Tuesday, October 28, 2014

Top Three Takeaways from the Nonprofit Overhead Challenge

If you're not already talking about overhead, you should be, and you will be soon. Overhead, of course, is shorthand for what nonprofits spend on general management and oversight, fundraising, and membership development. In other words, anything that isn't directly mission-related programming.
Danger - Overhead Hazard!

Seems pretty basic, but there are often fuzzy lines between what we consider "overhead" and what we consider "programming" - a line that is not only fuzzy, but politically charged as more and more donors (individuals as well as foundations and government) are looking at our overhead-to-programming ratio as a means of judging our "worthiness."

Last Friday, I attended Stronger Together, a conference produced in collaboration by CalNonprofits, CompassPoint Nonprofit Services, and Nonprofits' Insurance Alliance of California (NIAC). Among the sessions I attended was The Nonprofit Overhead Challenge: Action Lab for Change, moderated by Jeanne Bell, CEO of CompassPoint, and paneled by Jan Masaoka, CEO of CalNonprofits, Hydeh Ghaffari, Partner, DZH Phillips, and Ann Goggins Gregory, COO of Habitat for Humanity Greater San Francisco. Here are my top three takeaways from the session:

1 - Hydeh Ghaffari: "The organizations showing 6% are playing with the numbers and the ones showing 60% need technical assistance."
Nonprofits have to educate themselves, and their staffs, about what qualifies as program, and what gets lumped in with overhead. Don't be afraid of asking your staff to complete more detailed timecards that accurately track how much time they spend in each program area, and when they are doing "general" or "oversight" work.

Learn what your true ratio is, understand it, and embrace it. You can't use a single rule-of-thumb ("14%!") to determine if your overhead is too high or too low. You need to understand the true cost of running your organization, and be able to defend when spending more on overhead is necessary to achieve growth and deliver on your mission.

2 - Ann Goggins Gregory: "Be willing to walk away from grants and contracts that have egregious reporting requirements and too strict limits on overhead. And share that reason, respectfully, with the funder."
A hard lesson - walking away from money on the table - but as a consultant I can attest to seeing many of my clients nearly ruined by contracts that cost more to administer than they were worth. Once you know what your true overhead costs are, be honest about them with your funders. If you need to subsidize a contract with other donations that cover the overhead, that's entirely fine and your choice, but you do yourself (and all of us) a dis-favor when you cover that up.

Remember, any contract that includes any Federal money (even when passed through your local municipality) has to include at least 10% for overhead. Is that enough? Consider that most service businesses run about 30-35% for their overhead.

3 - Jan Masaoka: This is important because there have been repeated attempts to pass laws saying too much overhead means a loss of nonprofit status.
In several state legislatures there have been moves (some more successful than others) to determine whether to limit tax-exempt status only to those organizations that have a low overhead. Whether or not your state has already discussed this or not, this is not a conversation that is going to go away anytime soon.

We cannot be afraid to talk to our legislators about why this is a bad idea, why overhead ratios are not the ultimate measure of a nonprofit's worthiness, and why ratios differ from nonprofit to nonprofit based on a number of factors. If we fail to act now to educate the public and the politicians, we risk losing our nonprofit status, and with it, our ability to achieve our missions.

Coincidentally, last week another collaboration was also bringing attention to the issue of overhead. GuideStar, BBB Wise Giving Alliance, and Charity Navigator released a public letter as part of their Overhead Myth campaign.

The members of the panel I attended Friday had mixed feelings about this. Many in the sector believe that the uber-focus on overhead is largely a creation of these organizations and their systems of ratings for nonprofits (particularly Charity Navigator). Jan was the most blunt, saying, "It's like the Gap saying 'Clothes don't matter, it's what's on the inside that counts'."

Jan is my former employer and a long-time associate and friend, but I'm a little more moderate in my criticism. I don't believe that they ever meant for overhead to become the single-most important measure of what nonprofits deserve funding. Still, it is undeniable that that is exactly what has happened. A study released today by the BBB Wise Giving Alliance found that "donors care more about how money is spent than results."

I have been in contact with the folks at GuideStar, offering this space for a guest blog from them about the Overhead Myth campaign. Hopefully we can present that soon, and continue this open dialogue.

Thursday, October 16, 2014

Nonprofits as the Equalizing Force


Today is Blog Action Day 2014. Each year, BAD organizes bloggers from over 100 countries to write on a single theme for one day of coordinated action. This year's theme is Inequality.

As I searched around for a particular subject to write on, it hit me that I could not narrow it down to a single aspect of inequality that I could relate to work in the nonprofit sector.

