Today I am continuing my on-going blog series on the 7 Pillars of the Performance Imperative. The Performance Imperative was released last year as a north star for the nonprofit sector by the Leap Ambassadors, of which I am a member. Pillar 4, about sustainable financing, is obviously my favorite since I am arguably obsessed with nonprofit financial sustainability.
You can also read about Pillar 1: Courageous, Adaptive Leadership, and Pillar 2: Disciplined, People-Focused Nonprofit Management, and Pillar 3: Well-Designed and Implemented Programs.
I believe it is absolutely critical that a high-performing nonprofit organization have a smart strategy for attracting and employing money effectively. Because without a sustainable financial model there is nothing else — no mission, no performance, no social change.
You can download the detailed Performance Imperative here, but here are the highlights of Pillar 4: Financial Health and Sustainability. In a nonprofit that exhibits financial health and sustainability, the board and staff:
- Take charge of their organization’s financial destiny. They articulate the value they deliver and develop overall financing strategies, tightly aligned with their mission, to support and sustain it.
- Establish strong systems for financial stewardship and accountability throughout their organization.
- Build and participate in budget processes that are oriented toward achieving results.
- Share their financial results transparently with key stakeholders regularly.
- Treat fund development as a strategic function that requires focus, management, capital, and specialized skill sets.
- Operate with margins that allow them to build their balance sheet.
- Understand their organization’s cost structure.
- Use financial models to make clear and transparent the organization’s financial condition and predict how it will end the year.
In other words, high performing nonprofit leaders understand, embrace and use money as a tool to achieve social change. They create a robust financial model that articulates true costs and creates a strategy to attract enough and the right kinds of money, engage board and staff in making that model a reality, is transparent with outsiders about the model, and above all uses money strategically. In short, a high-performing nonprofit finances, instead of fundraises for, the social change they want to create.
I want to be very clear, however, that financial sustainability does not mean, as some people sometimes confuse it, that a nonprofit moves away from philanthropy and toward earned income, which is somehow more sustainable. This is a fallacy in thinking that nonprofits can somehow be market-driven. Because nonprofits exist to remedy a disequilibrium in the market economy they will always have to be at least somewhat subsidized, by government, philanthropy, or both. Therefore, financial sustainability in the nonprofit world means creating and executing on an overall financial strategy that allows a nonprofit to effectively deliver on outcomes.
FLY (Fresh Lifelines for Youth), a nonprofit that works with teens in the juvenile justice system to break the cycle of violence, crime, and incarceration, is an example of Pillar 4.
Here is their story, as Christa Gannon, FLY’s Chief Executive Officer & Founder explained it to me:
Three years ago we were extremely fortunate to be a grantee of Edna McConnell Clark Foundation’s PropelNext initiative to help organizations prepare for growth and scale. At the same time as a grantee of our local and sophisticated foundation funder Tipping Point we participated in a comprehensive training on ensuring that our financial and development practices were aligned and consistent with best practices.
Through these two initiatives we had the privilege of learning a great deal and working with outstanding consultants who created the space for us to step back and productively ask ourselves what was working and what could work better for us as we grew. We brought these findings to our board, worked with the consultants to update and refine our practices, created new dashboards, and brought consultants to board meetings and committee meetings to help us elevate our line of sight and institute new ways of being.
We began these efforts with the help of a long-time employee who helped lead our financial efforts for over 7 years (now going on 10 years!). We elevated his role (creating a position for a Director of Finance and Operations), had our consultants provide some coaching and guidance and invested in his capacity to learn, grow, and lead. Additionally, during this time we brought on a new COO with a great deal of financial acumen who helped this process a great deal. It allowed me to take a critical step back from finance to allow new approaches to take hold and grow.
We revamped our monthly financials, our CEO dashboard, and our dashboard for the board. Additionally we created a new budget-building process which includes a multi-year budget (expense and revenue) forecast and straw budgets. We also changed our internal practices for how we managed temporarily restricted net assets. In previous years when we received grants/gifts off fiscal year cycle (and many are) we would hold those funds and spend them down in the latter half of their cycle, which often meant the grants spanned two fiscal years. This created a great deal of extra work and challenges for our team. We modified this process, which has resulted in an increase in net unrestricted assets available to us as we grow and scale.
One challenge we’ve realized in this process is that we have been so extremely cost conscious and frugal that we have unintentionally built a financial model that relies on staffing structures that cannot be maintained as we grow and scale while ensuring the highest quality services that our clients and community deserve.
