What Social Value Do Nonprofits Really Create?

I have a new post up at the Change.org Social Entrepreneurship blog called “What Social Value Do Nonprofits Really Create?” Here is an excerpt:

There is a concept that good entrepreneurs know only too well, but nonprofits could stand to explore. A “value proposition” is the unique value a product or service provides a consumer. Without a value proposition a business has no place in the market. For a nonprofit, a social value proposition is just as critical to success, but often ignored. In an increasingly competitive marketplace, due in part to the growth of for-profit social entrepreneurs, nonprofits must analyze, articulate, and deliver on a social value proposition.

In the past, nonprofits could exist without a value proposition. Donors wouldn’t argue that a library, homeless shelter, food pantry or school provided a necessary service. But as we move further down the road of social innovation, the assumption that money will automatically follow good works is no longer valid…

You can read the entire post here.

Tags: nonprofit, social entrepreneurs, social value proposition

Can Reactive Clark Kent Become Strategic Superman?

For the nonprofit sector to truly climb aboard the social innovation train, as opposed to being abandoned by it, nonprofit leaders need to move past the reactive toward the strategic.

But is that possible? Have nonprofits been stuck in a resource-constrained, charity mindset for too long to be made strategic, bold, big thinkers? It’s been a vicious cycle. Nonprofits lack adequate resources so they become very protective of what they have and wary of any actions which might threaten those resources. Therefore they become exceedingly risk averse and fearful of innovation. They focus more often than not on keeping the doors open as opposed to investing time, energy and resources in long-term strategy.

But that’ s just not going to cut it anymore. These times demand a radically different mindset and approach. The nonprofit sector must move from the reactive to the strategic. So how does a reactive approach differ from a strategic one? It looks like this…

This is an excerpt from my latest post at the Change.org blog. You can read the entire post here.

Tags: nonprofit charity mindset, nonprofit sector, nonprofit strategic plan, nonprofit strategy, social innovation

Bringing Small Nonprofits to Scale

English at Work could be a poster child for social innovation in the nonprofit sector. An Echoing Green fellow, founder Maile Broccoli-Hickey is a social entrepreneur, but like most of them, she doesn’t even know it. Her tireless work to build an organization that can effectively and efficiently transform the English language skills of hotel and restaurant workers is a model to other nonprofits who have a great solution, but lack the capacity and strategy to grow it.

Maile started English at Work in 2004 when she was a waitress in an Austin, Texas restaurant. She realized that her co-workers needed customized English language instruction to ensure their and their employers’ success. Why not bring customized English classes to the workplace in a focused and systematic way? These courses, paid for largely by restaurant and hotel owners who see the value in having a more fluent workforce, get dramatic results. English at Work creates greater proficiency and fluency gains in a shorter amount than their closest ESL instruction rivals. The program works so well because it is a win-win. Students become more fluent and successful at work, paving the way for promotions and a way out of poverty. Employers get more productive, loyal and customer-service oriented employees.

But like most nonprofit organizations hit hard by the recession, a year ago English at Work was struggling to make ends meet. Although employers paid for the classes, those fees didn’t cover all organization costs. The additional necessary revenue came from individual donations and foundation grants, both hit hard by the recession. At the same time Maile knew that the program had the potential to transform the lives of so many more people. Despite financial troubles, she had big visions for growth.

With funding from a couple of key donors who understood the value of investing in infrastructure, capacity and planning, Maile enlisted Social Velocity to determine what was holding the organization back and to create a comprehensive revenue plan to get the organization on firm financial footing. Over the first two months of the engagement we interviewed board and staff members and reviewed all organization policies, by-laws, finances, collateral, plans and documents. We then created a detailed analysis of each area of the organization (strategy, program, finances, marketing, staffing, board, etc.) with recommendations in each area for how the organization could be more effective. Once completed, we worked closely with Maile over the next 3 months to create a detailed plan for increasing how money flowed to the organization from individuals, foundations, corporations and earned revenue. Finally, we trained English at Work staff and board on raising money.

Now that English at Work is on much firmer financial ground, they are ready to plan for growth, and so we are in the midst of creating a strategic plan for significant growth of the program. The hope is to take this great solution and bring it to scale.

