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The Edifice Complex
Thu, 06/28/2012 - 11:46am
Rebecca Thomas
Rodney Christopher

A piece in yesterday's New York Times sounded a note that's all too familiar to our consultants at Nonprofit Finance Fund.  "For Arts Institutions, Thinking Big Can Be Suicidal” highlighted a new study by the Cultural Policy Center at The University of Chicago showing that the enthusiasm for fancy new buildings and extensive renovations has put an incredible strain on arts institutions.   

This Edifice Complex is indeed omnipresent in the cultural sector. In our 30-plus years advising and financing arts organizations at NFF, we’ve seen scores of organizations jeopardize the long-term vibrancy of their programs because they focused on getting the building built rather than having a healthy organization inside it. In our experience, the institutions that undertake facility expansion successfully run capital campaigns that place the facility expansion in the context of the organization’s overall vision and strategy. These campaigns have several things in common.

First, they are grounded in a reality-based business plan, meaning the organization has done a reasonable job of market-testing demand for its expanded programs within the new space. Because growth of artistic programming rarely, if ever, leads to increased earned revenue sufficient to cover expense growth, successful organizations are able to attract a “market” of reliable paying customers and donors who together will meet the larger institution’s full annual operating costs…every year, forever.

Second, we are increasingly seeing campaigns that include two or more years of flexible capital to pay for the temporary deficits likely to be incurred as the organization’s programs grow ahead of revenue expansion.

Third, the campaigns go beyond fundraising for classic restricted endowments (which need to be quite sizable to generate meaningful annual income) to include one or more cash reserves that can be designated by the board of directors, then spent and replenished for a number of purposes, including the long-term care and feeding of the facility, future rainy days and creative risk taking.

There are many organizations that complete beautiful building projects without having achieved all of the above. Many of them are in an annual struggle to pay their bills and maintain their facilities while delivering imaginative artistic programming. Our advice to our clients, with great respect for their desire to remain energized, competitive and relevant, is summed up well by Duncan Webb in the New York Times article, “Don’t build what you can’t sustain.”

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Learn more about NFF's work with arts organizations here.     

Arts, Facilities, NYTimes
Nonprofits and Solidarity Economies: Part 2
Mon, 06/18/2012 - 11:22am
Philip Rosenbloom
Andrew Schwalm

Part 2 of 3: An Intentional Ecosystem 

The continued increase in demand for nonprofit services indicated in our most recent sector survey suggests that nonprofits are, now more than ever, fulfilling social and cultural needs not addressed by government or the market economy.  But our experience trying to impact the problematic economic system of our sector also forces us to confront some realities:

First, as the nonprofit sector has grown into an industry, it has developed systems and practices that don’t support some of its most cherished aims.  For example, as we noted in our first post on the topic, the tortured flow of resources between funders, nonprofits, and communities can lead to misaligned priorities that can make it difficult to ensure that capital is producing sustainable organizations and addressing community needs.

Second, we must recognize that the nonprofit organization, as traditionally conceived, isn’t the only vehicle for addressing social problems.  Recently, B-Corporations, L3Cs and others have arisen to allow investors to support social aims, cooperatives are a time-tested organizational structure, and for-profit small businesses can help produce more economically vibrant communities.   

With these considerations in mind, we want to explore some ways the sector might reach beyond the familiar financial and organizational structures and seek meaningful social change by pursuing a greater alignment of community and sector priorities in tandem with economic sustainability.  One approach to this effort is offered through the principles of the “solidarity economy” which seek to build economic structures focused on mutual benefit and cooperation.  This language may ring a little “pie in the sky” to some readers, but solidarity economic principles are not simply lofty Utopian ideals.  Indeed, for the nonprofits we work with everyday, they present several practical models for boosting mission achievement and financial health.  And, fortunately, we can see them at work in the real world.  

