“In order to fly you need something solid to take off from.”
– P.L. Travers
Among the many things the pandemic has demonstrated is that detailed, prescriptive strategic plans are no match for the complexities and ever-changing forces of the world in which we operate. Organizations that developed such plans saw them thrown out or put on hold at a time when strategic thinking was critical. Rather than relying on a static plan, by understanding the organizational model – how a nonprofit achieves equitable, sustainable impact – organizations can engage in inclusive, dynamic thinking and decision-making.
The challenge, however, is the models often used by board members and others to understand nonprofits are borrowed from for-profit businesses. Lately the private sector has started to focus on social return and broadening stakeholders, but it still primarily is driven by a single bottom line. This doesn’t adequately capture the goals and dreams of the nonprofit sector.
On the other hand, for years there has been an intense focus on impact of nonprofit organizations. While it is well intentioned, this focus belies the complexity of nonprofit organizations. A plan for impact without finances to deliver on it will forever remain a vision.
The healthy tension between strengthening our communities and being financially viable has been captured in the dual bottom line of impact and finance. While this framework is helpful, it obscures a third integral and essential component of community-based organizations: people. It is time to update the dual bottom line to reflect the importance of people.
Without people, nothing in our sector is possible. Most nonprofit organizations serve people, depend in some form on individuals to be sustainable either through philanthropy or as consumers, and invest approximately 80% of their budgets into people through payroll. The importance of board diversity, staff salaries, constituent voice and donor stewardship are often acknowledged, but attention to these crucial areas is crowded out among competing demands. The rising awareness of systemic racism, marginalized voices and oppressive structures makes it even more necessary to ensure this doesn’t happen. Yet a focus on diversity, equity and inclusion carried out within a financially unviable organization will result in the efforts being less successful and short-lived.
Nonprofits must operate from a business model that integrates impact, finances and people. Collectively, these three interdependent components make up the organizational model. A strong understanding of each−and how they relate to each other−increases an organization’s chances of sustainable impact and provides a model from which nonprofit leadership can engage their community and make collective strategic decisions.
Impact
Nonprofit organizations start with a vision for a better community and a dream about the progress the organization can have toward realizing it. This is true whether the mission enriches society through performing and fine arts, protecting our planet, caring for those in need, providing education or supporting those overcoming challenges in life. Unfortunately, driven by the belief that their mission will solve broad societal ills and the desire to move as many individuals and potential donors as possible, organizations craft broad, inspirational missions. These statements may elicit an emotional response, but they are often so vague as to be unhelpful in determining strategy.
Susan Colby, Nan Stone, and Paul Carttar addressed this challenge in their seminal piece, Zeroing in on Impact, by identifying the intended impact statement. Complementary to the mission statement, the intended impact statement brings specificity to an organization’s plan, identifying the exact desired impact and how it will be measured, ensuring accountability. Within any community there are numerous nonprofit organizations, governmental agencies and even for-profit businesses all striving to better the human condition. Each one has its own sets of core competencies, skills and strengths to accomplish this collective task. The statement of intended impact describes the role that any one organization plays in that greater collective. For example, a charter high school may be trying to reduce intergenerational poverty, but their role in that is by ensuring youth receive an education to attend college. The intended impact can be ambitious, but it should be achievable and measurable so a laser-like focus will bring about the change that organizations and their stakeholders so truly desire.
Finance
Visions without resources are little more than dreams. To achieve their desired impact, nonprofits need money. Yet revenue strategies and fundraising are often afterthoughts in strategy processes as organizations use the “Field of Dreams” mentality – if we build it, they will come. Sustainable revenue strategies deserve equal attention as strategies for impact since they require investment in the skills and systems to realize their potential. Donors give to an organization for many reasons – emotional and rational – but these reasons tie back to the mission, values and impact they expect their gift to have. Using an explicit intended impact statement to identify beneficiaries and potential revenue streams allows for a greater chance of alignment with expectations. Then as the organization builds the skills and relationships necessary to fulfill the revenue stream, this clarity of expectations provides the best opportunity for the organization to meet them and increases the likelihood of repeat contributions. The organizational model is strengthened and the likelihood of sustainable revenue increases when there is alignment between revenue streams and impact. Impact leads to a contribution which enables further impact which leads to additional contributions. This golden loop drives sustainability, but it doesn’t happen without investment and intentionality around revenue strategies.
Finance is also about understanding expenses. Breaking the nonprofit starvation cycle that traditionally underfunds programs and undercapitalizes organizations can only happen when organizations understand and promote the full cost of impact. This involves not only recognizing the importance of direct and indirect expenses (or overhead) but also going deeper into the numbers. Budgets are expressions of organizations’ values, so questions around pay disparity and living wages are important to address when thinking of finances.
People
Nonprofits are people operations, yet too often they aren’t reflective of the community. While the list of stakeholders including constituents, skilled staff, volunteers (including board members), donors and community leaders is broad, nonprofits have struggled for years to increase diversity of their staff and boards, to hear the voices of constituents in setting strategy and to understand their role in the greater community. Organizational impact demands not only the centering of equity within an organization but also ensuring that organizations attract, develop and retain the right skills necessary among staff and volunteers. However, people strategy goes beyond recruitment and representation – it is about establishing a culture where everyone has a voice in the conversation, each individual feels heard and those around the decision-making table are reflective of the community.
This intentionality requires investing time and establishing authentic relationships. Many organizations reaped the rewards of these efforts during the pandemic when board members and donors alike engaged in supporting organizations to find new ways of operating. These relationships require an investment of time, but also an invitation to engage. Most nonprofits start with a small group of people, but successful organizations find a way to invite others in and widen the circle. People need more than invitation, however. They also need information to be able to meaningfully engage in a safe environment. This is why the organizational model is so important. When the model is made explicit, everyone can understand how the different aspects of the organization might inter-relate, and discussions on how to increase effectiveness in one area can be reconciled with work on other areas.
Impact, finance and people. These are three operational components which allow an organization to accomplish its mission while being true to its values. Of course, organizations operate in concert with other organizations, companies and government agencies to accomplish these goals. These interactions, along with the economic, political and social forces that influence every entity, make up the market. Understanding not only the organizational model but how it operates holistically within its market are essential for setting strategy. This is a prime place for board members to engage with an organization and, according to BoardSource’s recent survey “Leading with Intent,” an area that is ripe for improvement.
Make no mistake: understanding the model will not guarantee success. Implementation and achieving sustainable impact is the real challenge. However, a clear understanding of the impact, finance and people strategies that make up the organizational model allows all stakeholders to engage in an organization. It empowers and fosters a strategic mindset, allowing all aspects of the organization to operate in concert as needs arise and the organization is called on to adapt. That shared understanding allows for transparency in decision making, building trust. And using the model as a framework to seek input enables ownership among all stakeholders.
Like all of us, nonprofits today are awash in a changing environment. The more people who meaningfully participate in strengthening our organizations and communities, the better. The organizational model provides the solid ground from which organizations can fly – allowing people to engage, brainstorm, discuss, and decide to deliver sustainable impact.
The Organizational Model is heavily influenced by the Leap of Reason Ambassadors Community, “The Performance Imperative: A framework for social-sector excellence” and from William Meehan III and Kim Starkey Jonker’s book “Engine of Impact.”
Photo by Ernesto Velázquez on Unsplash