English at Work is a great example of the many little-known nonprofit organizations that toil away under the radar. They may have a fabulous model for creating real change, but lack the infrastructure, capacity and strategy to grow their impact to scale. Although the Social Innovation Fund and other venture philanthropy funds that exist to bring solutions to scale are great, no ecosystem exists for the smaller nonprofits that may have equally important solutions. But there is a way. By combining a few key donors who understand the bigger picture, a smart strategy for growth and sustainability, and a determination to execute effectively, even the smallest nonprofits with a great solution and a vision for growth can get there.

Photo Credit: English at Work

Tags: Echoing Green, English at Work, Maile Broccoli-Hickey, nonprofit capacity building, nonprofit growth strategy, Social Innovation Fund, venture philanthropy funds

Financing Not Fundraising: The Plan

A few months ago I argued that nonprofits need to stop fundraising and start financing for social impact. As I wrote:

Fundraising in its current form just doesn’t work anymore.  Indeed, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. Really, what the sector needs is a financing strategy, not a fundraising strategy.  By that I mean that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities.  Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change.

The idea is that nonprofits can no longer work towards social impact on one side and throw a gala event (or send out a direct mail appeal or write a grant) on the other side and think that this disjointed, haphazard way of funding their work is sustainable. To truly achieve social impact, nonprofits need to take a huge step back and figure out how to employ all of the financial tools available to them in an effective, integrated way.  This is how you finance, rather than fundraise for, social impact.

Over the next few months, in an occasional series titled Financing Not Fundraising, I will elaborate on this argument and demonstrate what financing, as opposed to fundraising, for social impact looks like.

Today I will launch the series with the core element of the idea, which is a financial plan. In essence, a financial plan is a key element of, not separate from, a nonprofit’s strategic plan. That means that the goals of the strategic plan are created with the full knowledge of 1) what it will cost to reach those goals and 2) how the money to cover those costs will be secured.

A financial plan differs from a fundraising plan in a number of ways. A financial plan, unlike a fundraising plan:

• Includes ALL activities that bring money in the door (individual donors, foundation grants, earned income, corporate sponsorships, government contracts, loans, etc.) and fully integrates them into an overall strategy and execution plan.
• Supports the short AND long term goals of the organization
• Funds the programs AND infrastructure of the organization. It recognizes the necessity of and supports not only the nonprofit’s direct service activities, but also, the infrastructure, systems, planning and other organization building that will ensure that those services thrive and grow
• Understands the characteristics and uses of different kinds of money (i.e. revenue versus growth capital, loans versus grants) and employs each available financial vehicle in the most effective way
• Employs money-securing activities that are in line with, not opposed to, the core competencies of the organization

What I am suggesting is that nonprofits stop exhausting their boards, staffs, donors, friends, and clients with a series of disjointed activities that are meant to raise money, but actually just end up making poor use of a nonprofit’s already limited resources. Instead, nonprofits need an integrated, thoughtful, strategic financing plan that makes social impact a reality.

Photo Credit: Steve Wampler

Tags: direct mail appeal, financing not fundraising, Fundraising, gala event, growth capital, nonprofit, strategic plan

The Strategy of Disruption

Competition is often a dirty word in the nonprofit sector.  Indeed, playing nice is the norm. But to truly solve social problems, nonprofits have to  not only compete, but compete well.  This means understanding how their strengths compare to their competitor’s weaknesses, and how to take advantage of that.

Umair Haque, Director of the Havas Media Lab, writing on the Harvard Business Review blog argues that rather than trying to beat their competitors at their best game, businesses need to follow the “golden rule” of competitive strategy, which is “What your fiercest rival does badly, do incredibly well.”

