The Power of Zilch: An interview with Nancy Lublin

One of my pet peeves has always been when well-meaning, but somewhat clueless outsiders tell us in the nonprofit sector that we need to be "more businesslike." Yes, there's much that each sector can learn from the best examples in other sectors of the economy, but I've always believed that the corporate sector should be learning from us when it comes to efficiency and getting the most out of limited resources.

Now, to our rescue, has come Nancy Lublin, CEO of Do Something and founder of Dress for Success. Nancy has just published Zilch: The Power of Zero in Business, with eleven practical lessons for business leaders on how the not-for-profit sector manages to leverage the power of Zilch into mission success, by doing more with our brands, our external people, our customers, our boards, our staff, our finances, and our stories (and all with no budget).

After reading this great book this summer, I had the opportunity to speak with Nancy by phone this morning. Her lessons and leadership are great examples, not just for business leaders, but also for our peers in the nonprofit world.

Ken Goldstein: First off, thank you! It's about time somebody stood up for our sector and told the simple truth that our managers know how to do more with nothing than most corporate managers can do with million dollar budgets. So, I hope the folks in the marble-lined corporate boardrooms listen. But my readers are all in the nonprofit sector. What lesson or takeaway do you want them to get from your book?

Nancy Lublin: It applies quite well to small not-for-profit start-ups and entrepreneurial organizations, because they've got less to begin with. The good news is that there's many ways to leverage. The book is about leveraging everything. Like external people. Who delivers your mail? Who are your neighbors? Do you know if everybody you come into contact with is marketing for you? Are they communicating your mission to the people they meet, or are they saying you don't know what's going on in your office? Is your purpose clear enough that they can help with word of mouth marketing and spread the word to the people in their circles?

Many in our sector are saying, "We've already gotten by on Zilch, now we have less than Zero." In the current economic crisis, is there any additional advice you have for nonprofits, or is it "do more of what we've always done"?

I think they've been doing this really well for along time, my one piece of advice for nonprofits is to remain focused on your purpose, don't flirt outside your space. People say, "I'll fund you to do this other thing," and it's easy to get tempted, but it ultimately leads to disaster. It's called following the money and it's not a good idea.

Your advice on partnerships, to choose partners that fit your brand, is great. A lot of smaller nonprofits are under pressure these days to enter into mergers and alliances based on dollar considerations only. How much consideration should branding receive in merger talks?

I'm a big fan of M&A activity, and would like to see more of it happen. There is a lot of duplication in the not-for-profit sector. What I'd like to see is that it's the strongest, not necessarily the biggest, that survives. Often it's the shiniest star that survives, and that's not necessarily the best. There are lots of organizations that are beloved that are actually lousy. I think that what needs to happen in the nonprofit space is what happens in the venture capital space, they look at an entire sector see what works best before picking a winner to invest in. I keep encouraging funders and organizations to look at an entire space before making a decision.

I can't tell you how many times I've had to grit my teeth and not lash out at those who think they're helpful by telling us to "be more businesslike" - How do you handle that?

We've heard that so long, and there are some things they're right about... Some things... But there's ways they can be more like more nonprofits, and not by being soft and cuddly, but by adopting some of our business practices. Like incentivizing employees without throwing ridiculous paychecks at them.

When you talk about "doing more with external people" and turning every contact into "brand ambassadors" what are some of the creative ways you've seen small, grassroots nonprofits do this?

I think the most important thing to start with is a clear, focused purpose. Are you saying you're going to end all homelessness? You're not going to do it. Pick something you can achieve, like reducing homelessness by 20% in a specific area: something achievable and measurable. Something people can say "I want to be a part of this," and get on board. This is the first thing. Simplifying your organization to make it easier for people to get on board.

You have a great story in the book with the lesson of not confusing business with friendship, where a donor was basically paying you to be her buddy and listen to her problems. This can often be a very fine line to walk. Do you see it being crossed by many fundraisers?

Apparently there was a study that the Chronicle of Philanthropy put out a month ago about sexual harassment of fundraisers; it's apparently pretty common.

So what can nonprofit managers and fundraisers do, other than just be aware of the problem?

