Friday, December 23, 2011

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 might provide a long term return.

Monday, December 19, 2011


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.

Friday, December 16, 2011

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.....

Tuesday, December 13, 2011

Does your gift list include teaching how to give?

I've posted about this before, but it is the holiday season, and we are in mind to be generous. If you're thinking about a different kind of gift this year, here are two thoughts.

First, go to TisBest and consider giving a charity gift card. You can select from dozens of images on the card, or even upload your own. The recipient of the card goes to TisBest and selects which charity gets the money you spent on the card. Very cool, and I like this for gifts of all kind.

Second, consider giving a book that will help grow the next generation of donors. It's called Raising Charitable Children, and it's by Carol Weisman of BoardBuilders. Awesome book, awesome message.

Happy shopping!

Tuesday, December 06, 2011

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.

Friday, December 02, 2011

How to Run Out Of Cash

(Note: This post comes directly from my new book Smart Stewardship for Nonprofits: Making the Right Decision in Good Times and Bad, to be released in February 2012 by John Wiley and Sons. You can pre-order at Amazon by clicking on the link above.)

Almost all nonprofits have too little cash on hand at any given time. Sometimes this is the result of funder policies not letting the nonprofit keep what they earn (or tut-tutting when a nonprofit has 2 dimes to rub together), sometimes a result of poor long-term management on the part of the nonprofit, sometimes caused by a short term crisis, or a combination of the above. And, if you don’t have any cash cushion, as CEO, you lose a lot of sleep.

I know a CEO who has been in her position for 20 years and who has fretted about making payroll twice a month for every one of those 20 years. When I asked her a few years back about why she hasn’t built up any reserves, she looked like I had hit her: “We can’t do that. People are in need. It’s immoral for us to carry any money from one fiscal year to the next.” So, her organization is intentionally cash poor.

While I understand her sentiment and admire her empathy for the people her organization serves, this is not Smart Stewardship. The quality the space where the organization provides services is appalling, her staff turnover is high, there’s no website (thus impacting her fundraising efforts) and the next longest serving employee has only been there three years. And, any delay in payments from key funders, or reductions in donations, and the doors close.

Not every nonprofit falls into the trap of being cash poor, but if you feel your organization is chronically cash short, you cannot, let me repeat cannot grow. Growth sucks up cash like a giant vacuum cleaner. And you need cash.

Here’s the key takeaway for this issue. CASH = OXYGEN. Cash buys you time to think, is insurance against funding cutbacks, let’s you sleep at night assured you can make rent at the beginning of the month. Cash lets you manage rather than just survive.

And growth? Growth is funded by cash. Remember my mantra earlier in the book: Money enables mission, but profits enable growth. Without profits (and profits that are retained, not immediately spent), you can’t grow.

Let’s do the numbers using a not all that unusual example. A funder, who loves your services and has been a strong supporter, calls you and says,
“We have a one year grant opportunity for you. We want you to expand ServiceX for the next year and measure the impact.”

You are intrigued and excited: More mission! And, ServiceX is your core competence and serves your highest priority demographic. More high priority, high quality mission! The funder continues.
“You need to shoot me a financial projection, but we know you and trust your management. Also, send me a number of units of service based on a one year, $1million grant. We’ll go from there.”

You are nearly speechless. $1million? ONE MILLION DOLLARS? And full reimbursement? There’s no risk! Then, you think, where’s the catch?

The funder continues, “No worries about match. We want to get this project going, so we’ll reimburse your costs fully. We’ll reimburse you each month within 45 days of your billing us. Get back to me by the end of work tomorrow and we can make this month’s contracting and approval cycle. Have a nice day.”

Now there’s an understatement, you think...a nice day....this is the best. day. ever. You shoot out of your chair to go share the news that your mission growth just went off the charts.

How does all this sound to you? Awesome? Unlikely? Yes on both counts of course. But while you have visions of mission growth dancing in your head, let’s look at this amazing, high priority, no risk mission opportunity in a bit more depth.

Let’s assume you start the service at the beginning of the next month, which we’ll call June 1. Let’s also assume you can just start doing more mission from a standing start--no upfront expenses like more space, licensing, training, etc. You and I both know we always have those expenses, but for now, just keep them in the back of your mind to add in later.

So, June 1 you start doing a LOT more mission. On June 30, if you’re like most nonprofits, you bill the funder, and the 45 day reimbursement clock starts. If the funder actually gets you the reimbursement in 45 days, that means you get paid on August 15, or 75 days after you started the expanded mission.

During those 75 days, what has your organization done? LOTS of great, high priority mission. You’ve helped LOTS of people.
And spent LOTS of cash. LOTS. How much? Let’s do the math.
Take $1,000,000. Divide it by 365 to get a cash cost per day. The result is a daily cost of $2,739.73. Then, multiply the daily cost by the 75 days you have to wait for reimbursement. $2,739.73 times 75 equals $205,479.45.

That’s a lowball calculation of the amount of money that goes out before you get paid. Ouch. And that’s real cash going out the door, money that can’t be used to pay rent or insurance or other staff payroll. Remember that the $205,000 does NOT include the startup costs we pushed aside earlier. So in nearly all cases the number would be higher, perhaps much higher than $205,000.

Moral? To afford this no risk, high priority mission opportunity you need more than 20% of the grant total in hand, in cash, before you start. This money is called working capital, and it’s the money you need between the time you make a product or provide a service and get paid. The more you grow, the more working capital you need, even if it’s not in big, one time $1,000,000 increments. The longer the funder takes to pay you, the more working capital you need. The higher your startup costs are, the more working capital you need.

Where does this working capital come from? From prior years earnings. If you haven’t put funds aside, you can’t take advantage of opportunities as they arise. And, by the way, no bank is going to lend you funds to cover this grant’s working capital. Loans are paid back by profits, and this grant, while fully reimbursing your costs, does not include a profit. And, you can’t sell stock in your nonprofit--that’s only for for-profit firms. So, you need to be making a profit to grow.

Remember, money enables mission, but profit enables more mission. And here we are with a perfect example. Your nonprofit’s prior profits allow you to take the $1,000,000. If you haven’t made the profit and set it aside, all you’re doing is running out of cash.

This is why so many nonprofits who have a budget goal of breaking even and, like my CEO friend, feel that making a profit is wrong, are always out of cash as they grow, even if that growth is minimal. They make the mistake of thinking that if there income and expense report shows a break even that they should have enough cash to pay the bills. Fatal error. Accrual and cash are different, and a break even P&L does not mean that your cash in and cash out match for the fiscal year.

Again, my point here is that growth, any growth, sucks up cash. Your organization already has working capital invested in your operations now. Even if you grow organically, you’ll need more. Conversely, if programs end, it frees up working capital for you.