nonprofit capacity building
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.
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
Board members sometimes stand in the way of a what their nonprofit needs most. I’ve talked before about the meaningless at best and destructive at worst distinction between “overhead” and “program” dollars. And board members often are as bad as donors at forcing nonprofits to ignore the very real costs of the work they do and their very real need for organization building dollars.
But board members could break this pattern by helping their nonprofit uncover, plan for and fund the staffing, technology, expertise and systems required to make the organization more effective at creating change.
Board members need to put their weight behind organization building. And they can start by giving their nonprofit these five priceless gifts:
- Permission to Talk About Real Costs. Stop asking your nonprofit staff to get by with less and less. Stop telling your Executive Director to lower the salary they can offer a talented Development Director, not to spend money on technology, or to use volunteers when they need experts. Instead, start asking what the real costs of the work are and how much you truly need to raise to accomplish your ambitious organizational goals.
- The Support of the Board. Once you start talking about real costs, you need to marshal the rest of the board to support organization building. Boards are often led by a vocal few who convince the rest to go along with their plans. If you can be that vocal member who articulates the need for organization building, how it will result in greater results over time, and how the board must be the champion of and seed investor in organization building, you can create a stronger, healthier nonprofit.
- A Capacity Plan. With the board in support of organization building, it’s time to put an organization-building plan in place. Ask the head of your nonprofit to spend some time coming up with a capacity building plan that will take the organization to the next level. Then present that plan at the next board meeting for a substantive conversation about what is truly holding the organization back and what it would take to move forward.
- An Organization Building Investment. Instead of asking that your annual donation go to your favorite program, be the lead investor in this new capacity building plan. Organization building dollars are very difficult to find. So those closest to the organization should be the first to step up and invest in capacity. And don’t just give the required amount. Make an investment that is significant to you. If you truly believe in this organization, take out your checkbook and make it hurt.
- Access to More Building Dollars. But don’t just stop there. Think strategically about who you could convince to join you in strengthening the capacity of the organization. Then make the case for why a Development Director, or a strategic plan, or an evaluation study, or new technology will grow the results your nonprofit is achieving. If board members start making a compelling case to their friends and colleagues about the importance of capacity building dollars, the sector could be transformed.
Board members can be an instrumental driver of stronger, healthier, more effective nonprofit organizations. But in order to get there, board members have to understand and embrace their leadership role in making organization building a reality.
If you want a roadmap for making your board more effective, download our How to Build a Groundbreaking Board webinar.
Photo credit: asenat29
There was a really interesting interview last week in the Nonprofit Quarterly with Bill Ryan, author of Governance as Leadership, who recently led a study on coaching in the nonprofit sector. Coaching is a form of management consulting where a leader is given one-on-one strategic guidance.
An executive director can be coached to grow an organization, to build a stronger board, to revamp their financial model. Or as Ryan puts it, coaching answers the question: “If my organization wants to get to Point X, what do I, as a leader, need to do to build on my strengths and manage my weaknesses to help it get there?”
The concept of coaching is fascinating to me because, as Ryan points out, in corporate America coaching is much more commonplace than in the nonprofit world. If a CEO needs management counsel, they are encouraged to find a coach, whereas coaching for nonprofit leaders is often deemed a luxury. But, I think coaching is even more necessary in the nonprofit world. Nonprofit leaders, unlike their for-profit counterparts, often lack a management background having made their way to the top through program expertise.
The reality is that coaching for a nonprofit executive director can be absolutely transformative. It can make the difference between a program that is just getting by and a program that becomes financially sustainable and grows dramatically, with an engaged, committed board behind it.
Such is the case with ACE: A Community for Education, a nonprofit early childhood tutoring program. I have coached ACE Executive Director, Mary Ellen Isaacs for over a year since we completed an ambitious strategic planning process. They are now working to triple the number of students they serve and diversify and grow their financial model.
Here’s what Mary Ellen has to say about the coaching experience (or if you are reading this in an email click here to watch):
I believe coaching can be hugely transformative for nonprofit organizations, helping their leaders build the skills they need to grow their solutions far and wide. If you’d like to learn more about how I coach nonprofit leaders, check out the Coaching page of the website.
Photo Credit: wikimedia
I believe very strongly that in order to fix a broken nonprofit sector we must change how things are done. But it is not enough to change only the larger structures of the nonprofit sector (IRS regulations, public perceptions about “overhead expenses,” funder requirements). Individual nonprofit organizations must also change how they operate in order to survive in this dramatically changing environment.