I considered writing about education, noting the disparity in the range of annual per-pupil spending (from $6,206 in Utah up to $19,522 in New York - a range that is politically inspired at least as much as it is a recognition of the range in cost of living), or that, on average, states spend four times as much per prisoner as they do per student (talk about priorities!).

Of course there is economic inequality. We've all heard (and in many cases written) about the growing gap between the 1% and the 99%... Despite the election of a Black President, racial inequality still persists, as shown these past months in Ferguson and elsewhere, also pointing out inequality of justice... Do I need to mention gender inequality, including the most basic question of how we define gender and the gender of who we love? Yes, I do.

For each of these issues there is a nonprofit connection, with agencies and activists working tirelessly to right these wrongs. But I also realized that virtually all nonprofits are addressing some sort of injustice or inequality. Arts groups seek to bring beauty and hope to places where neither exists. Health nonprofits seek to heal those without access to insurance. The list goes on.

As I've written before, much of what the nonprofit sector is about is to address market failures: the operation of a free market society will always create a certain number of citizens who fall between the cracks. If there were economic equality and equality of justice in all areas of our lives, there would be no need for many of our services, a profit-driven model for providing other services, and no justification for our tax-exempt status.

By and large, the nonprofit sector exists to address inequality. But does your organization just put a temporary band-aid on those harmed by inequality, or do you work to change the system and eliminate inequality?

And, getting to my point here, do you vote in line with that mission? Election day is coming up in less than three weeks. For the last several years CalNonprofits has reminded its members and constituents of the power of their vote and encouraged them to "Vote With Your Mission." Of course, you don't have to live in California to appreciate, and act on, that message.

Study the ballot in your state. Think about how each decision on that ballot might effect equality in your community. And then remember to vote.

Thursday, June 19, 2014

Let the Commencement Commence!

Good afternoon graduates, faculty, administration, families, friends, and distinguished alumni. I am very pleased to have been asked to give this year's commencement address at this fine institution, even if I was a last minute replacement following the protests that accompanied your first several choices.

I am even more pleased that every single one of this year's graduates has chosen to move on to a career in the human services sector. I don't know if your parents, who paid for your education, are pleased, but I am.

I suppose I should start with some sort of inspirational quote. Some platitudes along the lines of, "This is America, and anybody can do anything they want, and as long as you want success, by gosh, you shall have it!"

But that would be an insult.

An insult to each of you, to imply that a good attitude is all it takes to succeed, and that your own hard work, personal attributes, and family connections have nothing to do with it.

But more to the point, it would be an insult to many of the people who are about to become your clients. As if to say, "You wouldn't be in this mess if you just learned to whistle your troubles away."

The reality is that not everybody has access to the same set of choices that you've had. Not everybody is even aware of the choices they do have. External factors, from the physical to the mental, from geographic to economic, have limited their options.

If they have a defeated attitude - and you will soon learn not to assume "low-income" as synonymous with "bad attitude" - it's only because they have earned it.

Everybody wants decent jobs and a decent place to live, and enough food that their children don't suffer. Yes, they want success. That's why they're about to show up in your new office asking for assistance.

You want an inspirational quote? How about Woody Allen: "Eighty percent of success is showing up."

The rest is hard work. And, boy, are you going to work hard! You will toil long hours in uncomfortable settings for low pay and you're going to love it. Because it's meaningful, or something like that.

Here's another quote for you: "I don't think I'm alone when I look at the homeless person or the bum or the psychotic or the drunk or the drug addict or the criminal and see their baby pictures in my mind's eye. You don't think they were cute like every other baby?"

Dustin Hoffman said that one, and it's good advice. Each time you see (or smell) an approaching client and you're tempted to roll your eyes, give a sigh, and regret taking on a career in the human services, do your best to find the innocent babe within their eyes.

And, yes, I have now twice defined your future employment as being in "the human services." Don't let the scope of your employment limit your mission to a single task. You may find yourself providing housing assistance, or job training, or maybe something related to health care. But your job is to help that individual person, the whole person, whatever they may need.

That means go the extra mile. Refer them to services you don't provide. Take a minute to reach deeper, and find out how you can truly help beyond processing them from one point to the next.

I'll leave you with one more bit of inspiration, this time from Mark Twain: "The two most important days in your life are the day you are born and the day you find out why."

You figure that one out for yourself.

Well, that's all I've got for you. I know your grandmother is waiting to take a picture of you with your cap and gown on and I don't want to disappoint her.

Good night, congratulations, and good luck.

Monday, May 26, 2014

Are You Treating Your Cats Like Dogs?

I love dogs. Who wouldn't? They're fun, happy, and above all, loyal. It doesn't take much to earn a dogs love... a scratch behind the ear in just the right spot, a tossed tennis ball, or dropped bits of food of any sort will do the trick. Dogs are easy.

