Warning: Have You Caught Deadly Nonprofit Lemonade Standitis?

Does your nonprofit operate like a sustainable long-term business or a pop-up lemonade stand?

 

Lemonade Standitis is a bit like Zika virus.

Silent, but deadly.

It infects you, but you may not realize it.

The symptoms can be easily misdiagnosed, only showing up later down the line in a different form.

By then, it’s too late.

If you’ve got it, you’re no doubt leaving money on the table, working harder than you need to, and putting the long-term sustainability of your nonprofit business at risk.

Want to avoid this dreaded sustainability killer?

Here are Symptoms of ‘Lemonade Standitis’ :

• You move from event to event; transaction to transaction.
• You plan a few months in advance.
• You respond on a whim to volunteer suggestions (the old “Mickey Rooney/Judy Garland “Let’s put on a show!” paradigm — I’m dating myself, but check out this trope here and see if it doesn’t sound familiar).
• You often do things more to ‘create awareness’ than ‘make money,’ figuring the latter will be a natural outgrowth of the former (“If they only knew we existed, they’d surely support us.”)
• You spend more time at board meetings talking about trimming expenses than ramping up growth strategies.
• You neglect to invest in professional staff needed to move your mission forward, programmatically and financially.
• You neglect to invest in board recruitment and development that will sustain your nonprofit business over the long haul.
• You neglect to invest in infrastructure and technology that will enable you to be competitive in the post-digital age.
• You neglect to develop an organization-wide culture of philanthropy that nurtures consumer engagement and integrates service across every aspect of your business.

Causes of ‘Lemonade Standitis’

It’s going to become the silent killer of the 21^st century. But, it’s avoidable.

Here’s how it begins.  You listen to me, and many other nonprofit pundits and consultants, who often tell you to talk to your donors more about impact (what you accomplish) than about money (what you need to deliver that impact). It sounds sensible, and it’s a lot more palatable for many than talking about money, so it’s relatively easy to head in this direction.

Today I’m going to go the other way.

In 2017 it’s important to talk about both money and impact. Your nonprofit can’t have one without the other and survive.

REALITY CHECK:

1. Building and running a business is not the same thing as selling and sustaining the business. They’re related, certainly. When you talk to donors, of course, you sell impact. It’s not just about the money. It’s about what that money makes possible.
2. But… when you talk to your leadership staff and board you’ve got to focus on developing the resources you need to be sustainable. Otherwise, you’ll have too little to sell and for too brief and uncertain a time period. When you don’t focus in an organization-wide, strategic way on resource development, guess what happens? You’re more lemonade stand than viable business.

Unlike healthy nonprofits, most lemonade stands are one-time enterprises that get set up and torn down within a short timeframe.

They’re born of entrepreneurial zeal that burns bright; then quickly fizzles. A few thirsts are quenched. A few bucks are made.

Over and out. Or, over and done with, until the next time the spirit moves you, a few more bucks are made and a few more things are done with the money.

I call this the ‘limp along’ paradigm.

Does your nonprofit have this limp?  If so, it’s going to kill you!

In the 20^th century maybe your nonprofit could limp along that way, going from event to event or campaign to campaign. Not really planning ahead. Not really putting streamlined business systems in place. But that was before there was a tech-savvy, professionally staffed, technologically enabled, lemonade stand on every corner.

From 2001 to 2011, per Urban Institute figures, the number of nonprofits in the United States grew 25% while the number of for-profit businesses rose by just half of 1 percent. The steady growth of the early 2000s slowed between 2008 and 2013 when the recession hit the nonprofit sector. Still, growth continues at roughly 3%. According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S. today. They’re not the Mom and Pop nonprofits of two decades ago. The growth in the sector is very much in the technologically enabled businesses that have the ability, and the will, to connect outside their own small networks. You don’t have to be large; one individual or small group can make a powerful impact by leveraging technology and globalization.

Leading a Sustainable Nonprofit Business in the 21^st Century

We’re nearly two decades into this century, yet too many nonprofits are still acting as if it’s the year 1997. Or even 2007.  Do you remember what the world was like then?

In 1997 the best-selling mobile phone was the Motorola D160. It was big and heavy. It had no memory for numbers, you had to rely on a SIM card. It had no browser, camera or mobile data. It was used as a telephone. 1997 was also the year the term “weblog” was coined, the precursor of the blogging that today is an integral part of online culture. And social media? Mobile interconnectedness? Zuckerberg didn’t even begin to write the code for what would become Facebook until 2004. There was no Twitter until July 2006. In 2007, the first iPhone was released. Android was introduced. And Hadoop, the most important software you’ve never heard of, enabled both Big Data and cloud computing.

Was that really such a short time ago?

The world today is different. Connected and socially networked. Overloaded with information. Fast moving.

“In time, 2007 may be seen as one of the greatest technological inflection points in history. And we completely missed it. Why? 2008.” –Thomas Friedman

The Great Recession of 2008 caused a bit of dislocation, and many businesses – nonprofit and otherwise – got a bit stuck. They failed to fully recognize, let alone embrace, the change happening around them. It’s not just the tech sector that changed. The social sector evolved as well. Nonprofits that don’t adapt will be left behind.

