A few weeks ago, the Alliance for Children and Families released a thought-provoking report calling on human service nonprofits to take bold action in order to continue to serve communities. The report, Disruptive Forces: Driving a Human Services Revolution is focused on the future, recognizing that while we don’t know what’s coming, we do know that major shifts are underway. In the report, the Alliance describes the massive challenges facing human services. Adapting to respond to these changes will require much more than new fundraising tactics and hard-working staff. They urge nonprofits to consider themselves as a part of a much larger system and then plan how to participate in new kinds of networks to serve community needs. Similar to the conversations about collective impact, the focus is on impact in the community and not on preserving individual organizations.

At the heart of the report are six disruptive forces that nonprofits need to understand and tackle:

1. Purposeful experimentation: Nonprofits regularly hear about the need to innovate and develop new models, but there isn’t a clear path or pattern to follow. We all need to try things, test new ideas, and take calculated risks.
2. Information liberation: Locked down confidentiality has become a barrier to delivery improvements and consumers will take control of their information to find better services within and outside the systems.
3. Integrating science: Delivering human services can be improved, even revolutionized, by applying new scientific research and crossing fields. The walls between disciplines need to come down.
4. Uncompromising demand for impact: Measuring, verifying, and communicating impact is neither optional nor is it an after-thought to service delivery.
5. Branding causes, not organizations: Marketing and fundraising for individual nonprofits may be effective for raising money and name recognition, but branding a cause can change public perceptions and lead to bigger changes. This force may seem to counter a nonprofit’s individual interests but is necessary for the broader vision.
6. Attracting investors, not donors: This force is part of a growing call to recognize the return on investment of human services and translate these benefits into actual returns, either for the public or for financial investors. This may include long term, patient philanthropy, pay for performance funding, and collaborative investments.

The Big Idea of the report is:

“There must be a shift from an organizational-centric focus to an acknowledgement of the importance of networks and collaboration. … This shift will be difficult and will require many key players to set aside their own egos and become less defensive of their ‘home turf’”.

Unlike the Collective Action articles, the report doesn’t offer a guide for how to build a network. The authors encourage nonprofit CEOs and boards to ask a lot of questions about these disruptive forces and their responsibility to stretch their traditional boundaries, take risks, and build the networks that can create real impact. How should they start?

“Call to Action: In this report, we encourage you to seize the opportunities that contradictory, complex situations create.”

Conference attendees talked about how to communicate the need to leverage collective resources, but this collaboration doesn’t happen out of the ether. If we are truly going to coordinate impact – focusing our organizations on what we do best that springboards the work of another – we cannot expect that level of communication to occur without dedicated resources. Any nonprofit rockstar worth her/his salt can tell you just adding more work to the same people means something else will get short-shrift. We have to decide what we can do, and what must be the responsibility of our collaborators. That requires logistics. That requires people.

Like any good fan of framing, supporters of collective impact need to shift both thinking and language around things like logistics, meetings, coordination and the like. Collaborators, funders, partners and clients will have to get used to hearing things like backbone, leverage, and impact. We can spend $1 million across 10 agencies and impact 1,000 people moderately well. Or, we can spend $1.1 million across 11 agencies and impact 2,000 people extremely well. Case number two costs more money, but does anyone really doubt that it’s worth the extra costs? Nonprofits that are ready to take on collaborative work have to be ready to change how they communicate about money. Collaborators should agree on a budget for their backbone organization, and talk to their supporters about how they are intentionally and affirmatively spending money for better coordination and more effective services. Nonprofits cannot run away from this conversation, but rather must get in front of it.

A final stage to leverage impact will be in how nonprofits internally view their backbone collaborators. These allies should be viewed as trusted advisors: to communicate clarity, to consult when there are questions, and to provide great value for the money. Any successful neighborhood hardware store understands this role. Sure, it’s possible to figure out how to fix a plumbing job through trial and error and the occasional “how-to” YouTube video. It is however, faster and easier to ask the experts at the local hardware store. Yes, they have an interest in meeting daily sales, but more importantly, they have a stronger interest in showing value and keeping you as a life-time customer. Your backbone collaborative organization has the same incentive. Rather than viewing them as “overhead”, nonprofits need to start thinking of them as the expert that just saved them enormous time, frustration and misdirected effort so they can get the job done. Viewing the backbone organization this way brings transparency to the collaboration. Service delivery organizations won’t have to wonder if partners are duplicating effort or creating more work just to get resources – their backbone collaborator will communicate the purpose of their efforts and share which results build on each other, adding greater value. Successful nonprofits will embrace this communication, and as soon as we do that, we can shed the resentment which previously sneaked into collaboration work.

