Balancing the Mission Checkbook

Here’s a classic chicken-or-the-egg question. What comes first, creating a system to work together for collective impact, or assessing all of the seismic shifts underway? The article on Collective Impact has generated a lot of conversation and momentum for systems thinking. The United Front event in October introduced the concept and practice to hundreds of nonprofit and philanthropy leaders. The article makes the case for a new approach and describes a practical implementation.

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.”

Mark Kramer addressed the United Front 2011 session on Collective Impact with great examples and stories, and one particular recommendation which resonates with veterans of less-than-successful collaboration efforts: you need a backbone agency to be successful in collective impact. Kramer has other ingredients necessary for a good cooperative stew, but this particular social agar is often overlooked because… well… it’s new spending. To quote Marcia Avner from the MCN Annual Conference the next day, “get over it.” If we are going to increase our impact, we have to do it right.

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.

A large percentage of nonprofits view their strategic plan as an essential part of managing the organization. The process of developing a strategic plan clarifies the purpose of the organization in a mission statement, and gets the staff and board on the same page by setting goals and priorities. The most commonly used tool for financial planning, on the other hand, is the annual budget. For many nonprofits, the financial goal represented by the budget boils down to this: “we hope we can raise enough money to pay for programs and overhead this year. We’ll work really hard to get this done.” Unfortunately, that’s a lousy way to plan.

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!

Nonprofits can suffer near-allergic reactions to discussions about business models. It seems so distant from mission, so stoic compared to the services delivered in our communities, so … well… business.

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.

When the Daring to Lead 2011 report was released a few months ago, a lot of the coverage about this survey of 3,000 nonprofit CEOs/executive directors highlighted that two-thirds of directors anticipated leaving their jobs within five years. The report itself calls attention to this on the first pages with bold letters: “Though slowed by the recession, projected rates of executive turnover remain high and many boards of directors are under-prepared to select and support new leaders.” Despite this, according to the report, fewer than 20% of nonprofits have a documented succession plan that could help boards respond to the departure of the director.

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.