At Social Velocity, the nonprofits I provide consulting to have all reached some sort of inflection point. They have realized, for whatever reason, that they can no longer continue on the way that they always have. They have decided they must revamp their financial model, restructure their board, dramatically grow their services, or chart a new strategic direction in order to stay relevant and achieve their missions.
But it’s not enough to want change, or for just a couple of people within a nonprofit organization to want it. Over the many years I have been working with nonprofits, I have realized that in order for change to really happen, there must be some key building blocks in place:
- A Champion. There must be someone in a leadership position in a nonprofit who is a cheerleader for change. It could be the executive director, the board chair, or a board member. And that person must have the respect and trust of a majority of the organization. If the champion for change is a sidelined board member, an executive director on their way out, or a disgruntled staff member, the effort for change will go nowhere.
- A Need for Change. The champion for change must be able to describe the need for change. There has to be some urgency and a described end goal in order to rally others to the cause for change. It may be that a major funding source is going away, or board members are resigning, or client need is dramatically increasing. The champion for change must make a case to the rest of the organization about why change must happen, and why now.
- Critical Mass. Once a key champion starts pushing for change they must rally enough board and staff members behind the idea. There must be enough people who also want to see significant change in the organization in order to force it out of inertia.
- Funders of Change. A nonprofit could have an entire board and staff ready and willing to change, but without at least a few funders who also believe in that change and are willing to invest in a process for making it a reality (a new financial plan, a growth plan, a board recruitment process) they won’t get very far. You need to identify a few funders who love what your nonprofit does and can be made to understand the need for change now.
- A Navigator. I’m probably biased, but I believe that you need someone to guide the organization through significant change so that it doesn’t collapse in the middle. Without an outsider who understands the change that needs to happen and how to lead the organization there, a nonprofit can easily fall back into their normal ways of doing things. If a nonprofit is really committed to making a serious change, then they need to invest in a competent guide to get them there.
The convergence of the public, private and nonprofit sectors, an economic restructuring, and increasing competition for dollars, among other things, have combined to make change in the nonprofit sector a necessity. Those nonprofits that realize that business as usual just won’t cut it anymore and begin the work of changing their organizations to meet these new challenges are the ones that will survive and thrive.
To find out more about how I help nonprofits navigate change, check out my consulting services.
Photo Credit: Best and Worst Ever
There is a revolutionary concept that could dramatically transform the nonprofit sector, if only every nonprofit leader knew about it: capacity capital. Capacity capital is the money nonprofits so desperately need to strengthen and grow their organizations. Happily,the Financing Not Fundraising webinar “Raising Capacity Capital” will show nonprofit leaders how to raise this critical kind of money.
Capacity capital is the money that every nonprofit needs, but most find so hard to raise. Capacity capital can help your nonprofit to:
- Hire a development director
- Launch an earned-income stream
- Expand your programs
- Evaluate your impact
- Train your staff
It is money for infrastructure and organization building. If you want to move your organization out of the starvation cycle, you have to learn how to raise capacity capital.
I have worked with a number of small to medium sized nonprofits to create a pitch for capital to strengthen revenue functions, grow programs and otherwise build organizations.
Let me give you an example.
Elaine Spallone, executive director of Charlotte Chamber Music, felt that they were stuck. As a small, but beloved arts organization they had a great product, but they couldn’t get beyond the vicious cycle of never having enough money, never being able to expand their presence and impact. They had a solid board, and a great vision for the future, but lacked philanthropic equity to build the organization to achieve that vision.
I worked with Elaine and her board to create a long-term strategic vision, a plan to get there, and a funding pitch for capital to build the organization. You can read the on-going case study about this work to raise philanthropic equity at a small nonprofit here. Charlotte Chamber Music is now actively raising capacity capital, and it’s very exciting.
It’s incredibly powerful to think about the implications of this concept for the entire nonprofit sector. If a nonprofit that provides a solution to a social problem was no longer impeded by a lack of capital, it could be revolutionary.
We’d no longer see great programs wither on the vine. The best and the brightest ideas could travel all over the country, indeed, all over the world. All it takes is the right kind of money, invested in the right place at the right time, and the solution can take off.
If you are interested in raising capital for your nonprofit, the “Raising Capacity Capital” webinar will show you how to:
- Talk about the importance of capacity capital to your donors and board
- Create a budget for the capacity dollars you need
- Develop a campaign goal
- Break the goal into donor ask amounts
- Identify prospective donors
- Give your board a role in the campaign
- Gain the confidence to start asking for the money you really need
Raising Capacity Capital Webinar Details:
The registration fee will get you:
- A link to a recording of the webinar, which you can watch as many times as you like
- The PowerPoint slides from the webinar
- The ability to ask additional follow-up questions after the webinar
Photo Credit: gfpeck
Last Thursday I was a guest on Michael Chatman’s The Giving Show, a weekly radio show about philanthropy. I was delighted to talk with Michael and his listeners about how nonprofits need to rethink the ways they bring money in the door. If you missed the show, you can still listen to the podcast here.
