There is a “New Reality” And it’s About Time
At a recent Foraker Operations Board meeting, Jim Caldarola, who has served as the Director of Stewardship and Development for the Archdiocese of Anchorage and for many years as one of our state’s most influential development professionals, reported that at a recent national meeting of colleagues, everyone their experienced an epiphany. Like most of us during the last few months, they were discussing the economy and its impact on their job when they realized, “we have to just let go of what was and accept that we have now entered a new reality.” Jim said that as soon as he and his friends got their heads around that concept, they began to feel better.
This new reality accepts that while the economy will rebound as it has in the past, it likely will never go back to the way it was. We won’t see so little regulation that corporate executives and boards are allowed to violate loyalty to shareholders – that unscrupulous investors can take hard earned money from individuals and charities with the world’s largest Ponzie scheme – or that large corporations reward executives with bonuses while their industry is run into the ground through incompetence. At least I hope we’re never in that position again.
The new reality extends, too, to the way our sector behaves and does business. We will no longer survive without strong boards, without good internal capacity, without measuring and articulating our impact, and without the willingness to work as partners with others in true collaborations.
In his sequel book to Good to Great, Jim Collins took exception in Good to Great Social Sector to those who insist that nonprofits should become more “business like.” He found that more often nonprofits were better managed, had stronger mission alignment, and practiced many of the qualities he found in those “good to great” companies than most of for-profit corporations he advises.
I appreciate that sentiment. However, we have witnessed too many nonprofits that are not capable of sustainability. Most provide needed service, but if held to any standard of effectiveness, they would find it difficult to validate their existence.
Let’s look more closely at those standards.
The first concerns outcomes. Does the organization have the tools necessary to monitor mission related outcomes? Is it doing the job it was formed to do? We maintain that the ability to evaluate outcomes is central to making good decisions on sources and use of funds.
The second is sustainability. Does the organization have the long-term ability to sustain itself? After working with the sector for almost a decade, The Foraker Group has identified four interconnected conditions that exist in sustainable organizations. They are:
Unrestricted dollars – Sufficient unrestricted income and reserves are necessary to carry out missions. The only sources for such funds are from mission related earned income or charitable contributions from individuals.
Organizational focus – Knowing “who you are” and “where you are going” are critical for long-term success. Chasing money not related to mission or failing to maintain the discipline to follow a pre-determined plan impairs an organization’s ability to succeed.
Board-staff balance – A competent board understands its role. It monitors the organization’s strategic activities and recruits the best CEO to implement the mission. The CEO and board share power and work in a relationship of trust and respect.
Complementary collaborations – Developing mutually beneficial relationships provides efficient and effective use of resources. No organization can maintain its focus and accomplish its mission without strategic partnerships.
Many Alaska nonprofits rely on unsustainable revenue. Our dependency on government grants is almost twice the national average. While we will never lose that disproportionate share because of the large amount of federally designated funding to Native nonprofits, it was inevitable that with the shifting priorities of the federal budget, along with the change in our Congressional delegation, some of those dollars would disappear. We also have documented through the ISER study that our reliance on foundation and corporate support is almost double the national norm. That support, too, becomes less reliable during times of economic stress. In short, all these revenue sources simply are not the most sustainable ones.
On the other hand, the most sustainable revenue for any nonprofit is mission related earned revenue, where a nonprofit has a product or service with value and a customer or client willing to pay for it. However, a problem can arise with earned income when a nonprofit undervalues what it sells. Studies show that at best only 20% of nonprofits using earned income strategies make more than it costs to provide the product or service. For earned revenue to be a viable strategy, nonprofits must at least become more business-like when it comes to making a “profit.” If we can embrace this new reality as a wake-up call on entrepreneurial efforts and develop realistic business plans, then we have a much better chance to earn money to accomplish our mission. And we create a more sustainable future for our organizations.
As we’ve talked about in the past, the other sustainable revenue source comes from individual charitable contributions. And there’s a new reality here, too. Charitable nonprofits can raise money, and many now embrace the potential of fund development. That’s the process where an organization builds a relationship with a potential donor before asking that person to invest, then works to maintain the relationship. Over time, the donor’s expectations are better addressed and when possible the donor is asked for more – in many cases, donors increase their support without great effort. The final step in that process comes when loyal donors decide to leave some of their assets through a will or other asset based gift, providing a legacy of support for a mission they hold dear.
The Operations Board members had another “ah-ha” moment at their meeting last month. Several people commented that upon reflection they realized the factors of sustainability were guiding them to work within the “new reality” – the model offered them opportunities to become more nimble and responsive. They had endorsed the model for some time. But is was clear to them now – with the financial challenges of the past months – that the factors are essential to working and thinking differently, and successfully managing this new operating environment.
At Foraker, too, we have embraced the “new reality” and are looking for ways to better serve you in this fluctuating economy. We have worked to create new services and rethink our traditional ones so they better meet your needs right now. Since November, we have re-tooled our website to provide easy access to Foraker products, services and articles. We also have links to some of the best thinking of others around the country presenting their strategies to help organizations during the downturn. We encourage you to go to www.forakergroup.org and click on “Economic Response.”
Our observations tell us that many of you are taking steps to better accomplish your mission. We are working with a tremendous number of boards on strategic planning, and we held the best attended, ever, Board Roles and Responsibilities class in Juneau last month with 38 people – standing room only! Other basic governance and fundraising classes have been full, and our new class on compliance for the revised 990 has sold out within a few days every time we announce a session.
We remind Partners that while Foraker charges for services, we also understand that now more than ever you need to monitor your expenses. We can’t promise we will reduce or waive fees, but we are dedicated to serving you as much as possible regardless of your ability to pay. Often we find that a quick phone call can encourage you or connect you to organizations with similar concerns so you can support each other.
Together, we can and will persevere and, in time, come through this challenging period as a stronger sector, better serving our communities. We appreciate the work you do and hope you will call if we can help you.