NonProfits rarely see the need to find a business partner.
At best, they find a favorite auditor, attorney or supply vendor and
essentially develop no-bid contracts with their favorites. Stuart Mendel and
Jeffrey Brudney found that nonprofit and business partnerships were only 10% of
Partnerships mean that both partners get something that they
want from the relationship. Nonprofit CEOs are nervous about relationships that
might make a business – more profitable. Actually, every time that you pay your
auditor, I assume that they get richer! So there is nothing illegal or
unethical about partnership with business.
What are bad partnerships with Business?
Brand Risk – The biggest risk is Brand risk. If you
choose to partner with businesses that don’t match your values, mission, or values
of your clients, you can seriously damage your brand. Partnerships with
business should hire a coach to help you review partner proposals with your
leadership team, board, and stakeholders before you proceed. For example, the
company in New York that has done audits for Mr. Trump also pushes aggressively
in the nonprofit space locally. Would it affect your nonprofit brand if you
chose the same auditor? What questions would you raise before you made the
decision? Your coach can help.
Kentucky Fried Chicken partnered to give money for breast
cancer cure. They printed a month of pink buckets for chicken. Media quickly
seized on the links between calories, obesity and breast cancer. There was
nothing unethical with the business relationship but the nonprofit failed to
consider key implications of their brand. Proceed slowly and use a coach!
Process Risk – A second risk is process risk. The
processes and corporate cultures of all companies are far different. When any
two groups develop a partnership, there needs to be a written charter that the
coach helps you to carefully spell out details
Both Brand Risk and Process Risk can be managed. Leaders
lean into the danger, use a coach, and do risk management! You can partner with
What’s a good reason to partner with Business? Mendel and
Brudner list four reasons and I add two more!
Your nonprofit needs money – Pampers
diapers and UNICEF were partners for a long time and UNICEF got funding for its
mission. Pampers added to its brand strength by being interested in children. Find
a business owner who really likes your mission.
Your nonprofit helps a Business that helps
your clients – A family doctor has a practice locally that easily accepts
cash and his prices are low. Any nonprofit that helps low income families would
be helping their clients by referring them to the doctor if there are not other
Your nonprofit needs more expertise – A
local construction company is willing to partner with your nonprofit with
internships. You have a training program for people released from prison but no
expertise in introducing your best graduates to the job market. The
construction company gets a supply of semi skilled workers that come there with
Both you and the Business want market share –
You realize that a local bakery attracts young parents whose children would be
eligible for your school. You already have 200 parents who don’t go to that
bakery. If both companies give discounts to each other’s customers for a month,
then both groups of parents are now potentially interested in both companies.
Sumo Number Four – Bernie Brenner suggests
that you find a partner who is 10x bigger than you and partner with them. For
example, a real estate developer suddenly gets bad press about rodent
infestation. They need a brand partner who will help them clean their brand. They
donate money to your nonprofit and rebrand as the safe rental for families. This
partnership is the most risky for the nonprofit but potentially the most
More Respect Than Government – Government
partnerships are often take it or leave it contracts. They add conditions
without reflecting on the costs of compliance. They assume that they are the
head in the partnership and your nonprofit is the hands and feet. Business partners
can be different, You can search until you find the right business to partner
but you can’t easily choose another government to partner if you don’t like the
Conclusion: Partnerships are critical in the growth
of nonprofits and often welcomed by business. You will be treated as a co-equal
partner by the right Business. Remember:
This is not a plan for next week – it’s in your
Federal cash for social programs will drop massively by 20%
Federal cash for NonProfits is lowest in 40 Year Average of GDP.
In 2019, it drops to 11.1%.
Social Security and Medicare costs place incredible pressure
to shrink community development, education, arts, afterschool, LGBT civil
rights, etc. Some of that money flows to
states and cities and then to your agency –it’s drying up by 10% right now. I
see frantic responses to save great programs that are cash starved,
Contributions are declining. Tax Law changed in 2017 so there is no tax benefit for most people to make a gift.
Religion is quickly declining. Religion has been an important teacher about charity and volunteering. Belief has dropped 12% in a decade.
On Giving Tuesday, I’m offering five NonProfit leadership teams relief from the stress. Apply here. It’s not a miracle but you may get a new direction. I’ll give a two hour coaching session to each team over the holidays. There is no cost at all. Part of the discussion will be planning multiple cash streams to keep your agency stable. I use the proven Four Decisions system (People, Strategy, Execution, Cash).
Apply here. Like the lottery, the only way to win is to try! I hope the best for you.