What nonprofits need is the financial equivalent of the strategic plan that sets goals for programs and organizational development. This kind of financial plan is not for one year. It includes big goals, a clear path to accomplish goals, resource and capacity needs, and benchmarks for monitoring progress. Just as the process of strategic planning brings everyone together to set goals and sort through options and priorities, developing a strategic financial plan reveals the strengths and weakness of the current financial structure and sets goals that are more than annual revenue targets. What’s the right cost structure for delivering programs with measurable impact: paid staff, volunteer, intern, national service corps? These decisions will determine program, management, and financial structure. This idea is illustrated well in the article about Nonprofit Business Model Statements published on Blue Avocado last year.

Most nonprofit strategic plans that I’ve read give limited attention to the financial structure that will be needed to be successful. Some include some projections in an appendix, but most include a short set of financial goals such as “increase fundraising”, or “implement new individual donor program.” Our resource article Transforming Nonprofit Business Models describes the four components of business models: mix of revenue sources, cost of effective programs, infrastructure, and capital structure. A strategic financial plan needs to address each inter-related element of the model both now and what will be needed for the organization to achieve its goals over the next three to five years.

The steps followed in developing a strategic plan include agreeing on the vision and mission, gathering internal and external information to assess community needs and organizational capacity, establishing three to five year goals, and describing more specific objectives for implementing the plan. Strategic financial planning requires similar steps:

• Agree on a vision for financial sustainability
• Analyze financial history and trends
• Conduct a SWOT assessment of the business model
• Identify the current business model
• Evaluate the financial requirements to fully implement the strategic plan
• Assess the external community and market drivers and internal capacity for changing the financial structure
• Describe the business model that will be needed in five years
• Create a three to five year implementation plan

Strategic planning needs the commitment and participation of many skills and perspectives from inside and outside the organization. In the same way, strategic financial planning requires technical expertise for analysis and projections, strategic thinking about structure and alternatives, and creativity to weave together vision, mission and business models.

I’ll be presenting a more thorough session on the need for financial strategy and strategic financial plans at United Front 2011 on Thursday morning. This is going to be a great conference with lots of bold topics about strategy, leadership, and impact. Join us if you can!

Leaders in the business of impact are often passionate about talking in terms of measurable outcomes. A child attends a quality pre-school and goes on to succeed in elementary school. A newly renovated house is sold and surrounding houses spruce-up their yards. A new artist finds an audience in a public space where art has been absent. These outcomes inspire nonprofit leaders to do what we do.  But how we pay for and leverage this impact doesn’t have to be afterthoughts. They can be integral to making change happen.

Every nonprofit, whether consciously or not, has adopted a business model. An all-volunteer scout troop has a business model. Scouts use recruited volunteer time to provide leadership training and development to young people. The small dollars involved are resolved through fundraisers (cookies or popcorn, anyone?), voluntary fees paid by families and the like. A multi-million dollar job-training program has a different business model. With a mix of revenue from state contracts, employer-training fees and general operating support, the program provides services to people seeking work.

Each model has a different scale, requiring different management, but both must share common themes of sustainability and impact. If the scout troop folds prior to the next group of young people joining, their business model isn’t sustainable. If the job-training program can’t help people find work, they are not meeting their mission outcomes. In both examples, the business model doesn’t work and something needs to change.

Nonprofits Assistance Fund offers more detailed information about Transforming Nonprofit Business Models. To make this conversation less jarring, we suggest easing into the language. Many nonprofit leaders are comfortable talking about a theory of change because we enjoy telling stakeholders how our work will impact the world:

• How do low-cost bikes improve options for youth in a targeted neighborhood? We can answer that question – it’s our theory of change!
• How do we balance a mix of earned and donated revenue to hedge against risk and ensure sustainability? Well, maybe we can’t answer that one as quickly.