Michael and I talk about:
- How nonprofits need to finance, not fundraise for, their social impact
- The difference between revenue and capital, and why it’s such an important distinction for nonprofits
- When earned income is right for a nonprofit
- The opportunity the recession poses for nonprofits
- Why nonprofits must let go of the status quo
- How to educate donors to be organization builders
- Where innovation is happening in the nonprofit sector
- The convergence of the nonprofit, for-profit and government sectors
- Why overhead is NOT a dirty word
And much more. You can listen here.
In this month’s Social Velocity blog interview, we’re talking with Rebecca Thomas. Rebecca Thomas is Vice President of Strategy & Innovation at the Nonprofit Finance Fund, a national leader in nonprofit, philanthropic and social enterprise finance. She has strategic responsibility for national initiatives, funder partnerships and new online and next-generation services that advance the organization’s profitability, visibility and impact. Rebecca serves as a spokesperson and advocate for NFF regionally and nationally, and is the co-author of Case for Change Capital in the Arts and Financial Reporting Done Right, part of a larger publication series on capitalization in the arts.
You can read past interviews in our Social Innovation Interview Series here.
Nell: Your “change capital” project works with 10 arts organizations to help them raise capital to transform their organizations. Why did you decide to focus on arts organizations? What is unique about their need for change capital?
Rebecca: Through the Leading for the Future Initiative, NFF is investing $1 million of change capital in each of ten performing arts organizations that are adapting their programs, operations and finances in ways that contribute to long-term health and vibrancy (click here for the list of participating organizations). The source of this capital is the Doris Duke Charitable Foundation, which partnered with us in 2007 to develop the program as a way of responding to the tectonic shifts taking place in the artistic landscape. These shifts (in demographics, technology, and audience expectations, to name a few) were underway in the arts sector well before the economy went south and jeopardized arts philanthropy and public funding. Because business as usual is no longer an option for this sector, the need for change capital to fund creative re-alignment is particularly pronounced.
Arts sector aside, the majority of nonprofit organizations are mis-capitalized, meaning they lack enough of the right kinds of financial resources to adapt to changes taking place in their external and internal environments. The field often focuses on the lack of capital—certainly a reality for many organizations—but capital is equally often misplaced. Consider the organization with an aging facility and permanently restricted endowment but only two weeks of cash. It may not be undercapitalized but it is certainly mis-capitalized!
The arts sector has, more than many other sectors, suffered from an institutional mindset that equates success with the accumulation of fixed assets, often at the expense of liquidity and flexible capital. The result is that too many organizations are in a starvation cycle, unable to fully pay for their current programs and infrastructure, let alone to invest in meaningful and lasting change.
Nell: Do you have plans to expand to other types of nonprofit organizations with this project?
Rebecca: Our program, which runs through 2013, is limited to the 10 current participants, which were chosen through a multi-phased application and selection process. Given the nature of capital, programs like LFF are expensive and require one or more funders who are willing and able to commit sizable sums of money. The field is fortunate that the Doris Duke Charitable Foundation had the resources and vision to create this program with us. The principles of this program certainly apply to every sector, and we aim to do similar innovative initiatives with funders and nonprofits in other fields (for example, healthcare and charter schools) that we think would benefit from an investment of change capital.
We’ve found that education about the relationship among mission, capacity and financial health is often a precursor to the establishment of a capital initiative of this kind. NFF partners frequently with foundation program staff and nonprofit leaders to introduce the concepts of change capital, reliable revenue and liquid, adaptable balance sheets. From efforts like these have arisen deeper partnerships. For example, we have capital-investment programs with the Kresge and Andrew W Mellon Foundations that, respectively, provide financing for cash reserves and working capital. Change capital is just one of several forms of flexible capital that organizations need, for purposes ranging from risk management to rapid scale to stabilization.
Nell: As part of this project you are demonstrating how nonprofits can adjust their financial reporting to allow for a very necessary distinction between revenue and capital. Do you see nonprofits adopting this fairly significant change? What will it take to change accounting standards to recognize this distinction across the sector?
Rebecca: One of the things we learned early on in this work is that changing the financial reporting—to separate capital flows from recurring revenue—would not be an easy sell, for understandable reasons. Executive directors are reluctant to take a chance presenting new formats to donors who don’t understand the technique, and many board members aren’t inclined to re-learn nonprofit accounting principles. Moreover, NFF’s suggested methodology is not required by the Financial Accounting Standards Board, and auditors don’t always feel comfortable suggesting novel formats, even when they provide heightened clarity.