Cleveland’s Evergreen Cooperatives are a growing suite of employee-owned companies in--and serving--downtown Cleveland.  They provide environmentally friendly laundry, weatherization services, solar power, and, starting this year, vegetables.  Structured as for-profit businesses, these novel institutions are worker-owned and, while initially supported by seed-funding from government and philanthropy, they will be sustained by service contracts with nonprofit “anchor institutions” like universities and hospitals.

To learn more about Evergreen’s approach to economic development, we spoke with Ted Howard of The Democracy Collaborative.

Read More
Cleveland, Cleveland Foundation, Cooperative, Evergreen, Rockefeller Foundation, Solidarity Economy, Sweat Equity, Ted Howard
Board Engagement: Thinking Beyond the Wallet
Tue, 06/05/2012 - 9:32am
Angela Francis

Editor's Note: A version of this post originally appeared at the ASU Lodestar Center Blog as part of their Research Friday series. 

Earlier this year, Nonprofit Finance Fund (NFF) received 4,600 responses to our annual 2012 State of the Sector Survey. Since then, we’ve been using this data to share key nonprofit sector trends on issues like the rising demand for services, shrinking government support, and the precarious financial health of organizations. This post explores what the survey results tell us about nonprofit board engagement in tough times.

Since 2009, our survey has asked nonprofit leaders to indicate what management actions they are taking to cope with the recession. In both 2009 and 2010, nonprofit leaders told us that they were “engaging more closely with the board” by increasing the number of annual meetings, sharing new types of reports, or in other ways. In those years, nearly two thirds of respondents (59% and 60%, respectively) ramped up their communication with the board. So what happened in 2011, and what are respondents planning for 2012?

% of Nonprofit Respondents Engaging More Closely With the Board, 2009 - 2012

 

We were surprised this year when only 41% of respondents told us that they planned to work more closely with the board. Granted, there are very real limits to the time and resources that a volunteer board can give. We’re definitely not encouraging meetings for the sake of meetings, and at a certain point it becomes impossible for nonprofits to simply engage “more” with the board. It’s also possible that more nonprofit leaders have become accustomed to operating within the new normal. Perhaps funding uncertainty has just become business as usual, no longer so urgent that it requires an emergency board meeting. It’s also likely that we’ve all gotten a little better at planning, managing, and expecting the unexpected.

Unfortunately, the systemic resource challenges facing our sector will not go away just because we’ve gotten better at internally managing them. The big picture takeaway from our 2012 survey results is stark: for a fourth straight year, demand continues to rise while funding support is shrinking (or remains unpredictable, at best). It’s beginning to seem like something has to give; business as usual is no longer good enough. At NFF, we’re increasingly recognizing the clear and present need to think differently about the ways that we manage nonprofit organizations.

So what does that mean for the board? This year our survey added some questions aimed at uncovering how nonprofits are working with their boards. The following chart shows the collective response from 3,915 nonprofit managers.

Our Board Serves as a Resource in the Following Ways:

 

Predictably, most nonprofit managers say that the board is underperforming (or not performing at all!) when it comes to fundraising. According to our sampling, 34% of nonprofit boards make the “right amount” of donations and a mere 24% are willing to leverage their relationships to directly solicit funds for the organization. Only 34% of boards are even contributing “indirectly” to fundraising efforts through referrals or advice!

The current fundraising environment means that everyone, including board members, needs to step up their game. But not all board members are recruited for their Rolodex or their wallet, and financial capital is only one type of resource. In order to remain relevant, develop innovative solutions, and meet the increasing demand for their services, nonprofits will also require social, intellectual, and human capital. Solving major societal challenges will only be possible with the right collaborations, partnerships, sector knowledge and new ideas—all things that the board can actively fuel and support. Think beyond the wallet, back to the moment that each member was recruited or voted on to the board:  What motivated them to work with your organization? What about their résumé made them such a good fit?  The answers to these questions can help identify hidden resources that board members can bring to bear on an organization’s most pressing concerns.  

