One may think that for a nonprofit to be successful, it just needs to have success. There is some truth to this but there is also more to it than just that. It is true that if a nonprofit is successful with donors and regularly gets grants without too much selling, then this is a positive sign.
Often though, we equate the ability to sign new grants as the reason for success. This could not be further from the truth. It may sound weird, at first, but hear my argument first. Yes, a nonprofit organization that can regularly get funding will be successful, this is true. But there is a significant difference. The ability to sign agreements is not what made the nonprofit successful, that is an outcome of his success. Hence, the signing of new donor agreements does not equal success but rather comes from being successful.
Successful Nonprofit Organizations (For my new book on this click here)
The nonprofits that become successful can drive increased revenues through increased donor contributions by showing their success in being able to drive results, not because they can drive donor agreements being sold. Often one can hear in the nonprofit environment that this nonprofit organization is good or bad at signing agreements. A nonprofit that is struggling may say, we are doing well but the donors do not like us so we are struggling. They may point to another one that is getting increased contributions and say that the donors like that nonprofit or that CEO. This is incorrect and what it does is it puts the blame on the donor rather than on the nonprofit. In reality, donors are not that fickle. They like results. If you are a nonprofit that can achieve great results for a low cost, then you will do well with donors. If you cannot achieve solid results with reasonable costs then you will be seen as less effective and they will likely put their funds in another nonprofit that they feel is better equipped to make great results at a reasonable cost.
In this respect, the donor is much like a consumer, but instead, they are purchasing results or the expectation of results. If their focus is on poverty, they are purchasing results in their focus area, hence, they may want to see a reduction in poverty in Africa. This is similar to someone buying a smartphone if two phones are both priced at $200, but one is faster, does more, and better across the board than the other that is also priced at $200, then why would that consumer pay for less of a product. In the nonprofit, why would the donor pay for fewer results, when they can pay the same and get better results elsewhere? The problem is not that the donor likes the other nonprofit better, it is mainly that the other nonprofit delivers better. If several nonprofits are delivering more efficiently that your nonprofit, this is a sign of impending trouble.
It is interesting that when most nonprofits get into this situation, the first thing that is done is to blame the donors, and then the next thing is for the CEO of the nonprofit to blame the donor fundraising team. They rarely get to the root of the problem which is a worsening in its ability to achieve results.
Competition
Most nonprofits have a struggle with getting sufficient donor funding, there is always more that can be received. Every nonprofit quickly understands that there is a limited supply of donor funds and you are in that market competing for every donor dollar. Certain nonprofits can be your direct competition, the same global region, same segment (poverty, disease, hunger), and the same group of donors. It is important that you are competitive in this group and ideally you are the leader. If you are seen as the leader, you will get the bulk of the funding, but if you are seen as less competitive, you will get far less. If you are in the same ballpark, but slightly less, this is not terrible, but if you are seen as relatively ineffective compared to your competitor(s), then you are in for a major challenge.
You will need to go back to the drawing board and figure out why you are not able to compete with your peers or competitors. Generally, this could be due to many factors, but a great place to start with is your portfolio of projects. If you have chosen poor projects with very little results, then you are wasting donor funds and making the situation worse for yourself. Each bad project will harm your efficiency score. It is ok to have a few of these, but for every one of these, you need at least three high performing projects. Imagine if you have ten projects and nine are poorly performing and only one performs well. It would be hard to argue that generally, your projects perform well. Hence, even if poor projects are funded, work should go into making sure that they are effective. If a project cannot be made effective, it should be stopped, until one can figure out how to fix it.
Metrics and Evaluation (M&E)
This is a critical function and one that is very underrated in most nonprofits. This is very important to understand which projects drive positive results and which do not. Attention can be put into the worse performing projects and the well-performing projects can be used to explain how to achieve success. In short, lessons can be learned from both successful and unsuccessful projects.
This is a very important function in any nonprofit, but generally, it is the one that is the least funded. Much more effort is usually placed on the fundraising team. The reality is that while the fundraising team is important, the M&E team is more important.
By understanding this concept, you will understand why many nonprofits put more funds towards fundraising than they do towards the M&E function, it is directly related to most nonprofits misunderstanding that success comes from signing grants rather than success comes from delivering results, signing grants is an outcome of that success.
Nonprofit Boards (Free Checklist here)
The board of a nonprofit plays a vital role in success. The reality is that if the nonprofit is very successful and has a strong CEO, then the role of the board is much simpler. Their main role would be to not get in the way of the CEO and their team. This CEO will drive success, he or she will motivate teams, will get projects to become more efficient. These results will have a positive effect on donors and the donor fundraising will improve. In short, the effectiveness of projects will improve and this in turn will drive more donor grants being signed, the success will improve. In this case, the board’s role is simple, do not get in the way. They can help out and perhaps support in some way, but in this situation, a strong or weak board does not matter, as long as they do not get involved. The strong board will know not to get in the way. The weaker board will also understand not to get in the way of success.
