What Does It Take to Grow a Nonprofit? Teamwork and Capital

Original Website: https://nonprofitquarterly.org/2016/11/29/take-grow-nonprofit-teamwork-capital/

November 16, 2016; Stanford Social Innovation Review

Although not always an indicator of impact and sustainability, nonprofit growth is a constant focus of philanthropic leadership. A recent study of over 200 organizations found three common attributes among nonprofits that were able to efficiently make the leap from idea to $2 million budget: strong teamwork, effective outcome evaluation system, and access to capital.

The field-based study began in September of 2016 by Kathleen Kelly Janus, a lecturer at the Stanford Program on Social Entrepreneurship. The study’s team examined more than 200 organizations, distributed among those with budgets under $500,000, between $500,000 and $2 million, and over $2 million. The organizations’ missions were diverse; leaders were asked to describe their work by choosing from multiple categories (and could choose more than one). The top three were education, with 48 percent surveyed; 26 percent with youth-based focus; and 23 percent community development missions. (Thirty-one percent chose “other” as one of their tags.) On average, organizations reached the $500,000 milestone in ten months but needed an average of 16 months to double their budgets to $1 million. On average, organizational growth from $1 to $2 million took a similar trajectory.

Since many articles focus on the personality of an organization’s leader as a key element of organization growth, the study began by examining the CEO/Executive Director. It found a wide range of actual job descriptions, but a key responsibility for organizations of all sizes is fund development. Interestingly, as organizations grow, the amount of time leaders spend in fundraising tasks increased from an average of 26 percent for organizations under $500,000 to 30 percent with budgets over $2 million. Study authors also noted a shift from CEO focus on program development for organizations under $500,000 to people management for organizations over $2 million.

Instead, the first characteristic of organizations achieving substantial growth was having a strong team of leaders to support the CEO/Executive Director. An effective team allowed the CEO to focus on capital instead of program. Connected to creating the team was the talent to avoid “bad hires” and purge them quickly when mistakes are made. Often, a strong team was not only made up of staff but key board members. Overall, the study found that “the lack of a high-functioning team can pose significant risks” to organization growth.

The second essential element was a focus on outcome evaluation. The study found that organizations with robust outcome tracking systems could decrease the time to reach the $2 million mark by as much as five months. The study also made a connection between effective evaluation structure and the ability to obtain a large catalyzing grant quickly.

The final element, access to capital, was often linked to the other two elements. Organizations with board members with connections to foundations or individual wealth were able to use their access to facilitate growth. Additionally, organizations with effective evaluation programs were able to discuss their clear program outcomes with funders, leading to more attention by larger foundations donating significant catalyzing grants.

Antony Bugg-Levine from the Nonprofit Finance Fund described in 2012 a key differencein the distinct types of capital essential for organizational growth:

Pay attention to the difference between “buy” money that pays for services and “build” money that enables an organization to invest in its long-term sustainability. As with any business, organizations need to balance both, and this balance shifts as they scale. Funders need to know whether their grantees need build money or buy money and how to be effective buyers and builders.

Overall, organizations of all sizes struggled to raise essential funds and it remains the number one challenge of growth. This is true even for organizations with “a fair degree of earned income,” as the report claims.

At the end of the study, authors identified three opportunities for funders to help organizations scale: fund leadership coaching, aid in building evaluation programs, and refer grantees to other funders in your network.

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Why Advocate

Few words evoke more terror in nonprofit leaders than advocacy. Because of the fear, organizations without social change missions tend to forgo advocacy activities. Yet governments continue to shrink leaving more and more communities to depend on nonprofits instead of government for essential services.

At the same time, governments, whether federal, state, or local. are still a major source of funding for these programs and services.  This dependence on government funds requires nonprofit leaders to educate government officials on the need for and cost incurred to run these essential programs. After all, government leaders will not prioritize a program, if they do not understand the need behind it particularly in their own community.

Additionally, government leaders are connected to their communities. Many constituents advise their representatives of their social service needs. Educated government representatives will refer their constituents to nonprofit programs and services.