As these challenges became apparent to us, we have taken critical steps such as reducing case-load ratios for line staff, adding critical positions to support talent recruitment and development, finance, fundraising, evaluation and learning, etc.. To support this capacity building we are investing in our fundraising ability, engaging our board even more in their role to help garner financial resources, and allocating more of my time to strategy, fundraising, and board development.
We have always felt incredibly grateful for the opportunity to help steward the generosity and strategic thinking of our investors, foundation and corporate supporters, and government partners into the world. As our systems for how we tackle financial management have changed and improved that attitude of gratitude has remained.
What has changed for us, however, is a desire and intention to simplify how we think about and manage our funds such that our processes are clear, straight forward, and understandable by all involved without undue explanation or re-education in meeting after meeting (both board and staff). Our efforts to be cost-conscious, thoughtful, and prudent inadvertently led to systems and processes that made our work more complicated and time consuming than it needed to be. In part this reflected my mindset and efforts as founder. It required me to let go and not white-knuckle our financial approach; trust the team, systems, and consultants; and realize that the approach that got us to this point in the organization’s history would not be the best approach to get us to the next milestone.
We are very mindful that the work we do and the population of young people we serve is not a top priority for many philanthropists. As a result, we take every investment very seriously and are very clear that it means a kid gets a chance to become so much more than their past mistakes.
For us, financial investments are life changing for our clients. We may be the only chance they get, so we want to ensure we deploy each resource to its highest and best use.
Photo Credit: FLY
I recently received a note from a blog reader who disagreed with my argument that a nonprofit’s board of directors should be charged with raising 10% of their nonprofit’s budget. Not only did this reader disagree with the idea of setting a 10% board fundraising goal, but he disagreed with linking board governance and fundraising at all.
As he wrote:
“I recently resigned from a board of a nonprofit, after a 5-year stint. I was honored to be asked to join the board, until at my first meeting pledge cards were passed around, and I realized it was my money, not my leadership skills, that qualified me for board membership. I have given on numerous occasions, but I refused to pay a “bill” I received for my share of employee Christmas bonuses last year. There have been many instances where the board was expected to give money. Only a tiny fraction of the budget would be raised through these measures, so it seemed like it was a membership test. Governance should be totally separate from fundraising.”
While I appreciate this reader’s frustration as a board member, I would argue that his unfortunate experience had more to do with poor management of a board, and less to do with fundraising being part of a board member’s charge.
I don’t believe board members should ever be “billed” for a contribution. Rather, the board chair and the executive director should sit down with each board member individually on an annual basis and have an open conversation about that board member’s role on the board. This should be a much larger conversation than just what she wants her annual financial commitment to be, but that still must be part of the conversation. So while you absolutely should discuss why the board member has chosen to serve on your board and what she would like her role to be, you also can (and should) discuss how she wants to contribute to the financial model of the organization.
And if you define a board member’s “contribution” much more broadly than just a check she writes, the sum total of all of the contributions each board member makes can be much more significant than “a tiny fraction of the budget.” Every single board member, if truly right for the post, has many ways to contribute to the financial model of a nonprofit (here is just a beginning list of ways). If you ask board members to think strategically about how they can contribute, and if they are well versed in the financial model of the organization they serve, it should be fairly easy to get them involved in a significant way.
And getting each board member engaged and involved in the organization should be the aim. While I agree that the idea of a “membership test” is certainly unappealing, there should be a bar to being a member of the board of a nonprofit organization. If some members are allowed to be members in name only, but not required to have any skin in the game, then what compels any member to invest their time and resources in a significant way? If there is no bar that a board member must clear to be a board member, then what separates a board member from just an interested member of the public?
A board of directors must be a nonprofit’s staunchest supporters, most vocal advocates, and most committed allies. If a nonprofit cannot depend on its board to work tirelessly, not only to ensure achievement of the mission, but also to ensure financial sustainability, how can a nonprofit possibly expect those outside the organization to care? So, yes, being a member of a board must come with some level of commitment, both of time and of resources.
Because at the end of the day, there is no mission without money. By allowing any individual board member, let alone your entire board, to make programmatic and organizational decisions without fully understanding and contributing to the financial model of the organization you are creating an enormous disconnect between mission and money. A person cannot hope to understand something unless they have actually worked within it. So each board member must somehow contribute to the financial model of the nonprofit on which they serve.
Just because nonprofit leaders sometimes do a poor job of engaging their board in the financial model does not mean that we should separate the governance of a nonprofit from its financial model. All board members must understand, embrace, and actively work toward the financial sustainability of the nonprofit they govern.