(Download free nonprofit board checklist – Here)
Does this mean a strong board is not needed? It is true that in an ideal situation, the strong board plays a lot less of a role. It is not to say they do not play any role, but their role will focus on minor aspects. They perhaps can make something that runs well, a little better or they can lend support, but, if they did not play a role at all, the CEO would likely be able to drive the same results. Hence, with a strong CEO and strong team, the board plays a very minor role. However, when the CEO is completely ineffective as a leader, this is when a strong board can save the day and this is the primary reason you need to always have a strong board. With a weak and ineffective CEO as a leader, the board must be able to recognize the signs and get in there to take action. The main action is usually giving the CEO a few months to correct things or start to look for something else. The weak CEO will look to point to other individuals or other factors such as the donors for their failures, the strong board will see through this but the ineffective board will not. This ineffective board will now be the cause of the failure of the nonprofit. Both the CEO and the board will continue to try to do the same things that got them into the problem in the first place. It could take years for a needed correction to come. This means that the nonprofit has now been in decline for years. It will be very difficult to recover from this. It is for this reason that a strong board is tantamount to success.
There is another important issue to consider with boards of nonprofits. In the for-profit companies, boards are approved or removed by shareholders. The problem is that a group of shareholders generally do not exist with a nonprofit organization. Since there are no shareholders the board itself approves and disapproves of members. Hence, an ineffective board can decide to extend its term and very little can be done. This gives an ineffective board that much more power and the likelihood of an ineffective board removing the ineffective members are slim to none. By that time, the ineffective members are running the board, and hence, why it is ineffective. If run by the effective members it would not be an ineffective board.
Donor’s Role
Since there are no shareholders to vote in or out the members of the board. It may be wise to consider to create a donor’s advisory board and give them some power to remove board members or appoint some. They need to be completely separate from the board and there needs to be some specific rules of engagement, but this advisory board should not just be for show, it must have some ability to act and make changes, otherwise do not bother.
It is important to consider how can an ineffective board be replaced. It is far more difficult than one would think. This is one area that works far better in the for-profit company. An ineffective board is replaced very quickly and often along with the CEO.
Sustainability
Most nonprofits are like people living paycheck to paycheck. They have not spent enough time considering the long term sustainability of the organization. This is usually due to the board and CEO not considering the long term, they may look at the next five or even ten years, but no one is considering the next fifty years.
It is critical to focus on the sustainability of the nonprofit. To do this, the strategy must allow for growth in reserves and for these reserves to be invested to get earned investment income. This will allow the reserves to grow that much faster. The problem with this approach is it could take decades to do it properly, and very few boards hand off this to the next board, hence, the focus is more geared towards the next three to five years. The problem with this approach is by being able to generate 10% of your annual spending in earned income, you will increase the effectiveness significantly. When a nonprofit has very little earned income, they generally have to fundraise for the whole year of operations. They are not able to derive any benefits from only having to fundraise 90% or 75%.
The CEO and the Board must understand finance
In a for-profit environment, this goes without saying, there will not be a board member or a CEO that does not understand finance. In the nonprofit world, many exist, while the nonprofit is not in the business of earning a profit, it still is a business, it still pays salaries and still has most of the components of a for-profit company. The difference is that the nonprofits are usually run by a person with little to no experience in business and often less understanding as well. This has a very negative effect on operations. In nonprofits, you often find the CEO who comes from a certain project group, this could be a scientist, a social worker, a lawyer, this is fine if they have a good understanding of the business or have significant business experience. Issues arise when individuals are placed in these roles without any experience or understanding of business and then asked to run a $100 M nonprofit. This situation rarely ends well. There needs to be a graduation of experience before one becomes a leader in business. As well, many of these individuals excelled in their role by being a very detailed oriented person. This is the exact strength that will be your greatest weakness when changing to the role of CEO.
The CEO is critical to success for the nonprofit, but not all CEOs are made equally, the only fix for a weak CEO is a strong board. The combination of a weak CEO and weak board is one that can be very destructive to any nonprofit.
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Thanks Linell! I am very glad that you appreciated my blog post. Will add some more shortly. I agree with…
Thanks for your compliments. Will add more soon! Stay safe, Mark
You are welcome Bursa! Time to hold fast, I fully agree! Mark
Thanks for your positive comments! Will add more very soon!
I intended to compose you one very little observation in order to thank you yet again for all the beautiful…
What do you consider the biggest challenges to get the board right?
Looks interesting – I think some of the biggest challenges are due to no one overseeing them
Great insight Mark!!!
Thanks Josh! I am liking your blog too!