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Financing Not Fundraising: Assess Your Nonprofit’s Financial Model

moneyI am amazed by the reaction of some nonprofit leaders when faced with a budget shortfall. Some simply shake their head in innocent confusion, some blame an “inexperienced” development director or a “checked-out” board, and others throw together a knee-jerk fundraising event in order to stem the tide.

But a much better approach, when you don’t have the money your nonprofit needs, is to step back and assess the viability of your nonprofit’s overall money function, which is the topic of today’s installment in the ongoing Financing Not Fundraising series.

If you want greater, more reliable funding for your nonprofit, you must get strategic. And the first step to any real strategy is analysis.

Instead of viewing the money that flows to your nonprofit as a side note, or worse, a completely uncontrollable force, you must view money as a very necessary and integrated function that is just as important as your nonprofit’s programmatic function. And in order to determine how well your money function operates and how to transform it, you must assess it.

A transformative financial model assessment uncovers how all aspects of the organization contribute to or detract from money flowing through the doors. It analyzes the financial impact of 7 areas of the organization, like this:

  1. Strategy
    Does your nonprofit have a long-term strategy that integrates money, programs and operations? Does your strategy help articulate the value your nonprofit provides the community in order to compel outsiders to invest? Does your strategy include measures for whether that value is actually being created?

  2. Mission and Vision
    Does your nonprofit have clear, compelling vision and mission statements? The two statements are not “nice to have” marketing language, rather they articulate the very essence of why your nonprofit exists. Does your vision paint a bold description of the social change you seek? Does your mission describe the day-to-day work towards that vision?

  3. Board and Staff Leadership
    Does your board have the skills, experience and networks necessary to execute on your strategic plan? Are they engaged and invested? Are they actively connecting the organization to people, resources, partnerships? Does your staff have the knowledge and experience necessary to make money flow? And are they structured and managed effectively?

  4. Program Delivery and Impact
    As a nonprofit you have two sets of “customers.” Those you serve (or your “clients”), and those who fund those services (or your “donors”). Without a compelling and effective delivery of services to clients, donors won’t fund those services. Is your nonprofit strategic about which programs to grow and which to cut? Do you measure the effect of your programs on clients? Are your programs financially viable, or are too many of your programs mission-rich, but cash-poor?

  5. Marketing and Communications
    Do you make a compelling case for your work and for support of it? Once you’ve made the case, are you using the right marketing channels (website, social media, events, email, etc.) to attract and engage your target funders, volunteers, advocates, board members and other supporters?

  6. External Partnerships
    In order to move the mission forward and in order to attract funders, volunteers, advocates you must be strategic about building alliances that make sense. Do you have the necessary external relationships to execute on your strategy? Are you constantly working to strengthen or grow the right partnerships in the right ways?

  7. Financial Model
    And only now do we look specifically at money. Because without all the previous elements (thoughtful strategy, compelling vision and mission, strong leadership) money simply will not follow. Does your funding mix fit well with your mission and core competencies? Are there other revenue streams that make sense to pursue? Are there fundraising activities that are actually costly rather than profitable?

When money isn’t working the way you want it to, don’t stick your head in the sand. Wrest the money sword from the beast of chance by taking a hard look at your nonprofit’s money function.

If you want to learn more about the Financial Model Assessment I provide clients, click here. And if you want to learn more about the Financing Not Fundraising approach, download the newest e-book in the Financing Not Fundraising series, Financing Not Fundraising volume 3.

Photo Credit: Pen Waggener

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Live Chat: Fundraising Without Sacrificing Mission

ChronicleAs I mentioned earlier this week, I participated in a Chronicle of Philanthropy Live Chat on Tuesday with Karina Mangu-Ward from ArtsFwd. We were talking about how to connect money and mission. The Live Chat was a lot of fun, and we got some great questions from the audience. Below is an excerpt from the Chat. If you want to see more you can read the entire transcript of the chat at the Chronicle site here.

Here’s an excerpt from the Chat:

TB Asks: How would you suggest starting to rein in an organization what has started to chase dollars vs. trying to fulfill it’s mission? In my organization’s case this includes having acquired multiple other programs and is looking to take over more. They are good programs, but the alignment to mission is marginal and that ability to be financially stable as an organization is threatened. The CEO is all in, the board is apathetic. As the development officer I’m not sure what I can do to get the train back on the tracks. Thoughts?  

I would start by bringing everyone together with a theory of change…

A theory of change articulates how a nonprofit translates community resources into change to a social problem…

Without that you will just be chasing dollars and programs. A theory of change can also excite and inspire a disengaged board and staff…

It can serve as a rallying point for the organization to determine what they are trying to accomplish and what resources they need (financial model) to be able to accomplish those things.

TB – One of the things that I’ve seen organizations struggle with the most…

is having difficult conversations….

conversations that require staff and board to let go of the old way of doing things….

to challenge their assumptions about how much money they need and for what…

i completely agree with Nell that having a framework for change is essential…

change doesn’t happen quickly. It’s incredibly difficult work, and acknowledging that it’s a process that organizations must learn and get good at is essential.

You can read the transcript of the full chat here.

Photo Credit: Chronicle of Philanthropy

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Financing Not Fundraising: Connect Money to Your Strategic Plan

If fundraising is the biggest challenge of the nonprofit sector, then strategic planning is only second to it. But the crazy thing is, if you connect the two (strategic planning and raising money) you not only will be more financially sustainable, but you will also achieve more social change. Money and strategy should never be separated. So that means nonprofits can no longer operate with a strategic plan that ignores money. Instead, nonprofits must create a strategic plan with a fully integrated financing plan, which is the topic of today’s installment of my regular Financing Not Fundraising blog series.