He finds fault with the normal competitive strategy in the business world, which is to compete on similarities. This kind of competition leads to mediocrity. To truly be disruptive, innovative, game-changing, businesses must be markedly, competitively different: “In difference lie the seeds of disruption. In similarity, only obsolescence, and decay.” He cites the auto, food and media industries that were suddenly overtaken by competitors who realized that disruption was the way to go:

Ford, Chrysler, and GM spent a decade trying to best another at churning out the biggest, hungriest SUV — but none tried to do what all sucked at: make a smaller, cheaper, more fuel efficient car instead…Big Food has spent half a century trying to make food cheaper, with artificial flavors, colors, and ingredients — but none tried to do better what all sucked at: make food more nutritious instead…[Media] incumbents tried for decades to lock down content in walled gardens — but none tried to open it, unlock it, and free it. Enter a new set of revolutionaries, wielding the Golden Rule like a superweapon. Who did well what auto incumbents did badly — making a smaller, more fuel efficient car? Tata, with its revolutionary Nano. Who did well what food incumbents did badly — delivering healthier food? Whole Foods. Who did well what media incumbents did badly — freeing and unlocking content, so it was easily discoverable? Google.

Nonprofits can learn a lot from this argument. The sector is by definition about disruption. It exists to change some sort of disequilibrium, to right some wrong, to fill some gap not addressed by the market. Disruption is the name of the game.

But in order to be truly disruptive, nonprofits must be strategically competitive. It is of no use to recognize a gap in the market (children who are not being fed, elderly people who are not being housed, sick people who are not receiving medical attention), create a solution to address that gap, and then sit back and “collaborate” with other nonprofits or government agencies who are delivering a mediocre solution.

Don’t get me wrong. I understand that the nonprofit sector, unlike the business sector, is based on concensus and collaboration. But sometimes those concepts serve as a crutch rather than a tool.

If the ultimate end goal is to solve a gap in the market, doesn’t it make sense to analyze the other solutions out there, their strengths and weaknesses, and then create a strategy accordingly?  If a nonprofit exists alongside another nonprofit that is delivering an inferior solution, doesn’t it make sense to compete in order to make better use of the funding, support, volunteers and other resources that the inferior organization is collecting?  The alternative is that solutions become mediocre instead of disruptive. And we need a lot more disruption right now.

Photo Credit: Tony the Misfit

Tags: competitive strategy, Harvard Business Review, Havas Media Lab, nonprofit strategy, Umair Haque

What’s the Cost of Bad Decisions?

I have a new post up at the Change.org Social Entrepreneurship blog about the cost of making bad decisions in the nonprofit sector. Here is an excerpt:

There is an economic concept that is beautifully profound in its simplicity, but often overlooked in the nonprofit sector. Opportunity costs are the cost (financial, time, resource, other) of what you have given up in making a choice between two or more options. Understanding the opportunity costs of decisions is particularly important when resources are scarce, as is the case in the nonprofit sector. Key to the concept of opportunity costs is that you are consciously analyzing two or more options and what you must give up in choosing one over the others. Because the nonprofit sector is undercapitalized, money is king. A driving motivation in many nonprofits is to preserve money, or go after money, at all costs. So the idea of opportunity costs is often thrown out the window…

You can read the full post here.

Tags: Change.org, nonprofit, opportunity costs, Social Entrepreneurship

The Critical Importance of Financial Strategy, Recession or Not

One benefit of the recession for nonprofit organizations is that they can no longer deny the critical importance of finance in what they do. No executive director would say that fundraising isn’t critical to what they do, but I bet a majority would admit that they don’t have an overall financial strategy for the organization. And in a recession that hole becomes ever more apparent.

In flush times it is a bit easier to refrain from analyzing the financial statements every month, predicting cash flow, making hard decisions about whether to end financially draining programs, creating bold (and potentially risky) revenue streams, and so on. The financial strategy of a nonprofit organization often takes a back seat to program strategy. But the recession makes that stance nearly impossible. Because if you turn away from financial reality for too long, you could be out of business.

Clara Miller of the Nonprofit Finance Fund, has some great insights into how the nonprofit sector should be responding to the recession in terms of better financial management. Among her list of things nonprofit leaders should do to be good financial managers are:

• Create a cash flow forecast for at least a year into the future, conservatively estimating what will happen with each revenue source over time and update it regularly
• Conduct a program profitability analysis, which compares the distinct funding sources to the direct expenses of every program a nonprofit operates. When coupled with mission effectiveness this helps inform decisions about what programs to cut or to increase fundraising efforts for
• Understand the relationship between reliable revenue and fixed costs.  If your reliable revenue, or revenue that you are reasonably certain will come in on a consistent basis, is lower than your fixed costs, you’ve got a serious problem.
• Focus every conversation at board and staff meetings on strategic choices that face the organization and the financial implications of those
• Be conservatively realistic about all of your numbers

But nonprofits need much more than just good financial management.  They need a financial strategy for delivering social impact. They need to understand and analyze how program decisions and strategy affect the financial viability of the organization and vice versa.  The two are inextricably linked. It does no good to make program or operating decisions without really understanding the financial implications.  And it is not sustainable to create a strategic program plan without a corresponding and equally strategic financial plan.

