofit’s overall money function, which is the topic of today’s installment in the ongoing Financing Not Fundraising series.
If you want greater, more reliable funding for your nonprofit, you must get strategic. And the first step to any real strategy is analysis.
Instead of viewing the money that flows to your nonprofit as a side note, or worse, a completely uncontrollable force, you must view money as a very necessary and integrated function that is just as important as your nonprofit’s programmatic function. And in order to determine how well your money function operates and how to transform it, you must assess it.
A transformative financial model assessment uncovers how all aspects of the organization contribute to or detract from money flowing through the doors. It analyzes the financial impact of 7 areas of the organization, like this:
Does your nonprofit have a long-term strategy that integrates money, programs and operations? Does your strategy help articulate the value your nonprofit provides the community in order to compel outsiders to invest? Does your strategy include measures for whether that value is actually being created?
- Mission and Vision
Does your nonprofit have clear, compelling vision and mission statements? The two statements are not “nice to have” marketing language, rather they articulate the very essence of why your nonprofit exists. Does your vision paint a bold description of the social change you seek? Does your mission describe the day-to-day work towards that vision?
- Board and Staff Leadership
Does your board have the skills, experience and networks necessary to execute on your strategic plan? Are they engaged and invested? Are they actively connecting the organization to people, resources, partnerships? Does your staff have the knowledge and experience necessary to make money flow? And are they structured and managed effectively?
- Program Delivery and Impact
As a nonprofit you have two sets of “customers.” Those you serve (or your “clients”), and those who fund those services (or your “donors”). Without a compelling and effective delivery of services to clients, donors won’t fund those services. Is your nonprofit strategic about which programs to grow and which to cut? Do you measure the effect of your programs on clients? Are your programs financially viable, or are too many of your programs mission-rich, but cash-poor?
- Marketing and Communications
Do you make a compelling case for your work and for support of it? Once you’ve made the case, are you using the right marketing channels (website, social media, events, email, etc.) to attract and engage your target funders, volunteers, advocates, board members and other supporters?
- External Partnerships
In order to move the mission forward and in order to attract funders, volunteers, advocates you must be strategic about building alliances that make sense. Do you have the necessary external relationships to execute on your strategy? Are you constantly working to strengthen or grow the right partnerships in the right ways?
- Financial Model
And only now do we look specifically at money. Because without all the previous elements (thoughtful strategy, compelling vision and mission, strong leadership) money simply will not follow. Does your funding mix fit well with your mission and core competencies? Are there other revenue streams that make sense to pursue? Are there fundraising activities that are actually costly rather than profitable?
When money isn’t working the way you want it to, don’t stick your head in the sand. Wrest the money sword from the beast of chance by taking a hard look at your nonprofit’s money function.
If you want to learn more about the Financial Model Assessment I provide clients, click here. And if you want to learn more about the Financing Not Fundraising approach, download the newest e-book in the Financing Not Fundraising series, Financing Not Fundraising volume 3.
Photo Credit: Pen Waggener
Ever since last year’s Letter to the Donors of America from GuideStar, Charity Navigator, and BBB Wise Giving Alliance there has been a growing movement to debunk the “nonprofit overhead myth,” the notion that donors should evaluate nonprofits based on the percent they spend on “overhead” (fundraising and administrative) costs.
More and more articles (a most recent one here) are cropping up explaining the overhead myth and highlighting donors who overcame it. And even fundraising journal Advancing Philanthropy is devoting their entire Spring issue to the topic.
But at the same time we have very obvious examples of the continuing strength of the overhead myth. The latest is nonprofit darling Charity:Water, which is often held up as the gold standard of innovative fundraising and nonprofit strategy, claiming that 100% of their donations go “directly to the field.” And thus the overhead myth lives on.
Will we ever be rid of the idea that nonprofits can somehow achieve a nirvana where very little (or no) money goes to boring things like salaries, technology, infrastructure, fundraising, leadership development, planning, R&D?