Taking meetings in an office is a good place to start. We've always assumed that you've got to "establish the relationship" with a lunch or dinner, but it's easier to say "no" to a friend. In an office, they may say "yes" just to get you out of the office.

In the chapter on "doing more with your staff" you're very clear about hiring people who are passionate for the cause and that job interviews should include personal questions to determine that. Personally, I love interviews like that, but I find more and more organizations that have been scared by lawyers into only asking standard, dry, job-duty-and-skill related questions. What reassurance can we give nonprofits that asking about hobbies is legal?

Obviously, you want to check with your HR and legal department, but everything [a potential new hire] puts out publicly is fair game, so I check their facebook and twitter feeds. You're hiring a complete person, not a robot. I wouldn't hire somebody with less than 500 facebook friends. I want their networks. If you're hiring somebody who won't pull in all those people, hire somebody else who will. We've gone a bit overboard with lawyers telling us how our businesses should be run. And that's spoken as somebody who's been to law school.

Should all nonprofits be using social media (twitter, blogging, facebook, etc.)?

Absolutely, everybody, yes, yeah!

When I teach grant writing and fund development, I always try to emphasize how important storytelling is - that numbers served or in need can help build a case, but that it's putting faces on those numbers that gets signatures on checks. Your chapter on "doing more with your story" really shows the power of that. What's your favorite story from a small, community nonprofit?

I think at Dress for Success my story of my great-grandfather [leaving me the money that started the organization] really resonated with people. It was really hopeful, it was about making a success in a new place, and it really related to the mission of welfare to work. And I hadn't planned on it, it happened organically.

How can my readers help spread your message?

One thing you can do to do learn how to do more with less is to buy a copy [of Zilch] for yourself, and buy one for a friend. The fact that every chapter ends with practical questions really helps. It's just a real smart, savvy business book.

Yes, each chapter ends with eleven self-evaluation questions, and there are eleven chapters. What's up with you and eleven?

The end of each chapter has eleven practical questions that should really make you think about your own work place and help you evaluate how you can do more with it. The reason it's eleven is to go one further, because we at not-for-profits always have to go above and beyond. That, and I'm obsessed with Spinal Tap.

Nonprofit Mergers & Alliances: An interview with Thomas A. McLaughlin (part two)

Thomas McLaughlin is Vice President for Consulting Services for the Nonprofit Finance Fund, a nationally recognized expert on nonprofit mergers and alliances, having consulting in over 200 such collaborations, and the author of the excellent and indispensable volume Nonprofit Mergers & Alliances, now in its second edition.

I recently had the opportunity to speak with Mr. McLaughlin about his book and his experiences with nonprofit mergers and alliances. What follows is part two of our discussion:

(Click here for Part One of this interview)

Ken Goldstein: I've heard that, on average, only 1/3 of organizations that enter merger negotiations actually wind up merged. In my own experience, I've been successful in 2 out of 3 rounds of merger negotiations. What do you find are the most important factors in beating the odds and having a successful set of merger talks?

Tom McLaughlin: I don't know whether it's 1/3, 2/3, or 1/2... because we don't have standardized reporting, or any reporting at all, whereas with the FTC for-profit companies have all sorts of reporting to do. How do you define success? If you're talking about the very beginning, and just talking and exploring, that might be 1/3 successful, if people are sincere in the discussion, but there are many things that can intervene... if you start the clock ticking when organizations "get serious" and start to plan something, enter the implementation planning stage, I think the percentage goes up to 75%. Until that point it's just discussion, once you commit, things start to fall into place and you start making decisions that have lasting effects and consequences. In the future this activity will be frequent enough that organizations will say "we're always talking" but that doesn't mean we're always "getting serious." I would say that once you get over that first hurdle of the feasibility stage, your chances are quite high. Because there's something in it for both organizations. These are voluntary organizations; organizations in this sector cannot and should not be forced to merge. This should be a voluntary process from the ground up and should not be somebody else's grand plan. I think it's stronger when two organizations choose to put their groups together and follow through.

Given what you've just said about mergers needing to be voluntary, is it right for United Ways or Community Foundations or other funders to be cheerleaders for the trend, and to be encouraging mergers?