Finance has for too long taken a back seat in the nonprofit sector. Fundraising staffs have been separate (physically and strategically) from program staffs. Strategic decisions for the organization (program expansion, new buildings, etc) have been made without a clear understanding of the current or future financial implications of those decisions.  Program goals have been made without knowing what it will truly cost to implement those goals and where that funding will come from.

Nonprofit leaders need to take a bigger view of how their organizations and missions are financed.  It’s not enough to manage money wisely.  Nonprofit leaders need to create a comprehensive, fully integrated financial strategy for the social impact they want to achieve and then execute on it.

Tags: Clara Miller, Fundraising, Nonprofit Finance Fund, nonprofit financial management, program profitability analysis

7 Things Board Members Can Do To Raise More Money

I am often asked by exhausted board members and executive directors what the board can do to raise more money. My answer, let me tell you right away, is NEVER to launch a new event.  Don’t get me started on my anti-events rant, that’s another post.

But there are other things that board members can do to raise significantly more money for their organization, in a much more effective way.  Here are 7 to get you started:

1. Invest. Make a significant financial investment in the organization.  This is so obvious, yet rarely does a nonprofit organization enjoy 100% giving from their board.  And those that do, often have several board members who are only making “token” gifts.  If the nonprofit on whose board you serve isn’t on the list of your top 3 nonprofits and you aren’t allocating your philanthropic dollars accordingly, then get off the board.




2. Open Doors. Open up your network to the organization. We all have friends, colleagues, co-workers, family members, neighbors.  They may not all be $10,000+ level givers, but you would be surprised at the capacity that probably does exist there.  If you really believe in the organization, then spread the word about your involvement to your network and encourage them to become involved.  If you’re uncomfortable doing this then perhaps you need to rethink how committed you are to the organization.




3. Get Strategic. Demand that your nonprofit create a strategic plan. Without an articulated direction and a strategy for getting there how are you going to get donors to invest? So many nonprofit organizations operate without a plan, and that’s probably why they struggle to raise funds. People donate to a cause, but they invest in a executable strategy for impact.  The former results in small gifts, the latter brings big dollars.




4. Expand the Revenue Model. Often nonprofit organizations take a narrow approach to thinking about bringing money in the door.  They may have a direct mail campaign, get some government and foundation grants and call it a day. Instead, take a bigger picture view of the business that you are in and the various ways you could finance, not fundraise for, the end goal. Executive and development directors are often so caught up in the day-to-day of funding operations that they don’t have the luxury of taking this big picture view, but that’s where the board can step in.




5. Fund Revenue-Generating Capacity. Make sure the organization invests in sufficient development capacity. Budget for and find a top-notch development director. Secure outside expertise to create a solid, executable development plan. Train the board on their role in fundraising. Don’t ask the organization to cut corners on development expenses, because you will just pay the price later.




6. Articulate Why Someone Should Give. It’s so obvious to you why you are involved in your nonprofit. But can you articulate that to others in a compelling way? Can you demonstrate how a significant community problem is being solved by your organization? Can you do it in 2 minutes? Can the other board members and the staff do it? If not, then you need to create a case for support.




7. Get the Board on Board. Once you’ve done all of these things, get your fellow board members on the boat. The nonprofit sector is structured to be led by consensus. So it isn’t enough for you as a sole board member to “see the light.”  You have a responsibility to convince your fellow board members that they can’t think small anymore. They have to invest, get strategic, open doors, and so on.  Once you are all on the same page, you will be a force to be reckoned with.

I promise you, there is an answer. It doesn’t have to be so hard. Board members can help their struggling nonprofits to find a path toward financial sustainability.