A business model is a model of change that explains how a nonprofit mission is sustainable and creates impact. The next step is determining how we can aggregate our impact not just into short-term outputs (how many kids went to an after-school program?) but also into long-term outcomes (how many families are self-sustaining?). United Front 2011 will continue this conversation about collective impact.

To quote Aristotle, while “the whole is greater than the sum of its parts” it is also important for individual nonprofits to understand their own model of change in order to be ready to contribute to a larger collective impact.

This focus makes me wonder about something: How much impact does the departure of an executive director have on a nonprofit? Of course the executive leadership role is important (as an ED myself, I certainly hope so). But if nonprofits are thrown into chaos or disaster by the loss of their ED, they have systemic problems that need to be addressed. A succession plan will give the board a roadmap to react to a departure, but building leadership within the organization is more proactive and effective. Some nonprofits groom another person to step into the ED role. There are lots of reasons not to lock into a selection prematurely, though.

Shared leadership is one approach to strengthening organizations by distributing authority and responsibility broadly. The article “Doing More with More: Putting Shared Leadership into Practice” in a recent issue of Nonprofit Quarterly reports on a two year study of 27 organizations that put this into practice. The concept of shared leadership isn’t radical or new, but as the authors note:

Most organizations continue to accept a hierarchical structure, with the executive director shouldering an enormous burden of responsibility for organizational success. The LLC participants generally reported that this was true of their organizations. However, we found that this concentration of power was not because executive directors were power hungry. Nor was it even deliberate. It was due to a lack of familiarity with the alternatives.

Implementing this approach requires nonprofits to un-learn some common practices. Success depended on senior leadership’s commitment to change, time to educate and plan fundamentally sound management practices, and engagement and accountability. They found that the 27 organizations adapted the practice to their organizations. One result was that “These organizations’ leadership capacity has expanded. (…) This reduces the stress and potential burnout on the part of executive directors, while helping to advance, develop, and retain other staff.” It seems to me that this would also make the departure of ED more easily managed. Boards could rely on the distributed leadership to maintain stability and agility and help define the profile of the next ED.

I’m also intrigued with the possibilities of this finding, “In many cases, shared leadership has also led to programmatic changes, and many of the participating organizations are beginning to think about how to expand the concept of shared leadership to their boards and allies.” Sharing leadership outside the staff chart could change relationships and impact significantly.

Another proponent of this kind of shared leadership is Leslie Crutchfield, one of the authors of the book Forces for Good. The book examines high-impact nonprofits to discover the common traits and practices. One of the six practices that help these nonprofits to produce results is to share leadership across staff, board members, and external networks.  I’m hoping to learn more about shared leadership and how to implement these practices from Crutchfield when she’s in Minneapolis this fall for United Front 2011. Crutchfield is speaking at the luncheon that is also part of the schedule for the MCN’s Annual Conference.

Nonprofits that develop broad leadership by sharing authority and responsibility effectively will be well positioned for transitions and departures – whether they have a written succession plan or not.

The same is true for organizations. One of the values of scheduling retreats and off-site meetings is to change the pace and build in some down time, but the need for slack is ongoing. In the article Organizational Slack (or Goldilocks and the Three Budgets), published in the Spring 2007 issue of Nonprofit Quarterly, Woods Bowman offers this definition of slack from management literature:

A cushion of potential resources which allow an organization to adapt to internal pressures for adjustment or to external pressures for change in policy, as well as to initiate changes in strategy with respect to the external environment.

It’s easy to think of all the times when our organizations have needed this. While we may initially think of financial resources, organizations also need a cushion of management, time and staff capacity. Recently many nonprofits in Minnesota needed this kind of slack really badly. In the six weeks or so leading up to the state shutdown, nonprofit staff and board members spent many hours (and many brain cells) developing scenarios, contingencies, communication and HR plans. Every nonprofit I talked with during that time was doing all of this on top of their already overloaded schedules. None of them had built much, if any, slack time in to their schedules or annual plans. In Woods Bowman’s definition, these organizations needed “a cushion of potential resources to adapt to external pressures”. The shutdown’s impact taxed everyone’s capacity. We at Nonprofits Assistance Fund also invested an enormous amount of time in shutdown preparation and response (read the summary of what we did here). Lots of other projects and plans were put on hold, and now the must-do list is really long. Without sufficient slack in our organizational capacity, our choices leave two options: require everyone to work unreasonable hours or take some projects off the list.

