Is your Organization an Endangered Species?

Even as you’re still processing your year-end appeal donations, it’s past time to be thinking about next year and just how well you are really doing in the area of fund development.  Can you state that you fully understand the long-term implications of your fund development position?

A staggering fact brought to us by the Nonprofit Finance Fund:  nearly 50 of nonprofit organizations do not have sustainable funding models and are heading for extinction in the next three years.

In fact, the end of the year dollars may just be too little too late because that isn’t what is going to save you.  We write them and we receive them:  pleas acknowledging that “we just need $ (fill in the blank) by the end of the year” to make budget or “meet our goal” (a euphemism for “make budget”?) or ensure a successful 2014.  If that is how this organization truly runs, pleading at the last minute, that is not an organization that is going to get my dollars—or respect, faith or loyalty.  That is an organization for which we can start writing the obituary.

Organizations, and each of their respective programs, that do not have a diversified funding strategy—using as many of the five different  sources of funds available to nonprofits (government, foundations, corporations, individuals, and earned)—are those organizations and programs on the way to extinction.  Look around you.  What nonprofits don’t exist anymore?  Odds are very good that their absence is due to an over reliance on one or two sources of income all the while failing to diversify.

In 2014, you better stop the “same ole, same ole” and create a “new way, new way” and stave off extinction.  Begin by honestly plotting each of your programs on the money/mission grid:   what programs absolutely fit with mission and bring in good money, meaning the money brought in, be it from raised or earned dollars, minimally covers the true costs of operating that program.  Get rid of any program that falls in the quadrant that doesn’t match mission or bring in good money, and work on correcting the other two quadrants:  get rid of those programs that don’t push forward the mission, no matter how nice the money is, and start testing new business models to get the mission-fit programs closer and closer to covering those true costs.

Next, assess—brutally honestly—how well you really do each of those programs that you said fit with mission.  Remember, it is the rare duck that can be all things to all people and do it all well.  Survival of the fittest doesn’t just apply to animal species; it applies to organizations, as well.  An organization wants to survive; it must be fit.

Finally, once you know what work you do best (and better than all or most) and really should be doing, as opposed to the work you’ve always “just” done, it is time to work on the third step in preventing extinction:  fund diversification.  Each of our programs must have diversified funding sources contributing to its existence just as the whole of the organization must have varied sources and streams.  And yes, survival requires diversification not just of the sources—the rivers, if you will—but also the streams that feed into the rivers.  Survival does not come from relying on one foundation, or even two.  Extinction is not going to be held at bay by a small pool of very loyal donors who give two figure gifts, any more than by one major donor who gives a six figure gift.  Only in the past were government contracts a “guarantee” of tomorrows to come.  The size of those contracts is shrinking and the selection process for awarding them has become more competitive.

Our landscape has changed and will continue to change.  Some wells are running dry; others are being diverted to meet new demands.   Competition for all sources of funds has increased as we’ve watched the nonprofit sector grow by approximately 15% over the last 10 years.  We must adjust our mindset to being realistic about what we can and can’t do to serve clients now while simultaneously doing what we must do to be sustainable for clients of the future.

We must protect our clients by investing in, and thereby protecting, ourselves to insure our future.  That means having a reserve fund, so that when the vagaries of money don’t follow the course we thought it would we don’t scramble, at best, or die, at worst.  It means having a solid succession plan so that when a leader leaves, in planned or unplanned manner, chaos and uncertainty don’t take over.  And it means investing in staff and staff and board development to insure that there is the human expertise and capacity to have a continually adjusted, completely diversified development strategy.

Make 2014 the year to prevent extinction.*

*Getting educated is a great start We can help you figure out where you stand and take action:

• A Formula for Nonprofit Financial Sustainability – 2/27/14 (new date)
• Red Flags in Financial Management that could Sink your Organization – 3/12/14
• Take the Financial Stress Test – 3/26