Notwithstanding these challenges, nonprofits that periodically raise and deploy capital—whether for investing in fixed assets, building a reserve, or implementing a change strategy—should take the straightforward step of separating capital from ongoing operating revenue and expenses, at least in managerial reporting. Financial Reporting Done Right explains in greater detail how this is done, but suffice it to say that when capital and revenue are conflated, an organization’s reports do not present a realistic view of operating performance. Unintentionally misleading information can lead to poor planning and decision making by nonprofit leaders, boards and funders.
Longer term, it will take aggressive education and advocacy efforts to convince nonprofit executives, board members and funders of the value of producing transparent financial reports and audits that reveal business model economics separate from capital infusions. Nonprofits will need to be convinced that they won’t be penalized for producing statements that may, at times, show temporary weakness in operating results during a change or growth period.
Nell: What can and should funders do to make change capital a reality for more nonprofit organizations?
Rebecca: Funders can start by encouraging their grantees’ efforts to adapt in the face of shifting environmental and internal realities. Nonprofits need to know that their supporters view these efforts as important, recognize the risks involved in attempting change, and are willing to provide flexible funding without judgment.
Also, funders can provide support for the development of a rigorous strategy and financial roadmap for change, both of which should be in place before a sizable investment of change capital is made. This planning should include the preparation of financial projections for the period of change and program and financial metrics (identified by the grantee!) to measure progress and guide course corrections. Because change takes time and can be costly, funders should consider aggregating their resources to support a grantees’ change strategy – and any funder “pool” should embrace one standard of reporting.
I want to stress that not every organization is a good candidate for change capital. Many are too financially fragile to invest in transformative efforts and first need capital to recover from previous setbacks. Some characteristics of “change capital-ready” organizations include: an enterprise perspective that sees the organization as more than the sum of its programs; a strong, stable and collaborative management team and board; a commitment to strategic planning, self-reflection, and continued learning; a culture of risk-taking and adaptation in the face of obstacles and new information; a track record of surplus performance and adequate liquidity; and a continuous focus on results and the use of data to inform decision making.
Nell: How open do you think philanthropists are to the idea of building versus buying services? Is the idea catching on for funders? What will it take to make the idea widespread?
Rebecca: The importance of role clarity can’t be understated. Both individual donors and institutional funders need to be clearer about whether they are investors in nonprofit enterprise health (“builders”), annual supporters of nonprofit services (“buyers”), or both. Among venture philanthropists and their ilk, this concept has gained much momentum in recent years. NFF Capital Partners collaborates with such investors in their efforts to scale high-performing nonprofit organizations. Through NFF’s grantmaker training programs, which reach a broader audience, we are also seeing a deeper understanding of this concept, although its application remains uneven. Ben Cameron, Program Director of the Arts at the Doris Duke Charitable Foundation also deserves a lot of credit for understanding and embracing this concept, and then stepping forward to be the learning example for an entire sector.
Time, education, and openness to change will be required for field-wide change. More stories about how nonprofits are successfully (and not so successfully) deploying capital to scale, change or restructure their operations would also help.
But let’s remember that not every philanthropist can or should be a builder. The field would benefit greatly from more buyers who provide (or partner with others to provide) unrestricted support that covers the full costs of program delivery, rather than limited program support or expansion at the margins.
Nell: What challenges are your change capital clients finding during this journey? Are they successfully raising change capital across the board, or are some faring better than others? Why?
Rebecca: Several of our clients have sought to raise change capital outside of this program as they seek to fully realize ambitions that carry a price tag larger than $1 million. A few have raised funds that serve a similar purpose without calling these dollars “change capital.” What we’ve heard from many of our clients is that foundations and boards either don’t have the resources to provide capital at this scale or don’t fully understand the concept. While grantmakers are increasingly embracing other improvements in practice –such as supporting reserve-building efforts, encouraging surplus management, and providing general operating support – few are yet providing flexible capital to be invested in implementing and sustaining enterprise-level change.
I want to make one last point. We set up the Leading for the Future program to enable our 10 participants to embrace innovation and experimentation as they adapt their business models in response to new challenges and opportunities. But programs like this one are not about change for change’s sake. Change capital is not the same as an “innovation grant.” The capital is meant to be deployed in ways that lead to more reliable net revenue (read: surpluses) to sustain each change strategy once the capital is fully spent.
And, at the end of the day, it’s worth remembering that financial stability is only a means to the end of greater nonprofit effectiveness and impact.
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