Photo Credit: Susana Fernandez
What is it about June and social change? Last June was the landmark ruling by the Supreme Court legalizing gay marriage, a huge victory after decades of social change work. This June, while perhaps not as pivotal, offered some clear glimpses of impending social change.
The horrible tragedy in Orlando stirred Democrats in the U.S. House and Senate to stage protests calling for votes on gun legislation. And the United Kingdom’s vote to leave the European Union sent shockwaves around the world. Add to that some fascinating data (about civil rights and education, charitable giving, and the refugee crisis), some strong words about tech philanthropists, and a distaste for the term “nonprofit,” and it made for an interesting month in the world of social change.
Below are my picks of the 10 best reads, but if you want a longer list, follow me on Twitter @nedgington.
And if you want to see past months’ great reads lists go here.
- In the wake of the brutal killing of 49 people at the Pulse nightclub in Orlando, the U.S. Congress temporarily ground to a halt with a Democratic filibuster in the Senate and then a Democratic sit-in in the House, all in the name of forcing Republicans to take a vote on gun control legislation. While neither effort was successful in passing gun legislation, change may be coming, due in part to a new and growing gun control group.
- June also saw the shocking vote by the United Kingdom to leave the European Union (“Brexit”), a move that many argue will have a huge impact on the global economy. Much was written about the implications of the vote, but most interesting (and most related to social change) were Spencer Wells’ fascinating look at the fundamental economic, demographic and political shifts behind the vote, and Jake Hayman’s view on what philanthropy can learn from it. As he put it: “The future of philanthropy and the future of politics have to lie in something beyond the economic. Indeed it will be the ones that invite those they wish to serve into the heart of decision-making and dedicate themselves to reforming systems – rather than propping them up – that will come to thrive.”
- One of the reasons some in the United Kingdom voted for Brexit may be fear about the refugee crisis. Ever relevant to the issues of the day, Pew Research offers some key facts about the world’s refugees.
- And speaking of votes, in the November U.S. presidential election Millennials (because of their sheer numbers) stand to have a real impact. Derrick Feldmann from Achieve discusses some new research about Millennials’ particular approaches to civic engagement and how they might play out in the presidential election.
- Writing in The New York Review of Books, Lewis B. Cullman and Ray Madoff express “grave concern” about a fundamental shift they see in the funding of the nonprofit sector due to the increasing popularity of donor advised funds (DAFs). Donors receive an immediate tax benefit when setting up a DAF, but the donation may not find its way to the nonprofit sector for years to come. As they put it, “Donor-advised funds have been a bad deal for American society. They have produced too many private benefits for the financial services industry, at too great a cost to the taxpaying public, and they have provided too few benefits for society at large. When we consider their overall effect, we see that rather than supporting working charities and the beneficiaries they serve, they have undermined them.”
- One of the smartest philanthropic thinkers, by far, is Clara Miller president of the F.B. Heron Foundation. She offers a two part treatise (part 1 and part 2) on what the foundation of the 21st century should look like. She writes that foundations must learn to adapt their approach and business model: “While permanence may be a key mission requirement for some…fossilized thinking cannot be. We simply can’t succeed in a vacuum, especially when the pace and nature of the gaps we are called upon to fill have become larger and more frequent, the problems more intertwined and the needs more urgent.” Amen!
- Never one to pull punches, blogger Vu Le has some strong words for a particular type of philanthropist, those coming from tech companies thinking they know how to fix nonprofits. As he tells them, “Don’t think for a moment that just because you’re great at one thing, it means you have the legitimacy to give advice in an area that you have little experience and training in. I don’t go around telling you how to design apps or wifi-enabled smart light switches. If you want to truly partner to solve entrenched issues our community members are facing, then great. But first, get rid of your assumptions and ego. Otherwise, let’s agree to swipe left.”
- Another favorite truth teller, Phil Buchanan from the Center for Effective Philanthropy clearly articulates why the term “nonprofit” is critical and necessary: “Sometimes, nonprofits need to be the voice of opposition to those whose motivation is profit.” Yep.
- Giving USA released their annual data on giving in the nonprofit sector. And if you are hungry for even more data about the nonprofit sector, thanks to a a federal court order the IRS is now providing machine-readable nonprofit Form 990s from 2011 to the present.
- And speaking of fascinating data, the Department of Education released their annual civil rights data, which has been gathered every year since 1968 in order to assess enforcement of civil rights laws. NPR highlights some jaw-dropping findings.
