Balancing the Mission Checkbook

Sustainability – Not a myth, but not what you may think

From time to time we keep a tally in our office of what term we either say or hear most often in a week: sustainability, business model, or capitalization. Lately, sustainability is definitely leading the pack. But what IS sustainability? We know what it ISN’T – a guaranteed flow of grants, contributions, and endowment returns that will remove all financial and organizational worries. That’s the myth that won’t go away. Sustainability is much more than revenue. Even if you won the Powerball (and, of course, donated it all to your organization) the funds would eventually run out. Nonprofits have to sustain their work in many ways. I see sustainability as an integrated approach to remain vital and relevant in the community with three key aspects.

Do great work

Why else stay in business? Ask yourself this: what’s the worse case scenario? I’d hate to have to call my board chair and say, “I just found out that we are out of cash and I don’t know if we’ll make payroll next month.” That’s a nightmare for executive directors but it’s a technical problem. The worse case scenario is this call: “We just finished a complete review and discovered that our programs don’t work. We are making no progress at all to improve or help our community.” That’s fatal. The number one component for sustainability is to do great work that will result in progress for your mission, which means you have to define what it is and how you’ll know.

Make the business work

We’ve all heard the admonition that “nonprofits should learn to operate more like a business.” Nonsense. Nonprofits are businesses – but we have to move past an engrained culture at some organizations that financial health is impossible. An article from February 2012 about the Collapse of Famous Hull House includes this quote from a former executive: “we were very used to social service agencies always being on the brink on destruction. … Some of the board members didn’t get the idea of living on the edge.” If we buy this “model” for nonprofits then we will never be stable. We don’t need to “learn to operate more like a business”. What we need is to operate our nonprofit businesses well. Our article Transforming Nonprofit Business Models defines the four inter-related components of a business model: revenue mix; cost of effective programs; infrastructure; and capital structure. Nonprofits can analyze and understand their current business model and then incorporate business model changes into strategic decisions. Surprisingly, more revenue isn’t always optimal. A major change in any one component ripples through the other three and requires adjustment and re-balancing.

Adapt and change

One of the common issues in most of the high profile stories of nonprofit crisis or failure in the last few years has been extreme resistance to change. The source of resistance differs – staff, board, funders, community, organizational history – but the denial is fatal. Thriving organizations have learned to adapt. We’ve all tried to work with a five-year strategic plan with 5 or 6 big goals, each with 5 or 10 sub-goals or tactics. These don’t work now – if they ever did. The world isn’t static or predictable. The capacity to change and adapt may be the critical capacity for sustainability. Does your organization change reluctantly, or do you continuously seek feedback to learn and plan the next adaptation? In the study Bright Spots Leadership in the Pacific Northwest, the director of On the Boards, a Seattle-based performing arts organization, says: “We have grown up with the idea that if you’re not growing, you’re dying. That mentality is ever-present and it’s lethal. The expectation that we will always be able to do more needs to change. We need to replace it with an expectation that we remain fresh, vital, relevant, and healthy.”

I nominate “fresh, vital, relevant and healthy” as the definition of nonprofit sustainability. Do great work, make the business work, adapt and change. Repeat.

Kate Barr believes that every nonprofit financial question relates to strategy, structure and mission impact. She enjoys interpreting financial information to find stories numbers can tell. She loves writing, teaching, and talking with interesting people.