Balancing the Mission Checkbook

Ah, summer. A time for hammocks, reading on the porch, and leaving early every day. If only this were true. There was a time in my professional life when summers really were slower-paced, with fewer deadlines and urgent projects. I haven’t done any research on this, but it seems that the combination of technology, financial pressures, and recession-driven anxiety and uncertainty results in more demands at a faster pace year-round. Earlier this week in the StarTribune, the column Ideas come to the idle, and we are not by Christian McEwen helped me realize that the pace is not just stressful, it’s counter-productive. We all need some slack in our lives and not having it has consequences.

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.

At Nonprofits Assistance Fund, we value scenario planning and we often find ourselves communicating this information with nonprofit leaders by asking, “What would you do if…?” Due to the high demand for a resource to help anticipate these situations, we even created a concise template for budget scenario planning. As times have changed, it is getting more and more difficult to have confidence in funding assumptions. For many nonprofits, decisions are made in rooms and conferences far outside of their influence that have major, and sometimes sudden, impact on their future. In the meantime, you hold your breath and wait.

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?

How much are you willing to pay for a ticket to the theater, a management class, or a counseling session? What should other patrons or clients pay for that same service? Does it matter to you whether or not the price that you pay covers the actual costs of receiving that service?

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.

In the report Creative Disruption published a few months ago by CompassPoint, the executive summary is titled “The Power of Sabbaticals” to confront to common assumptions that an executive sabbatical will result in chaos at the organization and the ultimate departure of the executive (after a “taste of freedom from the job”).

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.

How many of you have wanted to take a break from the pace and pressure of work and decompress? I have been given this gift in the form of a one-month sabbatical during February. After seeing the positive effects of a similar break on a friend of mine, I made the request and our board quickly agreed. While I didn’t do any other research about sabbaticals, it made instinctive sense that time away would be a good idea for both me and for Nonprofits Assistance Fund. In the year since my request, two other professional colleagues have taken one-month sabbaticals and had very positive experiences for themselves and the staff of their organizations.

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?

I am so glad that I’m not the director of a Minnesota charter school. Imagine working in a small segment of the nonprofit sector, comprised of 150 organizations, and opening the paper to regularly find a headline announcing that your field is “out of control” or in “rough waters.” Meanwhile, you go to work every day to lead the teachers at your school and together work to educate the students whose families have chosen to enroll at your school. I wouldn’t appreciate, much less enjoy, the attention. Every report brings with it questions about whether our hypothetical school director is among those with the problems described in the news. Whatever the current condition of this individual school, they end up tainted a bit by the sheer volume of news.

In just the past week, our hypothetical charter school director has seen these reports:

• State charter schools program is ‘out of control’, reports the Star Tribune in an investigative article about the use of bonds for financing of 18 buildings for charter schools.
• The Pioneer Press reported Strapped St. Paul charter school to close midyear on the decision by the board of directors of Skills for Tomorrow school to close at the semester break because of declining enrollment.
• Last week, in Payment shift makes rough waters for charter schools Minnesota Public Radio provided background and examples of the impact on charter schools of the state’s new deferred payment schedule for all public school payments.

While each news story is accurate, it does not paint an accurate overall picture. The individual schools don’t have the chance to explain all of their plans, budgets, and curriculum philosophy to the community. I have a deep enough understanding of charter schools to respond to each with the comment that “it’s more complicated than that.” I don’t want to gloss over some very real issues with finance, leadership and governance at some charter schools, but I am trying to figure out why this small group of nonprofits is such a magnet for news, investigation, and opinion.

As some background, Minnesota was the first state in the nation to create “charter schools.” Today Minnesota has about 150 operating charter schools, with roughly half in the Twin Cities Metro area, and the remainder in Greater Minnesota. Together, these schools serve about 33,000 students. Charter schools are true public schools. They are created by state law, are funded by government, and are subject to most state laws governing public education. They cannot charge tuition and they cannot discriminate in admissions. They are subject to state graduation requirements and the mandates of the federal No Child Left Behind legislation. Structurally, charter schools are both nonprofit corporations and independent school districts.

This structure presents complexities that affect both governance and financial management. As I detailed in a previous entry, Charter school myths and realities, the reality is that the management quality of most charter schools in Minnesota is on par with the management of nonprofit organizations overall. The vast majority of charter school directors and teachers are hardworking, mission-focused, committed educators, and I thank them for their work.

For such a small group of organizations, charter schools attract an awful lot of attention, scrutiny, and criticism. As a community, we feel strongly about education and about the use of taxes and public funds. Charter schools are right in the middle of both.  The field needs to find a way to communicate their value to the community – unless they like opening the paper every day to read another report about problems.