I wonder if we could gain more traction by talking less about the negatives of an overhead myth and talking more about the positives of nonprofit organization building.
For example, one of the things that is often considered “overhead” and rarely gets funded is nonprofit leadership development. But in the for-profit sector, leadership development is viewed as an incredibly important and worthy investment. According to a recent article by the Foundation Center, the business sector spent $12 billion on leadership development in 2011, whereas the nonprofit sector spent $400 million, or viewed another way, businesses spent $120 per employee on leadership development, whereas the nonprofit sector spent $29 per employee.
And leadership development can have such a positive return on investment. A stronger nonprofit leader can:
- Recruit, train and manage a more productive and effective staff
- Engage a more invested board of directors
- Use money and other limited resources more strategically
- Open a nonprofit to bigger and better networks
- More effectively manage to outcomes
- Create an overall more highly performing nonprofit
So what if we refocused the overhead myth discussion on the power of nonprofit organization building? Beyond leadership development, investing in nonprofit organization building means money for things like: talented, effective fundraising staff; smart long-term planning; performance management systems; effective technology.
At the core, organization building is about creating a smart, strategic nonprofit that can actually realize the outcomes it was set up to achieve. Organization building can make the difference between a nonprofit that is just getting by and a nonprofit that is actually solving problems.
Photo Credit: liquidnight
“Here’s my problem…It’s obvious these people have money, they just don’t want to share it with us.”
What this executive director fails to realize is that the burden to connect the dots for donors lies squarely on her shoulders. It is up to nonprofit leaders to articulate – in a compelling, inspiring way – how their nonprofit is creating a solution to an important social problem, and why donors should care about and invest in that solution.
A Case for Investment can help you do just that.
Now more than ever, nonprofits are struggling for funding amid growing competition and diminishing available dollars. At the same time, burgeoning interest in performance management and impact investing have focused more donors on the outcomes their investment in a nonprofit will bring.
Donors, especially major donors, are less likely to give to a nonprofit because the organization “does good work” and more likely to give because a nonprofit demonstrates how it creates a solution to a social problem the donor cares about.
Those nonprofits that want to continue to attract and grow philanthropic investment must create a compelling, thoughtful argument for why a donor should give to their organization. This argument is called a “Case for Investment.” Driven by a thoughtful combination of data and emotion, a good Case for Investment can help a nonprofit communicate and connect with their target donors much more effectively.
The Case for Investment Step-by-Step Guide can help you create your nonprofit’s case.
“I am using it as a catalyst to create a branding campaign with my Marketing Committee. Of course, this will be used for fundraising and grant writing as well. We really needed the framework to build value for our donors, volunteers, and clients.”
A good case for investment is the fundamental building block from which all donor communications, marketing materials, grant proposals, website language, and more is born.
The Case for Investment Step-by-Step Guide is broken down into ten sections:
- Why Create a Case for Investment?
- How to Use This Guide
- The Need
- Financial Model
- Strategic Direction
- Resources Required
- Social Return on Investment
- Next Steps
In each section there is a series of questions, which you will answer. Your answers to these questions become the basis for your final Case for Investment. Examples of other nonprofit’s cases for investment are highlighted in each section, allowing you to see how others have made their arguments.
Photo Credit: JHall159
I’ve been working with several clients lately to create a strategic plan, and I love the moment when the real value of the strategic plan and the process of creating one becomes blatantly obvious.
It’s the point at which board, staff, funders start to see the possibility that the plan holds for the nonprofit and the social change they seek. They get really excited about bringing that future to fruition.
But that only happens when you create a really smart, thoughtful strategy — a good strategic plan, instead of a poor one.