Photo Credit: Kyle Pearce
Lest you think we’ve made headway on overcoming the Overhead Myth (the false notion that nonprofits must keep their fundraising and administrative costs cripplingly low) you need only look as far as a recent Forbes article, “5 Nonprofit Leaders Share How to Keep Overhead Costs to a Minimum.” And this is perhaps even worse because it is nonprofit leaders themselves, not philanthropists or business leaders, telling nonprofit leaders that overhead is bad.
The Forbes Nonprofit Council made up of “top nonprofit execs [who] offer insights on nonprofit leadership & trends” compiled these 5 “tips” for keeping nonprofit overhead low. And the tips are as insidious as you might think. I know I should take the high road and just ignore this ridiculous article, but I simply can’t. In fact, it boggles my mind that overhead (to borrow a phrase from the brilliant John Oliver) is still a thing.
The Forbes article neglects to point out that the concept of “nonprofit overhead” has undergone a real transformation in the past few years. It assumes that “overhead” is still a dirty word, but anyone who has been paying attention knows that that is no longer a given.
There has been a movement among nonprofits and their philanthropic and government funders to evaluate nonprofits based on their results, rather than just their overhead rate. The federal government and some local governments have moved to increase the indirect costs paid to nonprofits. And just last month a new Bridgespan study analyzed the indirect costs of 20 different nonprofit organizations and found, not surprisingly, that overhead rates vary greatly depending on the business model and industry of a given organization (just as it does in the for-profit sector).
So for the Forbes article to simply encourage nonprofits to keep their overhead as low as possible ignores the changes that have occurred in the sector and the very real fact that different organizations, business models and issue areas might require very different administrative and fundraising costs.
But beyond those huge oversights, the Forbes article does a further disservice to the nonprofit sector by providing 5 ridiculous and crippling “tips” for keeping overhead low. Here’s why each one is so wrong:
- “Look for Low-Cost IT Options”
To the contrary, I would say that many nonprofits don’t spend enough on IT. So often nonprofit leaders are using outdated technology and systems, or worse, not gathering data at all because they simply don’t have the funds. Nonprofits need to spend more, not less, on IT.
- “Don’t Overwork Your Team”
Seriously? Isn’t overwork simply a given in the nonprofit sector? Because nonprofit leaders often don’t have the funds to hire enough staff, they ask the staff they do have to wear too many hats. The solution is not to tell nonprofit leaders to stop overworking their team. Rather nonprofit leaders must raise the funds necessary to fully staff the work. And that means we need more money in the sector for capacity building.
- “Reward Innovation”
The Forbes article advises nonprofit leaders to “create a culture that rewards innovation and encourages employees to be scrappy.” Certainly on this point nonprofits already win in spades — nonprofits are nothing if not scrappy. But I’m not sure scrappiness and innovation go hand in hand. It’s hard to be innovative when you are worried the doors may close tomorrow. Innovation comes with more capacity capital — once nonprofits have the tools, systems and people they need, innovation can follow.
- “Maintain a Clear Business Methodology”
And here’s where Forbes falls back on the old stand by — nonprofits need to act more like businesses. But what clear business methodology advises undercutting the sales function (fundraising in the nonprofit sector), systems, and staffing? Why do we choose only some of the ways we want nonprofits to “be like businesses,” but ignore others? No successful business leader will tell you that is a smart strategy.
- “Invest in Community Leaders”
The Forbes “experts” encourage nonprofit leaders to hire more volunteers, students and interns in order to save on staff costs. NOOOOOO! If we are truly going to solve the challenges we face, we need more experts, not fewer. While volunteers and students are great for rote tasks, that only gets you so far. Nonprofits need expert fundraisers, brilliant program people, IT geniuses and more. We don’t encourage Silicon Valley to hire more volunteers and interns to create the next tech solution, so why tell nonprofit leaders to hire more volunteers and interns to create the next social solution?
Can we please, please, please move beyond this broken and damaging view of nonprofits? We would never ask the makers of the next shiny widget to cut their sales, staff and systems to the bone. So let’s not demand that of those working to save the world.
Instead, let’s have a smarter conversation about how social change leaders must ask for (and receive!) the tools they really need to make our world a better place.
Photo Credit: Adrian
May offered some interesting insights into the world of social change. From a plea by nonprofit infrastructure groups for more funding, to some criticisms of philanthropy’s unwillingness to invest in rural economies or provide a realistic runway to nonprofits, to digital’s impact on journalism, to the evolving sharing economy, to a call for more nonprofit board resignations, to a way to break the nonprofit starvation cycle, there was a lot to read.