Another type of cushion, of course, is financial. Nonprofits that have operating reserves and reliable cash flow were able to prepare for and weather the shutdown with less disruption than those without. Bowman’s article delves into financial capacity as an indicator of organizational slack. Operating reserve balances seem like the obvious measure, but he emphasizes the importance of planned surpluses, capacity to borrow when appropriate and including contingency funds in the budget. Financial slack allows nonprofits to manage cash flow and budget hiccups AND to jump on new ideas, experiment with new strategies, and invest in program redesign. Financial slack also pays for  staff capacity and critical time, especially when needed surrounding the state shutdown.

The lesson I’m hoping I’ve learned is that both organizations and people need some slack all the time, not just for crises. If you’re headed into a planning cycle of any kind, think about how to build organizational slack. You know that you’ll need it.

The drawn out debate and standoff over the state budget was an amped up case study. In comparisons between the Governor’s and Legislature’s versions of the proposed budget many nonprofits could see different futures – reductions, increases, hold steady and eliminations. For weeks, if not months, these directors and program managers continued to provide services and manage their organizations while not knowing what was to come. Because the final budget bills were completed and passed so quickly, holding your breath was the norm.

For example, this Minnesota Budget Bites blog post summarizes some big changes contained in the Jobs and Economic Development budget bill. For some of the nonprofits that provide jobs, training, and economic development services in the community, many of these changes are major and long term. And they’re in effect right away. I know one organization whose budget will shrink by 25%, and another that expected a similar reduction but got an unexpected one year reprieve. Neither organization knew what was in the bill until early morning on July 20^th. In both of these cases the organizations knew that their programs were “in play” in budget talks. They’ve both developed some scenario plans and had board discussions about changes to come.

Scenario planning is only one component of managing uncertainty. Nonprofits must have a solid understanding of their financial structure and what levers they have (or don’t have) to make changes. The “ideal” financial management practice for right now is the capacity to adapt, which requires you to have a system in place for forecasting and managing cash flow.

Last week, we got some great news. We were awarded a $1.5 grant by the CDFI Fund of the US Treasury Department. You can read the press release here. This is award will help us grow our loan fund and serve more nonprofits for many years. I knew when the awards were going to be announced, and I was pretty distracted and jumpy while I waited in anticipation. This award means a lot to our future, but I really had no idea what to expect. About 10 minutes before the scheduled announcement of the awards I realized that I was holding my breath. I wonder if lots of others were holding theirs’, too. We were one of 155 organizations that received good news from the CDFI Fund, but I know many great organizations that got bad news that day. I know the feeling – anticipation, disappointment and let down, and then take some time to re-group.  When decisions that have a big impact on the fate of your organization and its work in the community are really out of your hands, what do you do? Do you have a grounding in structure and options, or do you close your eyes and hold your breath?

The rapid changes in the availability of government and philanthropic funds to pay for and subsidize services have led many nonprofits to examine their financial structure and realize that they can’t afford to continue to offer their services for free or nearly free. That model may have worked when the grants and contributions were available, but it doesn’t any more.

Nonprofits Assistance Fund offers workshops and webinars for staff and board members of nonprofits on financial management topics. We charge a fee for these training programs. What’s the right price for us to charge? Change the specifics and that same question is being raised at nonprofits of every size and scope. The answer, as with everything, is “it depends.”  It depends on the purpose and goals, both programmatic and financial, of offering the service. Should prices be based only on costs, or does market demand factor in understanding what your clients or audience are willing to pay? Some of the fee-based services offered by nonprofits are more naturally based on market and competition. Others are much more sensitive to the ability of clients to pay. Theater tickets and tutoring for low-income students have different economic models.