I think funders should be advocating collaboration, but not forcing any particular merger. They're independent voluntary organizations. Outside matchmakers don't have the inside knowledge and could push for a potentially bad result for all the right reasons. Funders can create an atmosphere that encourages talking, fund it... one of the best things they can do is provide Critical Juncture Financing; external financing provided to defray the cost of collaboration between two or more organizations. Those two parts are essential: collaborating organizations - to facilitate the process, not to ordain it. In Boston they call it a catalyst fund, these are efforts on the part of forward thinking foundations to provide what otherwise might be a pretty heavy lift for organizations to come up with on their own. One thing worth noting here, this is asking foundations and funders to do two things they're not used to doing: one is to pay for collaborative activities, not a strategic plan for one organization... the second is that this is not funding for programs, it's funding for management and infrastructure, and that's okay, it's the only way to get some of these going.

I really appreciated that in your book, you're clear about the differences between nonprofit and for-profit mergers, including issues of ownership, motivation, and the lessoned need for absolute secrecy around the talks. Do you find that a lot of board members, whose main lives are in the corporate world, are surprised or uncomfortable at these differences?

Yes, absolutely. For-profit board members who are bankers tend look at the nonprofit sector and see a lot of little banks. For-profit board members who are manufacturers see a lot of little factories. That is a problem because the incentives, the processes, the reasons for doing things, are very different in the for-profit and nonprofit sectors. The vast majority of public organizations tend to focus more on doing back-room collaborations for savings, but we already keep our overhead as low as possible for a lot of reasons. Say you have overhead costs of 8%, which is very low. If you can save 10% of 8% you're a genius. If you go into a nonprofit merger to save money, you will be disappointed. At some point you'll say, "We're doing all this to save $25,000? And we might not even come up with that kind of savings?" A sliver of a sliver is not a major savings.

You also do a bit of "myth busting" in the book - particularly around unrealistic expectations of immediate administrative saving, as you've just said, and that "only failing organizations merge" - How do you convince strong organizations that mergers or alliances are to their advantage with lowered expectations of quick payoffs?

It ultimately has to be strategic in nature. Everybody talks about strategic alliance. Strategic is a popular label to apply to things, but it really does need to be strategic. You may or may not regard 2% savings to be a lot of money. But if two dance troupes get together and they talk strategically about the ability for having bigger shows, to attract more media, to produce original shows... I can't put a value on that, if its' worth 2% or 5% or 10%. But if you can put a strategic vision like that on it, it's hard to say, "Eh, not worth it."

Nonprofit Mergers & Alliances: An interview with Thomas A. McLaughlin (part one)

Regular readers of this blog know that I've been involved in two successful nonprofit mergers, as well as a third attempt that was never consummated, and I've written several blog posts on my feelings about nonprofit mergers. So, when I received a message asking if I was interested in speaking with Tom McLaughlin, author of Nonprofit Mergers & Alliances, I jumped at the chance.

McLaughlin's book is a must read for anybody interested in the topic, or any nonprofit leaders (board or staff) who are considering any sort of merger or alliance. I found myself nodding my head and saying, "Yes, yes," throughout reading the book, and wish I'd had it during my three sets of merger negotiations. The following is part one of our talk:

Ken Goldstein: You certainly make a strong case for mergers and alliances as a strategy for growth, cost containment, reaching a sustainable size, and simply surviving in these times. Are there any times when you advise against a merger or alliance?

Tom McLaughlin: Oh, sure, absolutely. Here's the starting point... the two reasons that are most cited as reasons why organizations don't get together or it falls apart and doesn't work are, ironically, the same in both the nonprofit and for-profit sectors, and that is, that they can't decide who the CEO is going to be and culture clash. I'll give you an example of what I mean by culture clash, it's rooted in what the organization does and how it does it. Years ago I was working on a merger between a VNA (Visiting Nurses Association) and a hospice. I was working with the VNA, and they had had a number of conversations with the hospice down the street, part of the community, and it never worked. Never any animosity, it just didn't happen for different reasons, and the primary one was that they were just different cultures, two very different models for how they do their missions. With a VNA, it's a health care model; death is failure. With Hospice, it's a social care model; death is part of life. I believe that was at the heart of why they couldn't get together.