Below are my picks of the 10 best reads in the world of social change in May. But you can always follow me on Twitter (@nedgington) for a longer list.
And if you are interested in past months’ 10 Great Reads lists, go here.
- Perhaps the biggest news of the month was the letter written by 22 groups, which provide support to the entire sector (like the National Council of Nonprofits, the Nonprofit Finance Fund, and GuideStar), asking foundations to provide more funding for the nonprofit ecosystem. GuideStar CEO Jacob Harold (here) and National Council of Nonprofits CEO Tim Delaney (here and here) explain why this issue is so important. But Pablo Eisenberg disagrees.
- National Committee for Responsive Philanthropy Executive Director Aaron Dorfman takes philanthropy to task for not investing enough in rural communities, where change is needed most. As he puts it: “The philanthropic sector continues to neglect rural communities. A changing national economy, entrenched racial inequity and foundations’ reliance on a strict interpretation of strategic philanthropy has meant philanthropic resources for rural communities are few and far between, just when the opportunities for change are most urgent. This has to change if we want to see progress on the issues we all care about.”
- Piling on to the criticism of philanthropy, Laurie Michaels and Maya Winkelstein from Open Road Alliance, encourage their fellow philanthropists to help nonprofits deal with risk and disruption. As they put it: “Most grant budgets are designed with zero cushion even when the nonprofit is working in tough conditions that can turn the simplest obstacle into an unmanageable issue…any unexpected but inevitable change or deviation in the budget is potentially catastrophic. The nonprofit’s inability to fluidly adapt the budget to manage these roadblocks, however minor, can jeopardize even the largest of undertakings…Risks alone are threatening, but when the concept of risk goes unacknowledged, undiscussed, and unaddressed, those risks are more likely to become realities. All this adds up to lower impact, turning manageable events into liabilities.”
- Maybe female philanthropists can turn the tide. The Lilly Family School of Philanthropy released some fascinating new research about how women are changing philanthropy. And Megan O’Neil, writing in The Chronicle of Philanthropy, explains how nonprofits must adapt in order to tap into this growing philanthropic force.
- Journalism is changing rapidly, due in part to the growth of digital. Research shows that different social media platforms connect people to news in different ways, and long-form journalism is seeing a resurgence thanks to mobile.
- And it’s not just journalism that digital is changing. The Nonprofit Tech for Good blog offers 16 Must-Know Stats About Online Fundraising and Social Media and 5 Ways the Internet of Things Will Transform Fundraising.
- The growth of the “sharing economy”, where consumers rent or borrow goods and services rather than buy them, has huge implications for the social change sector. Pew Research outlines 8 key findings about how Americans relate to the sharing economy and interviews NYU professor Arun Sundararajan about how the sharing economy is evolving.
- Nonprofit Law blogger Gene Takagi pulls no punches in offering 12 Reasons Why You Should Gracefully Resign from a Nonprofit Board. Yes, yes, yes, to more accountability, honest conversations, and clear expectations on nonprofit boards.
- Writing in the Stanford Social Innovation Review, Jeri Eckhart-Queenan, Michael Etzel, and Sridhar Prasad discuss the findings of a new Bridgespan Group study that analyzed the indirect costs of 20 different nonprofit organizations. What they found, not surprisingly, is that indirect rates vary greatly depending on the business model and industry of a given organization (just as it does in the for-profit sector). The authors argue that if more nonprofits understand and report their true costs, nonprofits could break the starvation cycle: “It’s clear that philanthropy’s prevailing 15 percent indirect cost reimbursement policy does not take into account the wide variation in costs from segment to segment. Doing so would have far-reaching effects on philanthropy and grantees. If nonprofits committed to understanding their true cost of operations and funders shifted to paying grantees what it takes to get the job done, the starvation cycle would end.”
- A nonprofit dashboard is a good way to monitor and report on a nonprofit’s effectiveness and sustainability over time. Hilda Polanco, CEO of FMA, explains how to create a great one.
Photo Credit: Omarfaruquepro
One of the biggest complaints I hear from nonprofit leaders is that their board is not working well enough for them — most often around fundraising. From board members who are largely in name only, to others who refuse to fundraise, to those who meddle or micromanage, to those who don’t understand the organization or its programs, there can be a large list of grievances that nonprofit leaders have about their board. So nonprofit leaders often look for a magic bullet to get their board in gear.
Just last week a nonprofit leader approached me seeking help getting her board engaged. She thought that if she hired a consultant to rewrite their board by-laws and rework the board committee structure, all would be well.