Smart nonprofit strategy can completely transform an organization, in at least 5 fundamental ways. It will:
- Create Momentum
It’s not the final plan that energizes people, rather it’s the process of analyzing the external environment in which a nonprofit operates, making some hard decisions about where to focus resources, articulating the value the nonprofit provides, connecting the dots between individual actors and the larger vision. If done well, the work done during the strategic planning process really energizes board and staff. And when they start talking with people outside the organization (funders, volunteers, stakeholders) about the plan, those outsiders become energized too. To really tap into people’s potential you must inspire them to larger heights and help them understand their role in reaching those heights. A great strategic planning process does that.
- Attract Deeper Funding
The difference between a nonprofit just scraping by and a nonprofit with a sustainable future is strategy. If you want to attract larger, longer-term funding, particularly from major donors, you simply must have a future strategy in place. People and organizations that make large gifts to a nonprofit are in effect investing in the future of that organization. And if you can’t articulate your future plans in a thoughtful, compelling way, funders won’t make that larger investment.
- Filter Future Decisions
If you create your strategic plan correctly it becomes a tool for analyzing and making decisions about future opportunities. Most nonprofits are regularly fielding new opportunities (new funding streams, new programs to develop, new alliances to forge), but without an overall strategy it’s difficult to know which opportunities to pursue. A great strategic plan doesn’t tie an organization’s hands, rather it becomes a tool — a lens — through which you can thoughtfully analyze future decisions and make the best moves for your organization. One of my clients uses growth criteria we developed during their strategic planning process to determine when and where to add new sites. These criteria ensure that they are growing in a strategic, not reactive, way.
- Become a Management Tool
When done right, a strategic plan can drive the operations of the organization and the activities of the board and staff. At the board level, you can regularly track progress on the goals and objectives of the strategic plan through a dashboard (like the one at top of this post). At the staff level, you can monitor the activities and deliverables of the plan through an operational plan. An effective strategic plan doesn’t sit on the shelf, but rather is a living, breathing guide to the daily work and decisions of the organization. It’s not a final product, it’s a way of life.
- Realize More Change
At the end of the day you operate your nonprofit in order to address a social issue, to see some sort of change to a social problem. But the only way you will truly create that change is if you have a strategy that puts all of your limited resources (money, staff, board, volunteers) to their highest, best, most focused use. A great strategic planning process forces you to do the analysis, conduct the research, make the hard decisions, and track your progress so that at the end of the day you actually are making a difference.
Honestly, I don’t know how you operate a nonprofit without a strategy in place. In an increasingly competitive, resource-strapped world great strategy is less a luxury and increasingly a necessity.
If you want to learn more about what a strategic planning process looks like, check out my Strategic Planning page.
Although the definition of a “startup” is an organization that has been around for only a few years, there are many nonprofits that are still in startup mode despite their 20+ years of existence.
But the good news is that you don’t have to wait around for a knight in shining armor to save you from the endless startup existence, which is the topic of today’s installment in the ongoing Financing Not Fundraising series.
The power to begin scaling the startup wall is actually in your hands. Here are the steps to begin:
- Create Your Business Plan
Probably a big part of the reason that you are still struggling as a startup (more than) several years in is that you haven’t strategically connected operations and financing to your mission. A business plan that answers questions like “How will you finance the business?” and “Who are your target customers (clients AND funders)?” and “What’s the right staffing structure?” and “What are the goals of the business?” and much more. Just because the profits from your business enterprise go back into the organization (nonprofit) instead of into the pockets of the owner or stakeholders (for-profit) doesn’t mean you don’t need a business plan. Figuring out how to align money, mission and operations is the first step to a stronger future.
- Grow Your List of Champions
If your nonprofit’s inner circle consists of a founder and a few friends you will never grow. You have to convince people beyond those who already love you to internalize the work of the organization and become actively involved as board members, advisors, fundraisers. But you cannot target anyone and everyone. You have to identify people whose values connect with your work and your mission. And they have to have some specific skills, experience and networks that will help your organization move forward. But if you’ve only ever had your friends behind you, how do you convince outsiders to become champions and board members? Keep reading…
- Develop a Value Proposition
If you are unable to articulate among internal board and staff what your nonprofit is hoping to accomplish and the value it provides the community, how can you possibly convince others to become involved? The first step in really taking things to the next level is to develop that value position, or a Theory of Change. A Theory of Change is basically an argument for why your nonprofit exists — how you take community resources (inputs) and create changes to program participants’ lives (outcomes). To move from merely getting by to really making strides, you must create this argument.