To truly go beyond business as usual, the board should think about its fiduciary responsibility outside of just the standard questions about fundraising events and making budget. We don’t need more board engagement, per se. We need board members who are willing to be accountable for their organization truly achieving its mission and then creatively using all of their available resources to help it get there.

Want on demand nonprofit stats for a paper, blog post or grant proposal? You can use our new Survey Analyzer to slice and dice our national data by state, sector, and organization size.

Collaborating in Good and Bad Times for the Right Reasons
Mon, 06/04/2012 - 11:22am
Peter Kramer

Editor's Note: This post originally appeared June 1st, 2012 on NFF's Money and Mission blog at the Chronicle of Philanthropy.  Learn more about NFF's work on collaborations here.  

Though it may not always feel like it, the Great Recession officially ended in June 2009–three years ago. Nonprofits have been hit hard with increased demand for services and a shifting funding landscape in the years since the economic crisis began, and predictably there has been much talk of a resulting spike in collaborations and mergers. But the notion that collaborations are somehow linked with recessions leads to the false assumption that nonprofits should collaborate because of financial motivations.

Organizing strategic collaborations solely to reduce costs does not set up collaborating partners for success, and it ignores a fundamental function: to do a better job of accomplishing  the mission.

So why do we associate tough economic times with collaborations and mergers? Because of money. When resources are scarce, competition for those resources increases, and the financial stresses drive nonprofits to explore collaborations or mergers—particularly groups in a financially precarious position.

As manager of the Catalyst Fund for Nonprofits, which supports collaborations in Boston, I hear this argument time and again. But in reality, the cost savings can be elusive or won’t be realized for years. The notion that nonprofit mergers lead to improved economics comes from businesses, whose mergers and acquisitions result in cost savings mostly through mass layoffs. But mass layoffs are often absent from nonprofit collaborations and mergers.

In a 2010 piece for the Stanford Social Innovation Review, David La Piana describes the challenge of reducing expenses by sharing back-office resources, creating a joint venture, or merging two nonprofits. To implement each can necessitate higher expenses, which can offset any savings that may have been achieved.

While a recession can lift the curtain on outdated nonprofit business models, nonprofits would be better off shifting their focus from money to mission as the primary reason to collaborate or merge. Keeping strategy and mission at the heart of collaborative ventures changes the conversation from fearful (recession, competition, cost-cutting) to hopeful (strategic, mission-focused, greater impact).

Fostering this shift toward collaboration as a strategic option is just one of the goals of the Catalyst Fund for Nonprofits, a five-year funding collaborative managed by Nonprofit Finance Fund that includes the Boston Foundation, Boston LISC, the Hyams Foundation, the Kresge Foundation, and United Way of Massachusetts Bay and the Merrimack Valley. After a year and a half of operations, the Catalyst Fund has supported nine collaborations and mergers and provided $340,000 for technical assistance. We have seen real-world examples of the importance of keeping mission and strategy at the heart of collaborative ventures.

One such example is a nascent joint venture of diverse organizations—human-service providers, community-development corporations, education nonprofits, and even a credit union. These partners are aligning and co-locating their services to create a more seamless system that helps individuals and families in the greater Boston area build financial resilience. If you asked any of the partner organizations why they’re taking part in this collaboration, cost savings wouldn’t appear on anyone’s list. (In fact, they’re adding expenses.) At the top of their lists would be doing a better job of achieving their mission.

Collaborations and mergers are a strategic option to be deployed for the right reasons when times are tough—and when times are good. For every headline of economic recovery, let’s hope to see one (or two!) more headlines championing mission-driven collaborations.

Peter Kramer is a member of the Nonprofit Finance Fund’s national consulting team and also manages the Catalyst Fund for Nonprofits in the greater Boston area.

Catalyst Fund, collaboration, Collaborations, Mergers, Mergers & Alliances, strategy

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