But it just isn’t that simple.
An ineffective board is often just a symptom of a larger problem at your nonprofit. And while nonprofit boards can be incredibly frustrating, it is often not their fault that they aren’t working harder for you.
If you are frustrated with your board, ask these questions to uncover the larger issues at play:
Do We Have a Compelling Case?
You simply cannot get people excited to help further your nonprofit’s cause if they don’t fully understand and embrace that cause. Have you had a conversation with your board about why your nonprofit does the work it does? Have you articulated together your nonprofit’s Theory of Change? Have you involved your board in creating your nonprofit’s Case for Investment? It surprises me how often I see nonprofit leaders leaving these critical and investing conversations at the staff level. The number one way to get your board excited about your work is to get them involved in articulating to others why that work is so critical.
Do We Have a Long-Term Strategy?
But it’s not enough to articulate what you hope to accomplish as a nonprofit, you also need to create a strategy for bringing those goals to fruition. You must involve your full board in your nonprofit’s overall strategy. They must buy in at the ground level to the goals of your strategic plan. And then the board must be in charge, as is their true leadership role, in monitoring in their ongoing board meetings whether those goals are actually being realized. Give your board the opportunity to create and then drive the overall organizational strategy, and then see how they start to come alive.
Do We Have Clear Board Responsibilities?
And they will truly come to life when they understand how each of them individually can and must contribute to bringing that larger strategy to fruition. You simply cannot expect a board to engage when they don’t understand how and where they can be helpful. Give the overall board specific goals and responsibilities and then talk one-on-one with each individual board member to determine together where their unique skills and experience can be brought to bear on the larger strategy. With a clear roadmap for how they can help, you will see your board start to pick up the pace.
Do We Have the Wrong Board Members?
However, you may find that some of your board members are simply taking up space. It may be that some are disengaged because they simply don’t have the skills, experience and networks necessary to achieve your goals. That’s why you have to do the analysis and look at every single board member against the skills, experience and networks you need to deliver on your strategic plan. Please, please, please don’t fall for the temptation of filling your board with warm bodies. Make sure that you are recruiting the type of board members that you truly need to deliver on your organization’s strategy.
Are We Afraid of Asking For What We Really Need?
Nonprofit leaders sometimes fear their board members as much as they fear their donors. Rather than insisting their board members step up to the plate and effectively contribute their time, energy, and resources, nonprofit leaders may be overly grateful for ineffective board members. But when you operate under that dysfunctional power imbalance, you are setting the bar incredibly low for your board. And when a person is confronted with a low bar, there is nothing compelling him to get engaged and get working. So be very clear with your board members about what you want from them, and then be equally clear when they aren’t delivering. There is a nice way to tell a board member that you need more from her. And if she isn’t willing, then it is probably best that she walk away and leave room for more effective board members.
If you are fed up with your board, use frustration as an opportunity to dig deeper to figure out what is really causing their uselessness. And if you need some help to get there, check out the nonprofit leader coaching I provide.
Photo Credit: Peter Alfred Hess
As much as we might like to deny it, nonprofits exist in a market economy, which means that nonprofits, like everything else, must compete for customers and resources. Therefore it is critical that you understand where your nonprofit fits in the market.
While a business has one customer, a nonprofit has at least two distinct customer groups:
- Those who benefit from a nonprofit’s work (clients), and
- Those who fund that work (donors, government contractors, etc).
So it is absolutely critical that nonprofit leaders understand what unique value their work brings to these customers. This can be done through a Marketplace Map, which is one of the first exercises (along with a Theory of Change) that I help nonprofit leaders create during a strategic planning process.
A nonprofit organization is best positioned to create social change in a sustainable way when their core competencies (what the organization does better than anyone else) intersects with a community need (or set of social problems) apart from their competitors or collaborators, like this:
But don’t get me wrong. I am not saying that a nonprofit shouldn’t collaborate.
On the contrary, nonprofit leaders must forge strategic alliances that help move the social change they envision forward. However, when they create those alliances, they must be crystal clear about what their organization brings to the table, versus what a potential ally brings to the table. Thus, a marketplace mapping exercise is absolutely critical to charting a way forward.
In order to create their marketplace map, a nonprofit’s board and staff must answer these three key questions:
- Core Competencies: What superior assets (expertise, relationships, etc.) do we possess as an organization that are not easily replicable?
- Community Needs: What community needs/social problems are we attempting to address?
- Competitors/Collaborators: What other entities are working on some/all of those same problems?
