If this recession has any silver lining it could be that it’s forcing nonprofits to completely re-evaluate how they use money. There is a tendency in the sector to shy away from, ignore, fear or dismiss money. But when there is less of it, you are forced to learn how to use it more effectively.
And it is up to the board, who has a legally-defined fiduciary duty, to step up to the plate and provide a strategy for how money is used. But because boards are such a bizarre mingling of volunteer strangers it can be difficult for the group as a whole to take a leadership role, especially in the taboo area of money. The solution lies in encouraging a single individual board member to rise up.
Several recent articles have illustrated the need for nonprofit boards to become better financial managers. From Jan Masaoka’s (Blue Avocado) call for boards to use a budget more strategically, to Rick Moyer’s argument in the Chronicle of Philanthropy that boards need to find “crystal clarity about their financial situations,” to Bob Carlson’s warning that poor nonprofit financial management can end up with legal nightmares.
But what all of these articles fail to address is that boards are ineffective fiscal managers largely because of their group dynamics. Countless times have I seen a nonprofit board of directors suffer from group think, head off in tangents, or avoid difficult conversations.
The opportunity lies in getting a single board member to play a leadership role. A nonprofit’s executive director can be instrumental in encouraging this coup d’etat by finding an individual board member who:
- Is passionate about the cause and the organization
- Has the respect of the majority of the other board members
- Understands, or is willing to be educated about, the basics of financial management
- Is confident enough not to be easily dismissed or swayed
And what does it look like when an individual board member takes a stand to move the board towards better financial management?
- Interrupting the annual rubber-stamping budget approval meeting to ask how the budget fully finances the overall strategic plan of the organization
- Asking for, and ensuring creation of, monthly financial statements that are understandable
- Ensuring basic nonprofit financial management training for board and key staff so everyone speaks the same language and understands the key ratios they should be analyzing
- Standing up to board members and staff who dismiss or discourage deeper conversations about how the nonprofit budgets, uses financial vehicles, handles financial reporting
- Interjecting, cajoling, persuading, and inspiring fellow board members to USE money to strengthen the work of the organization
As David Bornstein said, social change is often driven by “one obsessive individual who sees a problem and envisions a new solution.” So, too, in the world of the sometimes intractable nonprofit board. It may require a single board member to stand up and demand that financial business as usual doesn’t work anymore. If it takes a recession to make money a true tool for social change, so be it.
Photo Credit: faungg
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This is RISE week in Austin. RISE (Relationship and Information Series for Entrepreneurs) was started by the Sosa crew–Roy and Bertrand Sosa (brothers) and Roy’s wife Suzi. The brothers immigrated from Mexico in 1986 and started a company called NetSpend, selling prepaid credit cards to recent immigrants. Netspend went on to be very successful, and they sold the company in 2006 to launch MPOWER Ventures, a double-bottom-line venture capital fund whose mission is to empower the world’s underserved, and MPOWER Labs a research and development incubator and business accelerator.
The Sosa’s are firm believers in entrepreneurship and are a testament to its power to transform people and communities. They launched RISE in 2007 as a way to ensure that “Austin continues to be a leader in developing top level entrepreneurs who transform their vision into successful businesses that greatly contribute to our local, national and global economy.” They believe that Austin has been and will continue to be uniquely positioned to foster successful entrepreneurs:
There is no better place on earth than Austin, Texas for an entrepreneur to gather the tools they need for success. As a unique intersection of the academic, public and private sectors, our city has proven itself to be an environment for entrepreneurs to succeed. Austin is home to household names such as Whole Foods Market, GSD&M Idea City, A Glimmer of Hope Foundation, Silicon Labs, The Lance Armstrong Foundation and Sweet Leaf Tea.
RISE differs from most entrepreneurial conferences, though, in that it includes a social entrepreneurship track. The Sosas believe very strongly in social entrepreneurship, as they themselves are social entrepreneurs. There are many great sessions on the schedule this week from Philip Berber’s (founder of A Glimmer of Hope) session on his journey from entrepreneur to social entrepreneur, to Kala Philo’s session on Muhammed Yunus’ social business model, to Doug Ulman’s (CEO of the Lance Armstrong Foundation) session on social entrepreneurship, and several others. These sessions have all been standing room only. It’s really exciting to see such an interest in this topic in Austin.
My colleague Jessica Shortall and I even got in on the game by presenting Startups with Social Impact, an overview of Social Enterprise, which we define as “An organization (business or nonprofit) that achieves significant social impact as a product of market-based activity.” And then broke it down into three types, which is our modification of Venturesome‘s 3 Models of Social Enterprise:
- Subsidized: Business activity operated by a nonprofit–profits are funneled back into nonprofit
- Trade-off: Business balances between the level of profitability & the creation of social impact. An increase in one decreases the other.
- Lock-step/Social Business: Direct social impact increases or decreases in parallel with financial returns.
Social Enterprise can be viewed along a spectrum like the one below, where potential for profit starts at the first Trade-Off model:
Then, two great Austin examples of social enterprise spoke to the standing-room-only group. First, Missy Nathan, co-founder of Blue Avocado discussed how their green grocery bag system has taken off in just 4 short months through Wholefoods and other distribution channels. Their Lock-Step business model has a triple bottom-line: profit, environmental and social return. They even give 1% of sales to Kiva. Their supply chain is diligently monitored to ensure that they are environmentally sound, and they closely track and report on the number of plastic bags being reduced. This team of three smart, tenacious women has huge goals and appears prepared to deliver on them.
Our second social enterprise was English at Work, a nonprofit that teaches English at the workplace to Spanish-speaking company employees. Founder Maile Broccoli-Hickey discussed their unique business model which charges their company clients (large hotels, restaurants and other employers) to provide on-site English language classes to their employees. Although they are currently charging the companies only 25% of the costs of the class, the goal is to move closer to 50% and beyond.
The session ended with a vigorous discussion of what is holding Austin back from becoming a leading social enterprise city. Some thoughts included:
- Lack of capital–investors don’t understand or aren’t familiar with double-bottomline companies, so are unwilling to invest
- Low media interest in/attention to social enterprise
- Few events that bring together social entrepreneurs and investors
- Unclear understanding of the current social enterprise eco-system, and what is lacking compared to other thriving cities like San Francisco, London, Toronto, Pittsburgh
Some suggested the first step may be a wiki that lays out the current social enterprise ecosystem. Once we understand what we have and where we are, we can determine what it will take to evolve. Also, many are excited about the possibility of Brewster McCracken becoming our next mayor. He has expressed a real interest in this area, especially as it pertains to the green economy.
There are many more sessions on tap for today and tomorrow and many more conversations to come. But the energy and excitement for social enterprise is palpable. I hope to see it grow.
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