When you start this analysis, it’s important to recognize that discussions about starting to charge a fee or making changes to prices often get caught up in emotions about money and organizational and personal values. When the suggestion of requiring a payment from clients first comes up, expect some of your colleagues to recoil in horror. Someone may even tell you that nonprofits are not legally allowed to charge for their services. (Please tell that to the two colleges that I’m currently supporting!) Talking about money is uncomfortable for many people, and offering services for no charge is very easy. Unless you have adequate subsidy dollars from contributions or other sources though, it’s not sustainable.

A recent post on the Stanford Social Innovation Review blog, Nine Tips to Better Nonprofit Pricing, provides a good start with the market approach. I highly recommend the article To Fee or Not to Fee?, published in the Summer 2004 issue of Nonprofit Quarterly for a thorough review of whether or not to charge a fee, how fees and program access can be aligned, and how to set prices. The article makes a strong case that charging fees improves the relationship with clients:

The most powerful argument in favor of charging fees is the discipline of the marketplace – that fees increase accountability to the people receiving services.

They include a summary of research that showed that fees may help clients buy-in to the services more and perceive greater benefits.

For most nonprofits, charging fees and setting prices will depend on a number of factors, but most of these can be addressed with operational capacity, program design, and differential pricing. This topic is worth a thorough review whether you currently charge fees or not as a part of long term financial planning and strategy.

We now have evidence that these concerns are unfounded. In fact, EDs who go on sabbatical are more likely either to remain in their positions or extend their tenure, not cut it short. And rather than causing chaos, disruptions in an organization’s day-to-day affairs may be beneficial. Perhaps most importantly, a sabbatical can be a relatively inexpensive but highly productive capacity-building tool that yields measurable results.

We’ve proven the truth of that conclusion first hand here at Nonprofits Assistance Fund and at MAP for Nonprofits. Judy Alnes, Executive Director at MAP, took a sabbatical in October 2009. She wrote about what she learned during her time away in a thought-provoking guest commentary for Minnesota Council on Foundations. I’m still digesting my ideas and thoughts after a one month sabbatical in February of this year. It’s not really a surprise that having the opportunity and luxury to step back for a while benefited both Judy and me. Our absences had an entirely different benefit for those who were called upon to step in the lead while we were gone. Amy Wagner, Associate Director of MAP, and Janet Ogden-Brackett, Loan Fund Manager at Nonprofits Assistance Fund, deserve a thousand thanks (and some extra vacation). We asked them to share their thoughts about the experience.

Amy Wagner

Recently, Judy Alnes, Executive Director at MAP, known to me as “my boss,” took a sabbatical. While Judy was taking some time to travel, read, learn, connect, meet, think, recharge, etc., I had the chance to serve as MAP’s Acting Executive Director.

Judy was gone for five weeks. While that sounded like a long time when we were planning for it, it actually went by in a flash. Judy worked closely with MAP’s board and staff to prepare for her time away and there was clear communication on roles and responsibilities in her absence. One MAP staff member commented:

Staff at MAP know their roles and responsibilities and operate independently, which also led to a smooth operation. Everyone was willing to do what was necessary to help out.

And there was a need to help out. Judy’s planned sabbatical happened to fall exactly at the same time that we were preparing to launch GiveMN.  Since MAP was the nonprofit rollout partner in this effort, and I was the project manager and lead trainer, we were stretched. In addition, a key staff member was called away to address a family emergency during this time. Thankfully, everyone was willing to step up, pitch in and work as a team to keep things moving smoothly. In retrospect, it may have been better to plan for the unexpected and think proactively about who would be “on deck” to help in various scenarios. That may have taken some pressure off of me and given others more of a chance to contribute in new ways.

Personally, Judy’s sabbatical gave me a chance to develop and demonstrate my leadership abilities. I gained a greater appreciation for the role of the ED, and all the different constituencies with whom the ED interacts and to whom they are accountable. I gained a greater appreciation of the role the ED has in setting the tone in the office and creating an environment in which people can share their talents. I gained confidence in my ability to work with our board and our funders. I saw, and I know others sensed as well, that while serving as an ED is a big and important job, leadership does not reside in one person – there’s a whole team of staff and board members leading the organization. Since Judy’s return from sabbatical, I’ve been named MAP’s Associate Director. This new position is part of an organizational change that in large part resulted directly from what Judy and MAP as a whole learned during the sabbatical. The organizational shifts aim to give Judy more time to focus on MAP’s voice and impact in the community, me more time to work on new collaborations and partnerships, and others at MAP new opportunities to learn, lead, collaborate and contribute. I think we will feel the positive impact of this sabbatical for years to come.

