2012-good news or bad for nonprofits?

This post's title is a question I was asked a dozen times in December in front of live audiences or by email. It's not a short or easy answer.

The bad news first.

1. The recession is nowhere near over (although technically it apparently ended in July of 2008--I wish I lived in THAT world), and with US employment still just under 9%, those nonprofits who are either heavily dependent on donations OR state funding are a long way from daylight.

2. Nonprofits continue to close their doors. There's a bad and good part of this: recessions are brutal on weak organizations, both for profit and nonprofit. So, in theory, the weaker nonprofits (read: the ones with less cash or a too single funder dependent business model) are the ones that are closing. No matter, the people who depend on these nonprofits are being hurt or displaced, often as a new (unfunded) burden on the stronger nonprofits that remain. The small good news here is that less nonprofits mean less competition for limited dollars.

3. There's no real end in sight to state and local budget cuts as long as we, as a nation, remain as committed to avoiding taxes as Superman is to avoiding kryptonite.

Now to the good news.

1. Thousands of the unemployed have shown up at nonprofits' doors to volunteer.

2. Donations overall have remained fairly steady, and in the face of the unemployment numbers this is a testament to Americans' generosity.

3. Businesses have stepped up their commitment to social outcomes, even if this doesn't mean simply giving money to existing nonprofits. In many cases, businesses are being formed to both make a profit and fund specific social outcomes. Think TwoDegrees bars or Tom's as great examples.

So what should your nonprofit do to minimize the bad and take advantage of the good?

First, re-examine your business model. Is it time for a significant change?

Second, look at your people resources. Do you need to change your skillset on your staff, or your board, or ramp up more use of volunteers?

Third, examine your marketing (and I don't just mean your fundraising--ALL of your marketing). Are you spending your time and money wisely, and targeting the right demographics?

Finally, can you, even in tough times, put aside a bit more cash this year? In a crisis, cash gives you time to think and not kneejerk. The fact that you're reading this means your nonprofit is one of the stronger ones, one that has survived to this point.

Here's hoping that 2012 is a great one for your mission and the people who depend on you!

What do donors want?

Effective nonprofits? Yes, says some interesting research by Guidestar and Hope Consulting. But, the research also found that very, very few donors did any research on the nonprofits and even fewer did research on effectiveness.

This piece, from the Chronicle of Philanthropy gives an overview of the research and some hands-on ideas of what your nonprofit can do to maximize income from the many, many people who care.

It's worth a quick read....it might provide a long term return.

Simply....Awesome

With all the terrific donation aggregation sites out there like Global Giving and DonorsChoose, or the micro lending leader, Kiva, (all of whom I donate or lend to regularly) it's hard to think of an innovation to this model that would make you stop and say...."That's awesome!"

Unless, of course, it's the Awesome Foundation.

The basic idea is that 10 people (the trustees) get together to donate $100 per month and make monthly $1,000 grants for an awesome idea. 100% volunteer run, the idea is spreading fast. Started in Boston, the foundation currently has 27 chapters in the US, Canada, Australia, the UK, Germany and Switzerland.

You can fill out an application to start a local chapter online. If you're a charity or individual, you can apply for a grant as well.

How cool is all of this? More than cool: Awesome.

Probationary Board Terms

When I hear of a new idea in nonprofits, I listen, consider, perhaps investigate a bit and wait for a while to see if it's repeated somewhere else. Second time; interesting. Third time, OK, this may have merit.

Just that sequence has happened to me about the concept of a probationary one-year term for board members. The idea is that both the nonprofit and the board member need to get to know each other. The nonprofit needs to know that the board member will show up, show up prepared and show up ready to participate. The new board member needs to know whether the board obligations they were told about are true or an......understatement.

After a year, a probationary board member is, hopefully, asked to serve the first of two three year terms. If he or she agrees, all good. If either party is uncomfortable, they can back away and not take up a valuable board slot for three years.

I think this idea has some legs. With board members getting harder to recruit, it allows the good ones to be on the board one year longer, avoids "empty seat" syndrome and sends the message to all board members that they are expected to participate.

We'll see if I hear about it a fourth time.....

Social Entrepreneurs 5.0

As long time readers know, the term "Social Entrepreneur" has morphed repeatedly over the past 15 years. At first, it was about the then odd idea of a nonprofit manager acting in a businesslike manner. Then, some of these managers started outside businesses; thus a second definition. In fact, my 2000 book Social Entrepreneurship: The Art of Mission-Based Venture Development, was about both of these uses of the term. In the book, I defined a social entrepreneur as "someone who takes reasonable risk on behalf of the people their organization serves."

Since that time, social entrepreneurs have been defined as investors who only invest in "good" businesses (those that don't abuse workers, for example) or businesses whose product benefits society. I've even heard pharmecutical representatives say that, since they make medicine and give away some of their product, they are social entrepreneurs. That seems a stretch to me, but whatever.