“Organizations must learn how to dedicate resources to listen, learn and adapt the processes, systems, experiences and prevailing culture that will entice and nurture consumer engagement.” – Brian Solis

Learn to Nurture Constituent Engagement

We’re living in a time of what Brian Solis calls ‘disruptive technology.’ It’s totally revolutionized business as usual. Not only is our world digitally revolutionized, it’s also revolutionized in terms of customer experience.

Expectations are high, and businesses have to deliver on their customers’ own terms. This means:

• Meet folks where they are (send a Survey Monkey asking them their preferred method of communication).
• Offer folks what they want (find out what areas of your mission are of greatest interest to them; offer this type of content).
• Empower folks to actively engage (develop volunteer opportunities, free events, online surveys and quizzes, chances to comment on social media, advocacy opportunities and peer-to-peer campaigns).

Nonprofits must deliver to donors on their terms. This means investing resources in getting to know supporters better. Online social engagement. Useful content marketing. Always thinking from the donor’s perspective of “What’s in this for me?”

Go Big or Go Home

“Lean and mean” thinking will no longer cut it.  Today’s nonprofits must go big or go home.

Why? Because the future of the planet depends on big thinking from the social sector. What we’ve come to think of as “civil society” will continue to be transformed in numerous ways. We can expect a continuing shift in:

• How government approaches funding for social issues.
• How impact investors (aka venture philanthropists) look towards social innovation and solving large-scale problems, rather than towards donations to individual charities.
• How nonprofit and for-profit capital markets are blending, leading to the rise of hybrid social enterprises and B Corps.
• How big data is leading a push for social outcomes measurement.
• How big money, unleashed when “Citizens United” opened the flood gates in political campaigns, is threatening to drown out the voices of those lacking resources to compete.

I don’t mean you can’t run a viable nonprofit on a budget of less than a million, or even half a million dollars. In fact, per Urban Institute figures, 66.4% of registered U.S. charities in 2015 had less than $500,000 in expenses.

I do mean you can’t run a viable nonprofit by spending .90 cents of every dollar on programs. That’s called running on a shoestring.  Just because you’re ‘nonprofit’ doesn’t mean you can’t plow money back into your business so that it grows and serves more people over time.

Spend Money to Make Money 

If you don’t, you’ll go out of business. And that helps nobody. You can’t stay competitive with only 10% overhead.

So ‘overhead’ must cease to be a dirty word.  You need to hire professional talent, adopt cutting edge technology and become nimble and quick in the face of rapid change. You need to diversify fundraising streams and strategies, and become capable of quickly adapting to new innovations.

A starvation mindset won’t get you there.

To be successful in 2017, nonprofits must develop:

• Savvy, informed board leadership that focuses on outcomes and their associated costs.
• Professional, skilled staff able to make most effective use of resources.
• Diversified funding models that cover the full cost of doing business.
• Technology infrastructure that enables full access to digitally revolutionized opportunities.
• Customer-service cultures that meaningfully engage partners who can help sustain their mission.
• Investment capital and reserves to enable nimble adaptation to changing realities.

Ask and Answer Hard Questions to Be Sustainable

Getting where you need to be — a sustainable nonprofit — requires thoughtful introspection.  When’s the last time you asked yourself:

1. What’s the fully loaded cost of doing business?

We accept paying a premium for a cup of coffee that also covers the cost of the actual cup of coffee. Yet we scoff at nonprofits that attempt to cover comparable total costs from donors, grants and contracts. –John E. Kobara, Executive Vice President and Chief Operating Officer of the California Community Foundation

2. How much risk can our organization take?

Without the introduction of new solutions, and failures, atrophy ensues. Experimentation, with calculated risks, teaches us what doesn’t and does work. Experimentation opens space for wise solutions. Most importantly, carefully-thought-out risk-taking often succeeds. It creates results. It solves problems. Most groups I work with see their investments returned ten times or more. – Karen Eber Davis, MBA.

3. What are our capital and balance sheet needs, including working capital, investment capital and reserves?

Do you have the reserves to sustain your mission during tough times? To handle unexpected shortfalls? To respond to unanticipated demands? To take advantage of opportunities as they arise?

There are a variety of tools to help you figure this out [see Council of Nonprofits]. Take the time to do so.

4. How can we communicate both our outcomes story and financial story to prospective donors and other stakeholders?

Not only is this something to think about from a content marketing perspective, but also from an accounting perspective.

The Financial Accounting Standards Board (FASB) recently released an Accounting Standards Update (ASU) for nonprofit financial statements, marking the biggest change to nonprofit financial reporting in more than two decades.  The ASU offers more options for presenting results, bringing an opportunity to make financial statements a better resource for communicating accomplishments and outcomes.

So… next time life gives you lemons, think outside the box.

Think BIG.  And plan ahead.

Plan within a context; not a vacuum. Every strategy should be a stepping stone to the next one. That’s how you create transformational change and make a lasting impact. That’s how you avoid moving blindly from transaction to transaction, madly throwing spaghetti against the wall to see what sticks. That’s not to say there isn’t a time and place for spaghetti throwing. There is, when you’re in testing mode. But you’ve got to acknowledge, straight up, that there’s method to your madness.

Always, always ask the question,

“If this now, then… what next?”

Photo part of a series: The Art of Philanthropy – ‘Love of Humankind’ – as Seen Through the Prism of the World’s Art Museums (Norman Rockwell Museum)