Tags: Board of Directors, case for support, development director, nonprofit, nonprofit events, raise more money

What We Can Learn From Idealist

At the risk of going against the crowd, I’d like to add my perspective to the Idealist crisis.  Idealist.org is a job site for nonprofit organizations that has been around for 10 years.  It’s a great site that brings nonprofit organizations and aspiring nonprofit job seekers together.  It has launched many a great career, including that of Rosetta Thurman, nonprofit consultant and Gen Y leader who is a huge supporter of the site.

Earlier this week Ami Dar, Executive Director of Idealist, sent out an emergency appeal for funding to Idealist supporters.  It seems that the recession has taken a serious toll on the nonprofit organization, and they are desperate for funding to stay afloat.  Ami’s impassioned appeal has made its way around social media sites and raised quite a stir. They are hoping it will bring in some serious donations.  And it seems to be doing that–you can see the running tally of recent donations on their homepage.

I admire what Idealist does and think they serve a real need, but with this campaign they are making a mistake that nonprofits sometimes make when they hit a crisis like this.  An appeal for emergency funding can raise quite a bit of money, for a time, but then what?  What is the long-term plan? How will Idealist overcome the obstacles that got them to this place so that they can emerge stronger, more effective and more financial sustainable in the future?

In his appeal, Ami says that the weak economy got them to this place because of a significant decrease in job posting revenue over the past 16 months.  That is completely understandable.  But over those past 16 months what has Idealist done to diversify their funding model?  What has been the result of those changes?  And what are their plans for the future?  Ami is fairly vague on these points:

Very briefly, here’s what happened. Over the past ten years, most of our funding has come from the small fees we charge organizations for posting their jobs on Idealist. By September 2008, after years of steady growth, these little drops were covering 70% of our budget. Then, in October of that year, the financial crisis exploded, many organizations understandably froze their hiring, and from one week to the next our earned income was cut almost in half, leaving us with a hole of more than $100,000 each month. That was 16 months ago, and since then we’ve survived on faith and fumes, by cutting expenses, and by getting a few large gifts from new and old friends. But now we are about to hit a wall, and this is why I am reaching out to you.

I understand why they are in this position. But what I don’t understand is how they are going to get out of this position after the emergency funds that they are attempting to raise dry up.  According to Ami, their plans for the future are:

If in the next week or two we can reach everyone who’d give us a hand if they knew we are in trouble, I believe we’ll come out of this crisis even stronger than before. I believe this because while this has been a tough stretch, I’ve never been more optimistic about the future. The content on Idealist has never been richer, our traffic is surging, we are building a whole new Idealist.org that will be released later this year, and the potential for connecting people, ideas, and resources around the world has never been more urgent or more exciting. Your contribution will allow us to maintain all our services…and it will also give us some time to diversify our funding. Being able to breathe, recover, and plan ahead for a few months will be an incredible blessing.

If Idealist hasn’t been able to figure out financial sustainability in the last 16 months, why should I think that they will be able to do it in “a few months”?  And scarier still is the fact that economist are predicting that the jobless economic recovery will continue for the foreseeable future.  So I’m not sure “a few months” is really going to change things all that much.

What I would like to see from Idealist is a bold plan for action, a revamped business model that will allow them to continue to provide needed services to the nonprofit community in a financially viable way.  Emergency funding is great, but only if it is a stop gap measure that will get an organization through a very specific, finite period of time and that on the other side of the crisis is a new business model for a viable way forward.

I think the nonprofit sector can learn something from Idealist’s crisis.  There are many other nonprofits in this same position.  And many who are contemplating or have launched an emergency appeal.  But keep in mind, you can only cry wolf once.  So while you are working to stay afloat, you also need to be taking a hard look at how to radically change your approach, your business model, your funding streams. And you need to put those changes into a comprehensive plan and communicate that plan to your funders. In that way, you all will know that you won’t be back here again.

UPDATE: The Tactical Philanthropy Blog hosted a debate between Nell Edgington and Rich Polt from Louder Than Words about the Idealist appeal.  You can read the debate and comments here.  

Tags: Ami Dar, Idealist.org, Rosetta Thurman