I love dogs, but I prefer cats. Cats are seen as aloof. Cats can be fickle. Cats demand respect. Some people say that cats are incapable of love. I feel sorry for those people. Earning a cats love is much more rewarding than the easy affection that flows from dogs.

But this is a nonprofit blog, not an animal blog, so let's talk about your donors. Are you treating them like dogs or like cats?

There was a time when most of our donors were more like dogs. If you fed them once, they were yours for life. You could depend on tossing a stick, and having them come back to drop a check at your feet almost every time. At least, it seems like it was that easy.

Whether or not it was ever really that simple, times have changed. Donor loyalty is not something you can assume, or just press the right buttons to activate. Each donation must be earned. The donors preferences must be honored.

A few examples:
  • Information Preferences: Most donors today want better information. Some may want better financial understanding, but many want to know about your impact. And that's not just the usual roundup of total numbers served, like the old McDonald's signs, but getting down to the who and how their dollar is helping.
  • Method Preferences: Yes, some of your old dogs may still depend on your direct mail piece. Other donors may prefer responding to an email. Still others are looking for you on Facebook. It's not one or the other, it's as many channels as you can effectively manage.
  • Campaign Preferences: Related to each of the points above, but your annual campaign for your total budget is not going to appeal to many of your cats. They may want to be a part of a specific project, with well-defined objectives and clear budgets, and they may be looking for this campaign on crowdfunding websites.
Does all this mean that I'm saying we're now the dogs, chasing sticks, jumping through hoops, and begging for treats? Heck no! I'm talking about mutual respect, with donors and nonprofit professionals working together to better our communities.

Being responsive, learning about our donors' preferences, and paying attention to subtle changes in what works (and what doesn't) keeps us on top of our game, and more effective at our work. It keeps us nimble. Like a cat.

The pictures on this page are of a couple of my neighbors, Emma and Rocky, visiting on my front porch.

Rocky - the pup - is sweet and lovable, and will play with any living, breathing thing on the street. We don't generally feed the neighbor's pets, but on this day he was choking on a bone he'd dug out of somebody's trash, and the only way to get it away from him was to tempt him with a bowl of left-over chicken. Rocky's great, but he's a bit of an idiot.

Emma - the kitty - is different. Emma is very particular about which humans she associates with, but when I come home from work, she runs across the street to see me. That is, if she's not already waiting on the railing. I have never fed her; she does not stay in our house. All she gets here is love and respect. Emma is my best friend on the block, and the only neighbor I truly and fully trust.

Thursday, May 01, 2014

The FCC is Coming After YOUR Nonprofit!

I'm not sure how closely any of you have been following the legal battles over "net neutrality" but the FCC has issued new (draft) rules that would effectively kill it (along with the ability of most nonprofits to use the web as an inexpensive communications strategy), all while wrapping itself up in the language of net neutrality.

Net neutrality is the concept that all content traffic on the web should be treated equally, and that ISPs (the companies you purchase your internet access from, like Comcast, Verizon, etc.) can't pick and choose which content you access (as long as it's legal), or send you one website at a quicker download speed than another.

Net neutrality is why your website should load in a browser at the same speed as Facebook (taking into account that large photos or videos take longer than text). Net neutrality is how start-ups compete with the established net giants, like Google, Yahoo, Facebook, and Amazon. Net neutrality is the even playing field that gives all information and ideas a fair chance at finding an audience.

The new proposed rules from the FCC would allow ISPs to set up "fast lanes" for those content providers who can pay them the extra fees (the established net biggies), and put all other internet traffic into the slow lane, stifling conversation and innovation along with it.

Guess which lane most nonprofits will find themselves in (unless we each find a generous benefactor who will pay off all the ISPs for us)?

Bottom line for nonprofits: If this proposal is accepted, and these rules go into effect, it could be much harder (and much more expensive) for us to communicate with the public about our missions and the good work we do. If our sites load at 1996 speeds, donors, volunteers, and others interested in learning about our missions will not be very motivated to stick with us long enough for our homepage to load.

Here's a great article that explains what's happening, and what the dangers are (click here).

And here's a petition that you may sign onto (click here).

Remember, as nonprofits you have to be careful about endorsing particular candidates and parties, but you are allowed to inform, educate, and take part in public policy debates that effect your mission or your ability to do your work.

(NOTE: The final language of the proposed rules will be released at the FCC meeting on May 15. That will begin the official public comment period before the rules are formally adopted. Public comment will be at least 30 days, likely longer. Petitions and letters now are still helpful and may influence the draft that is coming on May 15.)