If you’re new to this series, the Financing Not Fundraising series recognizes that fundraising in the nonprofit sector is broken. 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 and instead work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.

To connect strategy and money, you have to start from, or work toward, a place where three key things are fully integrated and working together in your nonprofit:

  1. Your mission
  2. Your core competencies and
  3. Your money

That means that how you bring money in the door works with, not against, how you achieve your mission.

So what does it look like when you have connected money to your strategic plan? Your strategic plan:

  • Articulates a Value Proposition. The goals, both programmatic and financial, of your strategic plan will not come to fruition if they are not created with an understanding of how your nonprofit fits into the external community marketplace. Before you create the goals of your strategic plan, you must do your research to understand the external environment of client needs, competitors/collaborators, funding sources, and other inputs that go into your work. This means that in order for your strategic plan to be realistic, and fundable, it must define a place in the external environment where your organization can add value.

  • Includes A Money Goal. It seems so obvious, but so few nonprofits include a money goal in their strategic plan. At least one of the broad goals of your strategic plan has to be about money. I have seen a countless number of nonprofit strategic plans that tout lofty program goals but spend no time on how much those goals will cost and where that money will come from. Your strategic plan will remain only a paper plan until you include a goal about how you will bring enough money in the door to fund the plan.

  • Projects Future Money. And just like your overall strategic plan, the money side of that plan must take a long-term view. You want to project future revenue and expenses for the entire life of your strategic plan. So if you are creating a 3-year strategic plan, you need to project the revenue and expenses required for the entire organization over those three years. And that revenue and expense must be based on what you say you will do in the three years of your strategic plan.

  • Creates a Financial Model That Makes Sense. It makes me crazy when I see a nonprofit copying another nonprofit’s money raising ideas, like when a local nonprofit holds an event that appears to be very successful, so three other nonprofits try to mimic it. Or a new nonprofit launches a direct mail appeal because they think that’s what nonprofits do to raise money. The right way for your nonprofit to bring money in the door depends on your organization’s mission and core competencies. Create a smart financial model that adds to, not detracts from, your mission and that builds on the specific strengths of your staff, board and operations.

Nonprofits simply can no longer create a strategic plan that ignores money. To chart a compelling, realistic strategic direction for your organization you must learn how to connect money to your strategy. If you want to learn how to create the financial part of your strategic plan, sign up for our Creating a Financing Plan webinar.

And if you want to learn more about how I help nonprofits create a fully integrated strategic plan, check out my Strategic Planning Consulting Service.

 

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How to Convince Your Board You Need a Strategic Plan

It amazes me how board members can sometimes stand in the way of the nonprofit for which they are supposedly the chief supporters.  And the executive director can be incredibly lonely when she sees, but the board does not, what the organization desperately needs.

This is often true with a strategic plan, which I believe is absolutely critical to a nonprofit’s success. Without an overall strategy, a nonprofit is relegated to the world of “doing good work,” instead of the world of “making a real difference.” And these days more and more funders, supporters, advocates, partners and decision makers are requiring that nonprofits do more than just good work.

So what is an executive director to do when her board of directors doesn’t want to invest time, effort and resources into creating an overall strategy? Get tough and tell your board what a strategic plan will do for you:

  • It Will Bring Us More Funding. Donors will give bigger and longer-term gifts if they understand where an organization is headed and how they will get there. It is getting harder and harder to convince a donor to give based on goodwill or good works. You now need to convince a donor that 1) your organization is uniquely positioned to deliver a solution to a social problem and 2)you have a strategy to get there.

  • It Will Put Our Staff to Their Highest and Best Use. Staff will be more engaged, invested and productive if they understand the bigger picture and their individual contribution to it. A good strategic planning process gets staff engaged and invested in the organization and helps them understand their unique contribution to its goals.

  • It Will Get Our Board Moving. Without a strategy to guide them, a board of directors becomes a loosely linked group of volunteers who show up a handful of times a year to nod and slap each other on the back. If you really want to marshal this potential army and leverage all the resources, expertise, networks and mind-share they could bring, you have to give them a broader vision and purpose for their work. A good strategic plan gets a board both excited about the big picture and committed to their role in making it happen.

  • It Will Bring Us Financial Security. A good strategic plan forces an organization to analyze and develop a comprehensive, long-term financial model for the organization. Without a long-term strategy for mission AND money you will continue to ride the hamster wheel of never having enough. And that’s exhausting.

  • It Will Ensure We Create Change. Without a strategy you will end up somewhere, but it’s probably not where you wanted to be. A well-thought out strategic plan that begins with an articulation of the social problem(s) your nonprofit is trying to solve and how you work to solve it ensures that you get there. Without a strategy you will do a lot of work and use a lot of resources but may never actually create change.

It is really too bad that the words “strategic plan” have become so abused in the nonprofit sector that some board members are instantly turned off when the topic arises. To be sure, there are many bad strategic plans out there. But those nonprofit organizations that invest the necessary time and resources to create a really good strategy will be the ones that create lasting change.

You can learn more about Social Velocity’s strategic planning process here.

Photo Credit: Tambako

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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

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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.

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Tuesday, June 15th, 2010 Financing, Fundraising, Nonprofits 9 Comments