Janet Ogden-Brackett

When I thought about what to include in this blog, I just knew I wanted to share some funny stories from the four-week period in which Kate Barr was on sabbatical. There is the story where the construction crew announced they would be removing the doorframe from my office at the exact moment that I was on a conference call. Maybe I would try to describe the amount of dust that sanding drywall produces or the screeching sound of the hydraulic lift. I only wish I could share a recording of one of the carpenters who loved to sing along to the oldies radio station.

Wait, I’m getting a little ahead myself.

Let me explain that the same four weeks that Kate was out coincided with the renovation of our office space. We had never planned for this to happen but as we saw the two events align, there was no real reason to change either one. We knew there would be the additional challenges of managing construction, but everything was very well planned, right down to the last detail.

The real value of the sabbatical is not how we addressed the unexpected and often hilarious challenges, or gained greater appreciation for scenario planning and always having at the ready a good plan b. Rather the value is in the rare opportunity for our organization to gain increased capacity through renewed leadership and an empowered staff.

There has to be a very special team in place in order to pull off a sabbatical. The first step comes not from a beleaguered Executive Director who makes the request of the Board because they need a long vacation, but rather from thoughtful leadership that can see the benefits of the break to staff and board as well as themselves. The Board must buy in that the benefits are identifiable and real and staff must be willing to step up and work as a team while assuming a great deal of responsibility. A successful sabbatical inspires and empowers everyone.

The changes here at Nonprofits Assistance Fund are large and small, obvious and subtle. The most obvious difference is to the office space; the change is big and audacious. Other changes took place as we developed our skills in unfamiliar areas from capable to proficient. We all raised our expectations for each other and ourselves. The more subtle changes will have a greater lasting impact to our organization. Oliver Wendell Holmes said, “The mind, once expanded to the dimensions of larger ideas, never returns to its original size.”  We asked every single staff member to step up into more responsibility and take on more work. After the sabbatical, there was no reason to step back. The entire team is better for the experience and our internal capacity is far superior to what it once was. To me it feels like we took a giant step forward and with every new undertaking, we now start closer to the finish line.

Now, just in time for my break, CompassPoint released a study titled Creative Disruption about sabbaticals at nonprofit organizations. This summary of the report is affirming for my own sabbatical and for any of you who’ve been thinking about it.

This study exposes the myth that an executive sabbatical will be a chaotic disruption, finding instead that the creative disruption of a well-planned sabbatical can be productive for the entire leadership of an organization.

Organizational capacity is increased as the second tier of leadership takes on new responsibilities. Governance is strengthened as a result of the planning and learning that goes with a sabbatical process. Executive directors come back rejuvenated, with a fresh vision and innovative ideas, and tend to extend their tenure with the organization. And funders gain a deeper perspective on community needs from the feedback, networking, and innovative ideas that sabbatical alumni bring.

The report is an interesting read, including the results of surveys of executives who took sabbaticals and the interim directors who took on a new role. The subjects of the study were all recipients of funding to support sabbaticals, usually for three months.

I’m eager to see what kinds of experiences and ideas I have during the month. I’ll be kicking back for some of the time and using some of it for reading and discussions about the big issues and ideas for nonprofits in the future. (Although I can promise I will not spend all four weeks of February in Minnesota.) I started this weekend by reading an advance copy of the book Switch How to Change Things When Change is Hard by Chip and Dan Heath. The book addresses the reasons why change is so hard with a well-formed framework that makes the concepts accessible and actionable. They offer three essential components needed for change to happen:

1. Direct the Rider – clarity and direction
2. Motivate the Elephant – emotions and energy
3. Shape the Path – plan and influence the situation

The book will be released on February 16th, but you can read an extensive excerpt in Fast Company.

More reading and thinking to come, but you probably won’t hear much from me this month. We’d love to hear any comments about sabbaticals from other nonprofits – what have you done, or wished you could do?