That was a specific example of why a particular merger didn't work, but is there a time in the life cycle of a nonprofit when a merger not advisable?

Yes, probably a small handful of those situations. The one that's most common is when one, or both, of the organizations is so financially stressed, that they are only paying attention to getting cash in the door and not brining in enough of it. The value of their programming is likely to be similarly stressed and declining. At some point an organization in a downward spiral like that, the programs become too much of a risk, just too neglected to be salvaged by another organization. An example of decision delayed tragically. In those cases, it would have been preferable to think about this a lot earlier.

While the main thing people are interested in, and the book focuses on, are mergers, you make the case for alliances at several levels below the full merger, with your CORE (Corporate, Operations, Responsibility, Economic) model. Does lower level collaboration always have to lead to full merger, or can it be an end in itself?

It certainly can be an end in itself, and that is what I try to communicate with the CORE model. You don't enter an alliance and then ask why. You have the question and build the alliance around that. It its whether it's a question of how to strengthen services or how to save money (etc.) that leads to the appropriate level of alliance or merger. It's entirely possible that organizations would create some kind of alliance first and move on to a merger; it's a nice progression if it does happen that way, but it doesn't have to.

Related to organizations entering mergers and alliances, there are organizations that come into being as pseudo-independent nonprofits, but they're under the fiscal sponsorship of another group and enjoy many of the benefits of an alliance. In the past, this was seen more as a "nonprofit incubator" approach, and the organizations were expected to eventually blossom and go out on their own, but I see that more and more, they'll embrace fiscal sponsorship and alliance as a permanent ideal for single-program nonprofits. Do you have any comments on this?

That's a relatively rare phenomenon, but it does happen. It takes a long time to incubate an organization, in any case, the fiscal sponsorship model has some characteristics similar to a management company or management services organization (which I have written about), where there is 501(c)3 that provide management services to others that are, effectively, subsidiaries. The most effective way is to lock the boards together, and it's kind of a merger under a different name. And I think that is one of the least understood models in the nonprofit sector. Why I say that, one of the attractive features of that generic kind of model is that both entities retain their brands and the connection occurs mostly in the backroom area, if that's the case, and there's not a board interlock, then you've got two separate entities with separate brands. You can have the same situation in the management company model, where if you have three subsidiaries you can three different brands, plus the brand of the parent corporation. I think we need to get out of the one corporation, one program, one site model. I think there are shades of gray here that quickly become black and white when we talk about changing corporate structures.

Part Two of this interview will post tomorrow morning.

Does your nonprofit organization employ a**holes?

Warner Business Books will shortly be releasing a new book that will is destined to be a business classic, if only for its title: The No Asshole Rule - Building a Civilized Workplace and Surviving One That Isn't, by Stanford Professor Robert I. Sutton.

Beyond the catchy title (that I'm sure just about everybody who's ever had a job can relate to), Sutton actually does have something to say about the toxic effect of a**holes on the workplace:

Assholes have devastating cumulative effects partly because nasty interactions have a far bigger impact on our moods than positive interactions - five times the punch, according to recent research. ... These findings help explain why demeaning acts are so devastating. It takes numerous encounters with positive people to offset the energy and happiness sapped by a single episode with one asshole.

There are also, according to Sutton, degrees of a**hole activity. We all may be guilty of occasional bad moods leading to "temporary a**hole" status. And then, there are those who qualify as "certified a**holes."

While the book is written about the for-profit business world, it can almost certainly be applied to the nonprofit world as well. Some of you may be thinking, "No, not in the nonprofit world! We're all good and pure!"

Well, unfortunately, my experience tells me that while that may be true than in other sectors of the economy, the nonprofit sector is not immune from the destructive nature of a**holes in the workplace.

The difference may be that in the "heartless business world" managers may be quicker to deal with potential a**holes in the making, while we nonprofit folks may be more forgiving, and not have the heart to fire somebody who really needs it.

So, remember, it's not just because you don't like the a**hole in question. You have to fire this person because they are toxic to your organization, they diminish productivity, and that is hazardous to your mission.

Read more about the book, and Don Griesmann's full review, at CharityChannel.com