The social change sector has become increasingly competitive in recent years. Now more than ever, nonprofits need to understand this external marketplace of competitors/collaborators against their own core competencies in order to understand the unique value that their nonprofit can contribute.
From this marketplace mapping exercise, some key strategic questions will emerge for the nonprofit, such as:
- Where do our core competencies and activities end, and where do others’ begin?
- Is our nonprofit better positioned than other entities to conduct all of the activities (from our Theory of Change) that we currently do? Should some activities be left to those who do it better?
- Are there core competencies that we must develop in order to better address the community needs we’ve identified?
- Are there collaborators/competitors that we should be more strategic about aligning with?
Creating a Marketplace Map, much like creating a Theory of Change, is an incredibly useful exercise that gets your board and staff thinking in bigger, more strategic ways about your work. And those more strategic conversations can help lead to a more effective and sustainable path forward.
If you want to learn more about how I work with clients to develop their strategic plan, download the Strategic Plan benefit sheet.
In today’s Social Velocity interview, I’m talking with Isaac Castillo, Director of Outcomes, Assessment, and Learning at Venture Philanthropy Partners, where he leads VPP’s approach to data collection, data reporting, and outcome measurement.
Prior to coming to VPP, Isaac served as the Deputy Director for the DC Promise Neighborhood Initiative (DCPNI). At DCPNI, Isaac led efforts to improve outcomes in the Kenilworth-Parkside community in Ward 7 of the District of Columbia through the strategic coordination of programmatic solutions and research-based strategies. Prior to his time at DCPNI, Isaac served as a Senior Research Scientist at Child Trends where he worked with nonprofits throughout the United States on the development and modification of performance management systems and evaluation designs. In addition, Isaac was also the Director of Learning and Evaluation for the Latin American Youth Center (LAYC) where he led the organization’s evaluation and performance management work.
You can read interviews with other social change leaders here.
Nell: You have spent your career using data to improve the performance of the nonprofits for which you worked. Why do you think performance management is so important for nonprofits? Do you think all nonprofits should pursue performance management? When does it make sense and when doesn’t it?
Isaac: I believe that every nonprofit should pursue some form of performance management because they owe it to the clients they serve. Most nonprofits will assume that they are making a positive difference in people’s lives, but in the vast majority of cases they are just guessing. Using some form of performance management will allow every nonprofit organization to confirm this thinking and to identify areas that can and should be improved so that the next cohort of participants can get better services than the last.
Unfortunately, one of the greatest challenges preventing a nonprofit from implementing some form of performance management isn’t a lack of resources, expertise, or time. It is fear. The fear that they will find out that their work isn’t having a positive effect. This fear is what nonprofit leaders need to overcome, not for the benefit of themselves or their organization, but because they owe it to the clients they serve today and the clients they will serve in the future. I believe that every nonprofit should strive to serve tomorrow’s clients better than today’s clients, and one of the only ways to ensure that this happens is the sustained use of performance management.
The type of performance management that each nonprofit should pursue should vary by the size and scope of their work. At a minimum, small nonprofits should be tracking basic demographic and attendance information on their participants, and hopefully at least one meaningful output or outcome. Whether this occurs in a computerized system or in a spiral paper notebook is up to the nonprofit. But it doesn’t have to be costly, and it doesn’t take expertise. It only takes the will and desire to improve as a nonprofit.
Nell: In the nonprofits in which you’ve worked how have you been able to secure resources to fund performance management? What is the case you and your colleagues have made to funders and what do you think it will take to get more funders investing in performance management?
Isaac: Raising funding for performance management work usually takes a mix of several different strategies and approaches for potential and existing funders.
First, I strongly encourage nonprofits to include some percentage (1 to 5 percent – possibly more) of funding in each grant submission or proposal dedicated to supporting performance management and outcome measurement work. By placing this small percentage into each proposal, a nonprofit can begin to raise funds for internal evaluation and performance management activities. It may not seem like a lot, but it can add up, and eventually generate enough funds for a half-time or full-time position to support in-house performance management work.
Second, I also strongly encourage nonprofits to engage in regular ‘funder education’ – where a nonprofit proactively meets with their funders to have ongoing conversations about outcome measurement and evaluation. This allows both the funder and the nonprofit to come to agreement on measurement expectations and to ensure that both groups are focused on the same concepts. I often suggest that the first of these types of meetings focuses on each group’s definitions of three commonly misunderstood terms: outputs, outcomes, and impact.