Many nonprofit missions include a desire to educate the community on the needs of their clients. Often this education takes the form of presentations to diverse audiences, public service announcements, and other media opportunities. Reaching out to government leaders and personally inviting them to come as well as asking them to help with publicity is often vital to turnout success.

For all of these reasons, building relationships with government leaders is a key duty of nonprofit leadership. Surprisingly it is also a form of advocacy. In fact advocacy is educating government leaders on a topic whether it is connected to legislation, funding, or a general discussion of the needs of their communities. Given the competition for funding, organizations not involved in these activities are finding it increasingly difficult to survive let alone thrive.

Nonprofits are limited in the types of advocacy they can participate in. Those that are not careful can put their 501(c)3 or charity status in jeopardy. Nonprofits can and increasingly must educate leaders on the needs of the community, but they cannot advocate for a specific candidate or align themselves with a particular political party. This distinction can be easily crossed in election season. Nonprofit leaders (volunteer or staff) can advocate, financially support, and volunteer for a specific candidate or party but they need to make the distinction between their own activities rather than their activities as nonprofit leaders.

One of the mistakes I see most often is leaders sending candidate or party material using their nonprofit email address. Leaders carelessly leaving their position or connection to the nonprofit in their email signature line can also put the nonprofit at risk. Additionally, using nonprofit funds to attend a political event or support a candidate is prohibited.

Realizing the importance of advocacy activities for all nonprofits, the next post will discuss how leaders can advocate successfully.

You Can Count on Me!

Volunteers are the backbone of nonprofit organizations and the first step toward growth in program capacity. If they are so important, why are volunteers often unaware of their position duties and responsibilities, what the client is depending on them to accomplish, or how they are making an impact?

Most organizations would never hire a new staff person without exploring their skills, providing them with a detailed job description, or evaluating their performance. Volunteers deserve nothing less. Yet many volunteers are thrown into an opportunity without this information leading to disappointment and frustration for staff, volunteers, and most importantly clients.

To communicate this essential information, leadership should develop and provide the volunteer with a volunteer commitment form before they begin a new position. The one to two page document outlines position expectations in a nonconfrontational manner, including the time commitment, the skills required, and what they are responsible for. With that information in mind, the volunteer can communicate whether they have the capacity to fill the position. 

Although the volunteer commitment form is similar to a job description, the tone is distinct. Many organizations creatively weave the mission and impact into the form, using it as an opportunity to remind and educate the volunteer before they begin serving clients. The form is also another opportunity to thank the volunteer for their service. At the end of the form, the volunteer and organization leaders sign their name.

For board members in particular, the first part of the form should outline their responsibility to financially support the organization.  It should include the specific format of their gift as well as timing: including tickets for events, activities during end of year appeal, and other responsibilities to raise funds for the organization.  Once this is completed, staff and fellow leaders can remind board members of their commitment rather than ask.

Leaders should revisit their commitment on an annual basis. Does the form accurately describe the duties of the position? Is the volunteer fulfilling it? Are they interested in a different position or expanding their commitment? Ask them for help reporting the organization’s work by identifying clients that have compelling stories. Finally, provide the volunteer with an evaluation form that they can fill out anonymously.

Some leaders will focus on the legality of the form. Although volunteer commitment forms will probably not be useful in court, many volunteers will feel emotionally bound. Once they sign their name, they will treat their duties differently.

Organizations that have not used these in the past, often wonder how to start. Creating volunteer commitment forms can signal a new level of accountability and impact. Perhaps board members keep saying they are going to give but do not or a volunteer is undependable. By providing these forms, leaders can take responsibility for not clearly outlining duties and ask volunteers if they are willing to do what the position requires.

Volunteers are organization ambassadors and are responsible for advocating for client’s and community needs. Many organizations are scared of advocacy and if it will impact their legal status as nonprofit organizations, we will begin to discuss the role of advocacy in the next post.

The How to’s of Monthly Giving Programs

More and more nonprofits are building monthly giving programs and there is no doubt why. Regular monthly donations add up to a steady stream of income funding day-to-day expenses as well as strengthening the connections between donors, leaders, and the nonprofit. But like any funding stream, monthly giving programs come with additional costs and logistical challenges. Preparing for these challenges is the key to a stronger bottom line.