When I was teaching nonprofit management at the Kellogg School of Management, most of the students were very, very interested in making sure their business had social impact in some form. Kellogg's students are still in that frame of mind, but not unique-it's true at nearly all business schools today-and these graduates are increasingly pushing their businesses to help in some tangible manner. That's good, but....there's an even more interesting and potential-filled model

The definition of social enterprise I'm most excited about is what I would call version 5.0, the melding of the business and social benefit. Three good examples of this model are:

Toms Shoes: Buy a pair of shoes and a child in need gets a pair.

Two Degrees Bars: For every healthy food bar you buy, an aid organization gets a food pack for a child who is starving.

Sleeve Candy: Started by four Kellogg students, who linked up with the Salvation Army, Sleeve Candy retrieves, catalogs and sells vintage T-shirts, and 30% of the revenue goes back to the Salvation Army.

The best news? Investors are REALLY interested and have capitalized firms with this model repeatedly. They see the appeal of linking profitable business with meeting social needs.

Is it the answer to all the world's ills? No. Will businesses like this replace government in aiding the world? No. Does this foretell the end of the need for nonprofits? Not at all.

But with so many needs in so many places staying unmet, I'm on board with any idea that helps more than it hurts, and this model seems to have huge potential.

Finally--if there's still someone on your gift list for the holidays....think about patronizing these organizations or others you may know of that are using this model.

Walking for dollars

I've been in my fair share of charity walks, and for many years ran 5k, 10k and half marathons, each of which benefited some charity or other (the point being I can't remember). On our last walk for the breast cancer fight (my wife is a survivor), Chris and I talked about all the energy being expended walking in a great circle rather than doing something actually productive.

Which brings me to today's Op-Ed piece in the New York Times by Ted Gup. I think I agree. I know it's going against the trend, but I'd love to have a development pro write a counter piece to talk about the logic from that perspective.

I've often thought that some fund raising efforts are energy intensive and money more--take for example, schools sending small children out to sell crap....I mean catalog treasures...to their neighbors. How many parent child hours go to the effort, and how much of the money goes to prizes for the kids which is really their motivation?

Development is a huge part of philanthropy. It not only raises needed funds, but invests (literally) people in our causes. I'm not a development professional and I hope if you are, you'll weigh in......Can't we get a bit more efficient?

275,000 gone

Well, now we know. Yesterday, the IRS announced that 275,000 US nonprofits have lost their tax exempt status. These nonprofits did not file the legally required paperwork for three consecutive years, and are now considered defunct in the IRS's eyes.

Certainly there has been enough notice, with repeated announcements from the IRS, state nonprofit associations and the nonprofit press and blogosphere, including here. But up until yesterday, we really didn't know how many nonprofits were non-operational, and it was surprising, at least to me, that it was this many. 275,000 represents over 14% of registered nonprofits, a huge number.

Agencies can apply for reinstatement, but few will, I suspect.

Here's the full article from the Chronicle of Philanthropy.

Remote board participation

Let me start and the end and work back: Should board members be allowed/enabled to attend board meetings remotely by conference phone, conference video and/or Skype?

There's a confluence of events that's pushing us in this direction: A reduction in people's willingness to serve on boards resulting in a lessening of nonprofits dunning (or canning) board members who don't attend in person; the improvement of technology; the expansion of many nonprofits to multiple locations and, as a result, having board representation from those often disparate sites; top flight board members traveling for work less and being used to attending meetings electronically.

So, the next time you revise the part of your bylaws that deal with board attendance and quorums, should your nonprofit allow remote attendance? What's the impact on board cohesion and discussion? What's the policy impact? Is this simply inevitable?

I have a good friend who runs a large nonprofit in Virginia, one that recently merged with a nonprofit in another part of the state. Board members representing both service areas come to meetings with a video hook-up that's hosted at the agency location nearest to them. My friend notes that anyone doing this kind of thing needs a dedicated tech person at each site so that the staff or board members won't be distracted. My friend also feels the technology works well, dialogue is easy since everyone can see everyone else, and that it has increased attendance at meetings.

My question to him was, "..and what about the board member who is on the road and wants to attend via Skype?" He stopped and said, "We can accommodate that, but only to the point that our video screen fills up too much. We'll probably have to set a limit on that."

There you go. You don't want a future where board members never meet in groups, but at the same time, the trade off, if well done can benefit the organization tremendously by increasing board participation.

This will be interesting to watch unfold.

Pushback on Going to Scale

We're all so trendy. We follow the leader and often let someone else decide what we should do; what color tie/dress/shoes/suit we should wear, what jargon/slang we should use. What's in is SO important to us.

