A Sign of the Times

There is a fascinating discussion happening on a few social innovation blogs.  It centers around a small (less than $500,000 annual budget) nonprofit that does important work, but is struggling to the brink of closing down.  Given the current economy, this will probably be a more common occurrence in the coming months.

FORGE harnesses the power of refugees in African camps in order to promote peace-building and social stabilization. Founder & Executive Director Kjerstin Erickson has been blogging about the immediate financial crisis FORGE is facing-a $100K budget shortfall for this year (25% of their annual budget).  They recently changed their business model where refugees now create the programs instead of having American student volunteers, who had also been required to raise money, create the programs. At the same time a donor mailing that usually contributes a good bit of money was sent at the height of the recent financial crisis.  Their new revenue model is based on the idea that people would visit their website and create a Kiva-like scenario, where donors find programs that appeal to them and contribute accordingly, but it hasn’t panned out yet.

Other bloggers have taken notice and asked what can be done to help this innovative nonprofit survive.  Sean Stannard-Stockton’s Tactical Philanthropy blog, called Kjerstin’s The Most Important Nonprofit Blog, because “it is a fascinating real world drama of a social media savvy, impact focused nonprofit trying to deal with the financial crisis.”

The resulting discussion here and here has been really interesting.  I was even compelled to join in.  It seems to me that FORGE is a perfect case study, or microcosm, of some of the trends occurring in the social sector.  FORGE is a great example of a social entrepreneur taking a new view of a problem and coming up with an innovative solution that is scalable.  However, that innovation must be paired with strategy, a solid business plan and a sustainable revenue model.  It is interesting to me that in her response to some of the blog comments, Kjerstin says that their strategy is sound, but their fundraising and marketing skills may be lacking:

We (I take most of the responsibility) made some pretty naive/inaccurate assumptions about the way funding would work under our new model, and that says something about FORGE and my judgment. What I am hoping is that those that are out there listening are able to decouple strength in marketing and fundraising with strength in strategy, programming, and impact management.

I would argue that strength in strategy, programming and impact management INCLUDES strength in marketing and fundraising.  You can’t have a strong, strategic, sustainable program that creates real change without having a revenue model behind it.  A great idea is a start, but unless you can combine that with a business model that works and is sustainable it remains just an idea.

FORGE is definitely on to something, and I admire Kjerstin’s tenacity and courage, especially her ability to document FORGE’s weaknesses and to ask for help.  However, the whole thing reminds me a little bit of the dot com era.  During the boom, the assumption was that there was an “old” way of doing business and determining value and a “new” way that was less interested in profitability, etc.  There are a lot of exciting things going on in the social space and some really great ideas and new ways of looking at things.  But the fundamentals of the space are still the same.  Social mission organizations still exist within a market economy, therefore in order to survive they must find consumers who will pay for the services they provide, i.e. donors.  When FORGE gave up their model of volunteer program directors helping to fundraise for the programs they run, they gave up the revenue piece and there wasn’t much left in its place.  They had hoped that their website would generate donors, but that takes time to build.  They needed, and still do, to build a base of donors who would support them through other means.  Foundations, wealthy individuals, etc.  The “old” line of funds available to nonprofit organizations.

If they were to ask for my advice to get out of this situation I would recommend the following:

1. Start with your board and major donors (if they have any).  Who on that list could make a large donation ($10-25K) or could open the door to such a donation? This would help them cover the shortfall and keep them in business.
2. Put together a new business plan that creates a sustainable, scalable revenue model to replaces the one they lost.  Is there a creative way to generate revenue (earned or philanthropic) that could be on-going?
3. As part of this plan, determine what infrastructure (staffing, technology, etc.) will be required to fully realize this new plan.  I would recommend a Development Director or Business Development Director, or other revenue-generating position be added to the team.  Then put a price tag on that plan and start shopping it around to your board, wealthy donors, foundations, etc.  Determine what the ROI of such an investment would be.  If you could fully implement your new plan and make FORGE scalable and sustainable, how many lives will you change, what is the long-term impact?  Compare that to the investment being made and you start to have a compelling argument for some pretty serious growth capital.
4. Once you have the shortfall money in house and the growth capital in place then put your plan in motion and be ever-cognizant of the connection between strategy, program scale and revenue.  In order not to end up here again, you have to be clear that your business model and any changes to it have to include revenue implications.

The new ideas happening in the social space are exciting, but we have to understand them and implement them within the knowledge we have gained from philanthropy and the social sector over time.  A great idea isn’t enough, you need a solid business model behind it.