Finally, I would recommend that the nonprofit and funder have an honest discussion regarding expectations of results and the funding necessary to support the related evaluation work. If a funder is expecting an random control trial (RCT) to be completed to determine ‘impact,’ then the nonprofit should be willing to push the funder to support a large investment to pay for a high quality evaluation. If the funder is only willing to support a small amount for outcome measurement, then the nonprofit should clearly articulate what is possible.
Nell: Ken Berger and Caroline Fiennes recently argued that we may have gone too far by asking nonprofits to produce research about their own outcomes. What’s your response to that argument?
Isaac: I fully support Ken and Caroline in their argument that most nonprofits should stay away from trying to produce impact research. The desire for ‘impact’ is something that has been (and continues to be) pushed unfairly (and without financial support) by the funding community.
I honestly think a lot of confusion in this space comes from inconsistent use and understanding of the term ‘impact’. The term ‘impact’ has a precise definition among researchers but is often used in a much broader context among funders, nonprofits, and the general public. In the research and evaluation world, impact is used to describe the effectiveness of a program while eliminating as many potential confounding factors as possible. That is why the use of random control trials (RCTs) is usually the cornerstone of impact research – RCTs are the easiest way to control for and eliminate confounding factors.
When most non-researchers use the term ‘impact’ however, they are usually just asking if the program or organization works and if it is making a difference for its intended service population. That is a much lower bar to set, and yet it is a critical distinction in this discussion. If you are thinking about ‘impact’ as a researcher, you will need a large amount of resources and expertise to determine ‘impact,’ which usually means completing one or more formal evaluations. If you are thinking about ‘impact’ in the more general sense and less strict way, then pursuing some form of performance management system will allow a nonprofit to determine if their efforts have been successful.
I do think every nonprofit should pursue some form of performance management to ensure that their work is having a positive effect as a complement to existing research that others have done. Relying only on the use of others’ research does not guarantee that a nonprofit will provide effective services and achieve positive outcomes. This type of research is a like a recipe – it shows what has worked in the past and provides a guide for the nonprofit – but a recipe can still be ruined with poor implementation or planning.
Every nonprofit has an obligation to the people they serve (and not to their funders) to ensure that their programming is having a positive effect (or at the very least not causing harm). Without some form of performance management system in place (even one that just uses paper and pencil), a nonprofit will never know if they have strayed too far from the recipe provided by previous research.
I also think there are a growing number of very sophisticated nonprofits that should be using AND producing research on effective programs. Every year, I see more and more nonprofits that hire talented and unbiased researchers dedicated to internal evaluation and outcome measurement work. These individuals are just as talented and unbiased as their colleagues working in traditional research and evaluation organizations. They can, and should, produce original research that can help inform the nonprofit field. The real challenge comes in nonprofit organizations finding the resources to support the hiring and retention of these individuals. Not every nonprofit will have the resources or capacity to hire one or more of these individuals – but those that do should absolutely be trying to produce original outcome and impact research to provide ‘recipes’ for effective programming that nonprofits with fewer resources can use in the future.
Nell: Your former organization, DC Promise Neighborhoods, is part of the national Promise Neighborhoods Initiative launched by the US Department of Education in 2010 and modeled after the famous Harlem Children’s Zone. How successful has this national replication of a successful local model been? Have you been able to replicate outcomes? And what hurdles, if any, have you and other replication sites found?
Isaac: I think that there has been some initial success among the Promise Neighborhoods. Part of the challenge that all the Promise Neighborhoods face is that the Harlem Children’s Zone did not achieve their success overnight. They have been working in Harlem for decades, so it would be unrealistic to believe that the Promise Neighborhoods would be able to create large scale change in a matter of a few years.
However, there are signs of progress across all of the Promise Neighborhoods. Each of the Promise Neighborhoods started to address a few outcomes with the initial round of funding, and these outcomes varied. Some focused on math and reading proficiency for students, some focused on obtaining medical homes for young children, and others sought to increase the amount of healthy food consumed by residents. In DC, we focused on improving school attendance.
I do think that most of the 12 Promise Neighborhood Implementation grantees were able to make progress on the outcomes they identified as initial focus areas. However, the very nature of the work (creating community level change) doesn’t lend itself to the rapid accomplishment of multiple outcomes in a short period of time. Each of the Promise Neighborhoods had to prioritize certain outcomes for their respective communities, and only several years later are they able to claim success and begin to identify the next set of outcomes to be addressed. So while certain outcomes haven’t necessarily been replicated across all the Promise Neighborhoods, that is due to the differences in priorities and community conditions rather than any problem with the model itself.
Photo Credit: Venture Philanthropy Partners