And I'm as guilty as anyone in following the trends-well, except in fashion, where my daughter and wife will tell you I'm hopeless.

That aside, the trend I want to push back on today is the far too common one from funders (foundations, corporations and governments) about funding only ideas that can be "taken to scale".

On the surface, and from the funders point of view, this makes eminent sense: if I fund one project in one city and it can be replicated elsewhere, I get more bang for the buck. The problem with this, as with so many ideas generated at the 30,000 foot level, comes on the ground. Nonprofits seeking funding are forced (implicitly or explicitly) to favor ideas that can work broadly. This causes them turn away from going after more customized solutions to local (and often unique) problems that can help their community.

Moreover, in seeking "models" that can be duplicated elsewhere, the 30,000 foot view forgets that no model is replicable without exactly the right people. What causes a program or solution to work in one place is a potpourri of the location, the issue, the people, the timing, the politics, even the geography. To assume you can just replicate the model elsewhere is...naive, and not borne out by experience. It takes a ton of work (and money)--and adjustment to the local situation on the ground.

Further, by taking funding that urges them to go to scale with their idea, nonprofits (and the funders) often forget the truth on the ground: In rapid growth situations, the two things that an organization most easily runs out of are quality and cash. If growth is the priority, what do you do, take your worst manager to open your new expanded facility or location? No, you take your best person--and in doing so remove that best person from what she's doing now--awesome, high quality mission.

And, in many organizations that have been beaten down by funders' focus on low administrative costs, there aren't more managers to just plug into program that your best manager just left. So the funder may well have first left the nonprofit under-administered and now wants it to grow. Hmmm.

Speaking of under-administered, let's get under-funding in terms of the cash cost of growth. This is huge, and, again, mostly under-appreciated by funders. The funding options I often see in the nonprofit world are for a one time grant, with the desired outcome of a scalable, replicable idea. If the idea "fails", no more funding.

What happens in the for-profit, venture capital world? A great idea gets an initial round of funding with several more rounds of financing as the business grows. Why? Because growth sucks up cash like a giant vacuum cleaner. And, venture capitalists know the idea will morph and change over time as implementation experience is added to the mix. There's no model, just the current situation on the ground. Nonprofit funders could learn a lot from embedding themselves in a VC firm for a year.

The bottom line for me is to be very, very careful when someone tells you to go to scale. Look at all the costs of taking the money: the stress on your current program, the potential loss of focus, the cash cost of growth, and look at it all before you obligate your organization.

Webinar listing for February 2011

As regular readers know, having a culture of life-long learning is a key component of success for any nonprofit.

Leading that culture by example is the job of senior management.

"But I just can't get away right now" is the early foreshadowing of failure in this crucial area.

So, stay at your desk and choose one (or more) of over 30 webinars for nonprofits listed on the Wild Apricot Blog yesterday. A shout out to them for gathering all this information.

Go. Learn. Be brilliant......and show your staff that they should do the same.

Keys to Smart Stewardship

I'm working on a new book tentatively titled: Smart Stewardship: Making the Best Decisions for Your Nonprofit. The book will contain some new ideas on innovation, growth, going to scale and a decision tree for both board and staff to use.

This month's Mission-Based Management Newsletter contains the first of two part series on the key elements of Smart Stewardship. In the next issue, I'll lay out my decision tree.

Take a look and feedback is welcome!

Your tax cuts to charity?

Interesting idea in an article today in the Chronicle of Philanthropy. A new site called Give It Back For Jobs is designed to help anyone who wants to to give their tax cut back. There's a method of calculating your tax benefits, and links to four charities as well as the option to name your own and do the donation right on the site.

As I say, interesting idea, and I hope it works!

Just in time for the holidays

The IRS has announced that they are going to be scrutinizing nonprofits even more in the coming year. Good idea, but poor timing, to say the least.

That said, better oversight is important, and I fully support it, within the context of the new 990, and focusing on both educating nonprofits in how to best report and then going after people who abuse the system.

I read earlier some blogs that decried this "new attack on charities" but really, with so many nonprofits and so much abuse, we need some help in policing the sector. The IRS audits went up 30% from 2008-2009 and another 12% in 2010.

This article from the Chronicle of Philanthropy does a good job of laying out what's coming and what you should be paying attention to. Payroll taxes and loans to executives and trustees (which always falls into the category of what were you thinking?) are high on the list.

Check out the article and be prepared.

Is there an app for common sense?

Got an iPhone? Want to make a donation to a worthy nonprofit via an app that the charity provides? No can do.

What? We're in an era where just about everything except using the toilet is migrating to smart phones and you can't donate from your phone? What's that about?

Well, ONLY if your smart phone is an iPhone, according to this article from the New York Times posted yesterday. An Android phone is fine. Hmmmm, and I thought Apple was always on the cutting edge of awesome.