Monthly giving programs provide an opportunity for donors to break down their donation into twelve smaller chunks instead of a large gift once a year. Often the donor realizes a monthly giving program encourages him to give more as well as connects him to the nonprofit year after year.

Beginning the program is easy. Provide the donor with the choice of making their gift monthly instead of once a year. Then the donor provides his credit or debit card information along with the amount he wishes to give. Ask the donor if he wants a monthly receipt or a single one at the end of the year. Finally, create a new monthly donor category in the database.

The consistent stream of income is a huge advantage, but there are some additional costs. First, small monthly credit card donations lead to additional credit card fees. Second, since the gift is automatic, donors do not have a regular opportunity to assess their budget to determine whether they can afford to increase their donation. Third, the regular credit card breaches require nonprofit staff to follow up with donors to gather new credit card information. 

Since the donation continues year to year, there is not a built in time to thank the donor for his donation. Clearly, a letter at the end of the calendar year is important for tax purposes but adding a handwritten thank you note in the middle of the year adds a personal touch. Providing thank you notes and donor information before every board meeting encourages board members to participate in raising funds and creates connections between donors and leaders.

A monthly donation program also creates a stronger incentive for organizations to create a regular newsletter. The newsletter reminds donors why their donation is important. Including a donation envelope with the newsletter encourages the donor to give a little more. E-newsletters are a cheaper more efficient way to connect with donors. The email should include just the beginning of each of the articles (total of three or four) with a link to the website where donors can read the rest. Linking to the website encourages the donor to visit the website and hopefully land on the donation or volunteer pages.

Even though the donor gives monthly, the organization should still send an ask letter during the end of the year campaign. This letter, tailored specifically for monthly donors, encourages the donor to assess their year end financial position and make a second gift if they are able. The letter should thank the donor for their monthly gift as well as ask for a second smaller donation to fulfill a special need.

Monthly donors may seem like obvious candidates for major gifts and some may be, but others are better candidates for planned gifts. We will discuss what to look for when making that distinction in the next post.

Leaders Bolster the Bottom Line

Running a nonprofit is a balancing act for leaders and staff. The Great Recession led to a huge spike in the demand for services that continues to linger. Sadly, many of the people requesting services were once donors and others who found gaping holes in their once secure middle class lives.

The Recession also led to ballooning deficits for many state and local governments due to pension costs and unrealistic revenue expectations. Many eliminated funding for essential programs and services. Grants that were not eliminated turned into contracts requiring nonprofits to provide services and wait for reimbursement. As the Recession continued, the delay in reimbursements grew forcing many nonprofits to float the government, (if they could) or close their doors. 

Although the recession has ended, the reimbursement delay continues.  The “lucky” nonprofits are those that provide services to children that are wards of the state. Since states are required to provide these services, these reimbursements are prioritized.

The only way for many nonprofits to make ends meet is to open a line of credit to fund salaries and other costs until reimbursements come. But banks require that line of credit to be secured by an asset, and most nonprofits don’t own the space they operate in. Before the recession, nonprofits could secure their line of credit with government invoices but now they are the reason the nonprofit needs the line of credit. What other options are there?

Smart nonprofits open a line of credit when they don’t need to, knowing that they might need one later. Leaders thinking about opening a line of credit should talk to some of the organization’s most loyal donors, foundations or individuals, and ask them to pledge a multi year gift. Many banks will use this pledge as security for the line.

Another option is to ask board members to place their own funds in a combined Certificate of Deposit (CD) at the organization’s bank. The CD secures the line, but remains the property of the donors. Giving to this CD becomes one of the obligations of being a board member. Since the funds are not a donation, board members should be required to make an actual donation as well. One advantage of this option is now board members have skin in the game and often become more involved in financial and fundraising goals.

As part of this obligation, all interest received from the CD should be donated to the nonprofit. These interest payments are donations from the CD owners. They should be transferred to a second CD or account specified for large purchases or non daily expenses. This account becomes the organization’s asset.

Once board members’ terms ends, leaders should ask the leaving members to donate all or part of their portion. If the board members agree, the nonprofit should transfer these funds to the second account or CD as well.

