The Dire Consequences of Poor Nonprofit Strategy

There was a really interesting article in the Wall Street Journal recently about the New York City Opera that dramatically illustrates how critical a nonprofit’s strategic alignment of mission, money and competence is. I’ve written before that for a nonprofit to be truly effective and sustainable, three things must be aligned:

1. Their mission, or reason for existing
2. Their core competencies–what they do better than anyone else in the world, and
3. Their revenue engine–all the ways in which they sustain themselves financially

So that an organization, in alignment, fully integrates and gives equal weight to those three elements. Those nonprofits not in alignment eventually suffer the consequences, which can sometimes be quite dire, as is the case with the New York City Opera (NYCO).

Once a shining star in New York City’s performing arts world, NYCO has fallen on financial hard times, requiring them to move out of their Lincoln Center home and dramatically scale back their performance calendar this year. The NYCO chorus and orchestra are so upset about the situation that they have held a protest. What a nightmare.

In the 68 years of its existence, NYCO’s mission statement has been clear, succinct and captivating: “The People’s Opera.” However, in recent years, the organization has struggled to align its core competencies and revenue engine around that compelling mission. In 2008 Gérard Mortier, the NYCO general manager and artistic director, canceled NYCO’s 2008-09 season while Lincoln Center was under construction. And the following season, after Mortier quit, NYCO scrapped their planned season and staged a selection of unpopular productions that flopped. The result is that NYCO has lost its audience, lost its revenue, and lost its way.

At the same time, NYCO’s competitor, the Metropolitan Opera, has transformed from a very conservative opera house into a media-savvy, artistically adventurous opera company that trains its own new singers instead of relying on NYCO to develop upcoming stars. All of this leaves the Wall Street Journal to ask, “New York already has one major opera company. Why does it need two? If [NYCO] can’t come up with an answer to that question, then New York City Opera is doomed—and deserves to be.”

Harsh, but true. NYCO is faced with a critical inflection point. They can either figure out how their mission should adapt to their core competencies (what they do better than the Metropolitan Opera) and develop an integrated revenue strategy around that mission and those core competencies, or they need to close up shop.

The reality is that NYCO isn’t alone in this dilemma. It is becoming increasingly difficult to survive these days. Growing competition from nonprofit and for-profit solutions, decreasing funding available, and the advent of new technological channels to reach customers, clients, and funders means that now more than ever nonprofits need to find alignment. They must constantly be analyzing whether their mission, money, and competencies are working in tandem to create an effective, sustainable organization that brings value to its community. Because to ignore alignment is to eventually wake up to the heart-wrenching decision NYCO now faces.

Photo Credit: NYCO website

Tags: Metropolitan Opera, New York City Opera, nonprofit alignment, nonprofit case study, nonprofit financial sustainability, nonprofit mission, nonprofit strategy, NYCO

Can You Really Wave Goodbye to Fundraising Forever?

There’s a new, or perhaps it is very old, idea kicking around the blogosphere that is probably a dream of many nonprofit leaders. The idea, put forward by Appropriate Infrastructure Development Group (AIDG) founder Peter Haas, is that there could be a company to which nonprofits completely outsource fundraising. Although the idea is intriguing, its underlying assumption that money and mission can, and should be, separated is a potentially destructive one.

Peter proposes a new business idea that takes the burden of fundraising off the backs of nonprofit Executive Directors. A fundraising contractor would solicit donations and take a 10% cut of the revenue:

This is an industry that is waiting for its day…There are incredibly talented development people with strong contacts who raise hundreds of millions of dollars for big organizations…who could do a lot of good in the world by going solo and helping smaller organizations…There need to be more contractors and less consultants in this field, people who will treat it as their job to do the work and the heavy lifting of the fund raising task instead of just offering advice.

Peter’s post set off a string of mostly positive comments and a response blog post by Change.org blogger Nathaniel Whittemore, who thinks it’s a “pretty fascinating idea.”  Nathaniel’s post similarly drew comments, which were largely positive.

I completely agree that we need innovation in how nonprofits fund their impact (read my series on Financing not Fundraising), but I don’t think Peter’s justified frustration has developed a valid idea. First, there are legal and ethical challenges, for example the Association of Fundraising Professionals, the largest association of fundraisers in America, calls fundraiser commissions unethical because they inject personal financial gain into a charitable transaction, and the IRS frowns on parts of charitable donations benefiting individuals.

But in any innovation there are hurdles to overcome, so these issues are not what really bothers me. Where Peter’s idea gets dangerous is in his underlying assumption that fundraising can somehow be separated from mission, as he argues:

If the mission of the NGO is the service to the community, and fund raising is truly something administrative (as most donors like to classify it in costs analysis), then it should be something an NGO can easily subcontract. NGOs subcontract back end services all the time, book keeping, accounting, payroll. I don’t hire somebody to tell me how to reach into my heart and find my inner book keeper, I hire a book keeper. Why not fund raising?

But, fundraising is NOT simply an administrative aside that can be tossed to someone else. The money that supports a nonprofit is integral to, not distinct from, the organization’s impact. Unlike a for-profit company that has one customer group, a nonprofit has two: 1) those who benefit from their services and 2) those who fund those services. To separate an organization from one of their customer groups is unthinkable. Not many successful for-profit companies outsource their sales function. Indeed, the most successful companies are those who integrate feedback that their sales team gathers as they meet with current and potential customers (the marketplace). So too should a nonprofit integrate ideas and feedback it gets from its second customer group: its funders.

Ah, I can hear the screaming now. In some nonprofit circles it is close to blasphemy to consider that those with the money should be able to influence a nonprofit program.

But funders (love them or hate them) provide a very necessary input to an organization’s theory of change. An organization can have a phenomenal solution, but if that organization is not able to articulate and demonstrate why a community as a whole should care and how that solution provides a positive return on investment, the solution is pointless.

Nonprofits cannot outsource the absolutely critical function of understanding, building relationships with, and gathering feedback from funders. To separate financing from impact would be to wave goodbye to half your business model and the customers who support it.

Tags: AIDG, Association of Fundraising Professionals, Change.org, Executive Directors, IRS, Nathaniel Whittemore, NGOs, nonprofit fundraising, nonprofit mission, Peter Haas