This is ridiculous, and good for Beth Kanter for spearheading a movement to get it changed.

Cautionary Tale

Regular readers will remember me discussing the very sad case of Family Connections, the terrific Austin, TX nonprofit that had to close down after its ED stole hundreds of thousands of dollars not only from that nonprofit, but also from her church and the state association of nonprofits like Family Connections. She vanished after an audit, but was arrested last week after returning from Venezuela.

Why discuss this now? Well, millions of people in the US are being besieged now for year-end tax deductible donations from charities far and wide. Stories like this make it harder for nonprofits of all types and sizes to convince people to part from their money.

So, if your organization is out and about asking for donations, one thing not to do is hesitate when someone wants information on your nonprofit's finances, outcomes and impact. And that means you have to have your data and positive stories ready in advance.

Here we go again...to what end?

The entire issue of congress/state legislatures looking and overseeing nonprofit management salaries drives me a bit nuts.

Here is just the latest example from today's New York Times.

I'm mildly torn: some nonprofit CEO salaries do seem high to me in my tax bracket, but so do pretty much all for-profit CEO salaries. I frankly don't believe any business person is worth multiple millions a year. If I were a shareholder of a corporation that pays that much to top management, I'd be rightly upset.

So, should donors be upset about "high" management salaries for hospitals, universities or national charities? Well, they can be, and they can withhold their donations. That's free enterprise. States and the feds can as well, but for congress (with it's free health care for life, I might add) to decide what's "high", or for a state legislature to limit CEO compensation (for for-profits as well, to be fair, at least in New Jersey) bothers me greatly.

Large nonprofits are, well, large, complex organizations, with thousands of employees and huge assets at risk. The people who run them should be paid according to market scale, with the understanding that the market is somewhat ameliorated by the mission satisfaction of what the organization is doing.

The tragedy of all this discussion is that these legislators are only looking at how to cut cost in a high profile way to get a little PR shelter. Most legislatures have been politically cowardly about balancing their budgets (i.e.raising taxes) for decades and their prior acts are now biting them on the butt. They prefer to distract us all by saying "Look at her! She's paid too much! She works for a charity! Take out your angst on her, not us!"

What about the fact that for hundreds of thousands of staff at smaller nonprofits, salaries (even at the top of the organization) have never been close to even adequate, since the same state and federal officials who now pine over .01% of nonprofit salaries have never considered paying a reasonable rate for the very, very needed services these nonprofits provide so that their employees could live reasonably?

In a society that delegates so many of its toughest problems to the nonprofit sector, shouldn't some consideration be made for the people that work there?

365,000 at risk

No, not dollars, nonprofits.

That's the number of nonprofits who have not filed their 990-N yet, and who need to by later today to not put their 501(c)(3) at risk.

I posted about this before, but today went to the NCCS website about this issue, and looked for nonprofits near where I live who are at risk-there were dozens; 4-H groups, rescue squads, sports leagues.

Some of these groups, no doubt, have gone dormant. In fact, estimates a year or so ago were that about 150,000 (c)(3) organizations nationwide no longer really were in business.

But many are...and are in peril of losing their tax exempt status. If you care about nonprofits in your community, go to the NCCS database, and just search for your state and town.

Then start calling organizations you know that are at risk.

New Marketing Strategies

Happy Mother's Day to moms everywhere.

If you're into marketing for your nonprofit, you might want to take a look at the May, 2010 issue of the Mission-Based Management Newsletter which is online. Topic? New Marketing Strategies.

Check it out, and if you like what you see, subscribing is easy and free. You can also scroll down to see all the past single-topic issues.

Enjoy!

Innovation, Part 2

Earlier in the month, I neglected to post that the April edition of the Mission-Based Management Newsletter is up. This month, the newsletter covers the second part of a two-part series on Nonprofit Innovation.

Check it out, and remember to scroll down to see the topics of past newsletters over the years.

If you think you or your nonprofit could benefit from reading regularly, subscription is easy and free.

Kiva for college

Regular readers know I am big on aggregation models for philanthropy (as well as innovation). You take lots of people, ask each for a little bit and good things usually happen. Kiva led the way with this a few years back and now there are many similar programs, like SmallCanBeBig or WorldFlix. I'm sure there are many others by now, because the process works and the technology is there to enable the great idea.

I was watching a show on Hulu last night and this in-your-face ad popped up about someone who couldn't go to college because he couldn't pay the tuition.

All $700 of it.

That got my attention, as did the charity name: vittana.org So, I went, checked it out, looked for some background and found articles on it not only from the New York Times but also the Huffington Post.

As with Kiva, you lend money, though in this case to a non-US student (through an in-country intermediary). The student goes to school, hopefully graduates, gets a job and pays you back.

Are there issues of concern? Of course. But it's a great idea and another way to help international development.