- Convince Others to Give
Once you have your Theory of Change in place you need to make a compelling argument for how more inputs (funding) will help you create more outcomes. A case for investment is a logical, reasoned argument that helps you to make this case convincingly. Once completed, pieces of your case for investment can be used in fundraising appeals, on your website, in thank you letters, in marketing campaigns and much more. It is the fundamental building block to attracting more dollars to your nonprofit.
It doesn’t have to be a rule that the vast majority of nonprofits subsist in an endless startup mode. If you need some help finding your way out of startup mode, download the Nonprofit Startup Tool Bundle.
Photo Credit: Chad K
I’ve recently witnessed some behavior from nonprofit leaders that made my jaw drop:
- A board chairman convinced the rest of his board to turn away a donor who wanted to give the nonprofit a significant amount of money to fund organizational capacity (strategic planning, coaching, fundraising training) because he felt the nonprofit already knew how to do the work internally for free.
- An executive director who was really struggling with wrangling her board and developing a strong financial model bravely asked a close foundation donor for advice and support. When the foundation offered to fund some leadership coaching, the executive director rejected the offer for fear her board would think she didn’t know how to do her job.
- A board charged their nonprofit’s Development Director with increasing revenue in a single year by 30%. When she asked for a donor database to help more effectively recruit new and renew current donors the board said “No” because they felt she should already be able to do that without the aid of new technology.
More often than not it is nonprofit donors who hold back efforts to build stronger, more sustainable nonprofits by not providing enough capacity capital. I talk about that all the time (like here, here and here).
But sometimes, and more shockingly, nonprofit staffs and boards stand in their own way.
It takes courage for a nonprofit leader to admit that she doesn’t know how to do something and needs help. I am reminded of a fascinating interview I heard on NPR earlier this fall with Leah Hager Cohen who recently wrote the book, In Praise of Admitting Ignorance. She describes the freedom that comes from admitting when you simply don’t know how to do something. That moment of honesty can lead to transformation, as she says, “I think those words can be so incredibly liberating…They can just make your shoulders drop with relief. Once you finally own up to what you don’t know, then you can begin to have honest interactions with the people around you.”
I would love to see nonprofit leaders take this advice to heart. Once you have the courage to admit (to your board, to your donors, to your staff) that you don’t know how to do everything, you just might finally get the help you so desperately need.
Nonprofit leaders have been given the Herculean task of: developing and managing effective programs, managing a diverse and underpaid staff, crafting a bold strategic direction, creating a sustainable financial model, wrangling a group of board members with often competing interests, and recruiting and appeasing a disparate donor base. All with little support along the way. It is easy to see why the position of nonprofit leader is such a lonely one.
So instead of continuing to bear that enormous burden, take a step back and admit that you simply don’t know how to do it all. You need help, guidance, advice, support, organization building. If you are lucky enough to have funders, board members or others outside the organization that want to help, admit (to yourself, to your board, to your donors) that you need that help. And don’t let anyone (including, and especially, yourself) stand in your way.
If you’d like to learn more about the leadership coaching I provide nonprofit boards and staff click here, and if you’d like to schedule a time to talk about how I might help move your organization forward, let me know.
Photo Credit: Wikimedia
It’s that time of year again – the Nonprofit Finance Fund’s annual State of the Sector Survey of nonprofit leaders.
If you are a nonprofit leader struggling with increasing demand for services amid diminishing funding, if you are frustrated with funders’ lack of understanding of the challenges you face, if you want the sector to recognize the hurdles and get better at addressing them, you need to voice your perspective by taking the survey.