Since many leaders will be unable to make a large gift in addition to the required contribution to the CD, fellow leaders should ask them to make a monthly gift. These gifts also strengthen a nonprofit’s balance sheet. We will discuss monthly giving programs in our next post.

Empower Leaders to Lead

As leaders, board members not only guide the organization but build its culture. They are responsible for developing the mission, exploring the need, and overseeing programs and services. Their duties also include identifying new board members and supervising the organization’s CEO. 

Therefore who is on the board is extremely important. Unfortunately, board leadership can be a chicken and egg phenomena- who is on the board determines who is interested in the organization and who is on the board in the future.

Boards can be strategic and change the momentum of the body but the transition can be tough and often it leads to loss of some members. Board member transition is beneficial because it encourages the organization to engage new leaders and increases the organization’s network. But transition does not mean the organization says goodbye to a donor and friend.   

Asking a board member to be responsible for new duties or step down is not easy. Begin by explaining why these new duties are important and how they will lead to stronger programs and additional opportunities for clients. Thank the board member for their service and identify outcomes they were partially responsible for. More importantly, ask them to take on new responsibilities that are connected to their passions and the organization’s new direction. For additional information on how to transition board members, see https://gaylenelsonesq.wordpress.com/2013/10/15/never-fire-a-board-member-again/

Once board members realize they need to build a new culture, the next step is to identify gaps in skills and knowledge. Building a new board culture is difficult for all organizations but it is more difficult for organizations with limitations on who can be on their board. Some organizations are tied to a neighborhood, community, or group of people. These type of organizations often require leaders be a part or member of the organization and are known as grassroots organization.

Grassroots organizations believe in empowerment since their members rise up to lead. Members are trained as leaders. Examples are unions and neighborhood groups.

Who can be a member of the organization or the board is often determined by the mission. Since members share common background, attributes, or characteristics, they typically are not as diverse as the organization needs. Sometimes they can look to staff to fill the voids. These organizations can also look to collaboration with other organizations to gain additional resources. Collaboration with others may lead to blending or expansion of the organization since there is no bright line between neighborhoods particularly when kids attend schools outside of the neighborhood.

 Strong organizations are using new tools to raise resources and engage new leaders. We will begin to explore these new tools in the next post.

Creating Leaders Inspired by Mission

Board members are the organization’s biggest advocates. They are responsible for raising funds, governance, strategic planning, and financial oversight. To perform these responsibilities successfully, they need to understand, articulate, and be committed to the organization’s mission, the clients served, and the social change they are working towards.

Yet, many board members do not have a background in philanthropy and their daily work is far removed from the clients served. Clearly participating in board meetings is not enough. How does the agency build board members connected to the mission?

Creating opportunities for board members to see, hear, and connect to the mission is another reason why it is important to begin molding board members as volunteers.  The volunteer development plan should include diverse opportunities for emerging leaders to connect directly with clients. Once leaders become board members, the goal is to build on these connections.

This type of grounding can be brought to the board in what is often referred to as “mission moments.” During these conversations, clients are invited to board meetings to tell their story. But, asking clients to come to board meetings places an added burden on them. Additionally, it is not easy for clients to tell their stories to strangers. 

Since program staff are responsible for daily program management and working with clients directly, they could bring these stories to the board. Unfortunately, this once removed experience is rarely strong enough. To make it genuine, the board member needs to see it first hand and transform it into their story by integrating their own experience and using their own words.

A better option is to offer volunteer opportunities before board meetings and to assign responsibilities to board members. By asking board members to participate, they are more likely to arrive on time and take it seriously. Once they have completed their duties, build in a short time for them to digest the experience and ask questions. 

Another opportunity is to invite former clients to serve on the board. These board members know the challenges first hand and appreciate the hardships clients endure.  These leaders also understand the importance of the services provided and how they can transform lives. Their presence is a strong reminder of the importance of the organization. Fellow board members look to them for direction and insight. Additionally, board members are reminded that the clients served are people with dreams and shortcomings no different than their own.  

Board members are an essential part of a nonprofit’s capacity. Yet many missions and bylaws limit who can become a board member. We will explore the benefits and challenges of grassroots membership organizations in the next post.