The Nonprofit Finance Fund is one of the country’s leading community development financial institutions (CDFI) making millions of dollars in loans to nonprofits and pushing for fundamental improvement in how money is given and used in the sector.
They started the annual State of the Sector survey when the recession hit in 2008. Collective efforts to understand the extent of the challenges the economic restructuring was having on the nonprofit sector were decentralized and largely anecdotal. NFF’s survey is an effort to bring information about the nonprofit community together so that it can be used to address these challenges. You can view the results from past surveys here.
The anonymous survey takes 10-15 minutes to complete and asks about your organization’s recent financial and management challenges. The knowledge gathered through the annual survey is shared with funders, government officials, nonprofits, media, lending institutions, and many others through conferences, policy recommendations, and other efforts. And now with more than 5 years of Sector Survey data, we can analyze and understand trends and begin to make a larger argument about what nonprofits need and what funders and policymakers must do differently to support their work.
The survey really is the only effort of its kind to take the pulse of the sector. And I am excited to see how the results are increasingly used to advocate for some significant improvements to the state of the sector.
This year’s Sector Survey will be open to responses until February 17th, so if you are a nonprofit leader, click here to take the survey and let your voice be heard. The results of this year’s survey will be available in early April.
Photo Credit: Nonprofit Finance Fund
If I had one wish for the nonprofit sector in this new year it would be for nonprofits to get much smarter about money and finally start using it as a robust, strategic tool for creating more social change.
But you can’t get smarter about something that you fear, or don’t understand, or avoid, or can’t access.
Which is why I’m really excited about one of the new tool bundles I’m offering in the newly revamped Tools section of my website. The Develop a Financial Model Tool Bundle provides the guidance you need to create a financing plan for your nonprofit in this new year.
A financing plan (as opposed to a fundraising plan) is a long-term strategy for bringing enough money in the door to achieve your mission, ultimately bringing you closer to creating sustainable social change.
The Develop a Financial Model Tool Bundle will help move your board, staff and donors to truly understand a financing approach and give you the roadmap for developing your nonprofit’s own financing plan. It will help move your nonprofit from the exhausting hamster wheel of fundraising to a robust, sustainable financial model.
The tool bundle includes 4 components:
- The Financing Not Fundraising, vol. 1 E-book that describes the theory behind moving from fundraising to financing, why financing is a much more sustainable and effective approach, and how to begin moving your organization to a much more sustainable way of thinking about and securing money.
- The Financing Not Fundraisng, vol. 2 E-book expands on the ideas behind a financing approach, gives concrete examples of this new approach, and describes how to change your, and your board and donors’ thinking in order to fully make the switch to this new approach of financing your work.
- The 60-minute Create a Financing Plan On-Demand Webinar moves you from embracing the theory of a financing approach to fully understanding what a financing plan is, how it differs from a fundraising plan, the framework for a plan, and the steps necessary to create one. This webinar can be watched whenever you want and however many times you need.
- The Build a Nonprofit Financing Plan Step-by-Step Guide is the final piece of the puzzle. This guide helps you create your nonprofit’s own financing plan. The guide walks you, step-by-step, through the questions, calculations and frameworks you need to build your nonprofit’s financing plan.
This Develop a Financial Model Tool Bundle takes you from understanding the theory behind a financing approach all the way to creating your nonprofit’s own financing plan. As a bundle, the cost is 15% less than the cost of purchasing the e-books, guide and webinar separately. Download the Develop a Financial Model Tool Bundle Now.
This tool bundle, along with all of the other guides, e-books, webinars and bundles available on the Tools page, is designed for smaller and younger nonprofits that may not have the resources to seek customized consulting help, or just need some initial guidance to find a new way on their own.
But if you would rather find out about the customized consulting I provide for creating a financing plan and/or coaching your board and staff to adopt this new approach, let me know.
- Download a free Financing
Not Fundraising e-book
when you sign up for email
updates from Social Velocity.
Sign Up Here