The free workshop is September 18 and 19th (details below) on Zoom. This is one workshop where you won’t be late because the subway was behind schedule!
The first recession proofing we talk about is loneliness of leaders when facing external problems. Since I lead a nonprofit as well as serve as a coach, I speak about these feelings because loneliness has been a companion several times as a CEO or ED.
Here is a quick video recap and details are below to register with Zoom
Recession Proofing Nonprofits
You are invited to a Zoom meeting on Recession Proofing
When: Sep 19, 2019 08:00 AM Eastern Time (US and Canada)
If you lead a nonprofit, you already succeed at a harder job than your friend Susan who directs a forprofit company (ABC Motors) of similar size! You may notice that you have unique pressures that Susan does not face at ABC Motors. She seems to have more cash and less regulation while you try to have real impact with less cash and more regulation. Many nonprofit leaders experience unique frustration, disillusionment and loneliness in their work.
Here are ten
ways in which your nonprofit is different and harder to direct than ABC Motors.
Nonprofits serve the 5% of the
market that forprofits have abandoned
The USA has
a $21 trillion market economy. It is very efficient for most of the nation. Unfortunately,
a market economy fails for about 5% of the total activity in areas where no one
can figure out how to make money. Housing the homeless, feeding the hungry, and
other good services are failures of a market economy. The market answer to
needed but unprofitable activity is to give the problem to Nonprofit Leaders! Nonprofits
make up a unique 5% of the American economy (about 1 trillion dollars) where
everyone else has already failed..
More dependent on government
contracts so revenue does not flow to surplus
sources of revenue for nonprofits are government, fee for service, gifts and
grants. Government contracts are the largest source of nonprofit growth. Most
nonprofit leaders struggle with stipulations of government contracts. These
often promote equal access over equal results and do not fully express the
mission of the nonprofit. Government money is virtually required for growth in
any nonprofit over $5 million revenue. There is also no reward (surplus) for
excellence or efficiency in a contract.
commonly use product pricing or fee for service and build in a robust profit
target or turnover. Surplus profits from sales can be used without any
restriction. Forprofit contracts with government may have rewards for
performance. Forprofits may have more capacity for government grants that
require strategic and technological innovation. These grants are generous
compared to performance grants that nonprofits typically accept. Many nonprofit
contracts are where government feels confident of performance expected and
wants a highly regulated bargain.
Limited access to debt financing for
forprofit corporations have fixed assets of Property, Plant, and Equipment (PPE).
These can be mortgaged or serve as security for a loan for growth. Small
forprofits are often required to use personal funds or assets as security for
loans. They are willing to do this because they own the company and would never
leave the company while still responsible for its debt. Larger forprofits can
issue bonds which allow them access to cash while retaining ownership.
expensive to issue and 75% of all nonprofits are less than a $1 million in
revenue and far too small to afford the cost of the bond issue. Nonprofit
corporations can’t write off the interest paid on bonds as a tax deduction and
reduce the cost of the issue (in contrast to forprofits).
Limited access to equity markets for
and programs require energy – usually cash is required. Forprofit corporations
can sell shares based on their past history and future plans. Startups look for
angel investors with the same idea of potential future profits to be shared.
Nonprofits cannot distribute the surplus from financially successful activities
so they do not attract investors.
Revenue ceilings typically much less
easy access to equity and debt markets, very few nonprofits have grown past $50
million in revenue. Since 1980, less than 50 nonprofits in the USA have increased
beyond that level of activity. In addition, retained earnings (another source
of growth) tend to grow slowly for nonprofits because government contracts
often are performed at a deficit.
Agency problem in that clients who
receive services often are not the funders
forprofit companies are paid by those people who receive the goods or services.
Nonprofit financing from charity and government involves double stakeholders –
the funding source and the client who receives the services. The workload is
double for the nonprofit leader. They must educate the funder on what services
are meaningful and also hear the client need and respond appropriately.
Hard to have 20 year focus based
simply on social impact
business has a 20 year focus on the Big Hairy Audacious Goal (BHAG). This makes
sense because the owner is accumulating wealth along the way. The path to
wealth for many people has been to develop a business, work with passion and
long hours and reap a generous reward.
leadership is inspired by mission. The few nonprofits that continue on a long
term strategy to succeed pay a leadership team generously. In a study of 990s
for nonprofit factors for failure and success, agencies which paid 4 or more
leaders $100,000 or above tended to retain leadership and stay on course. Many
nonprofit boards undervalue the competence of a long-term leadership team.
Boards of directors are present from
Directors are one more management task. Beverly Behan writes that the real
management of the Board is with the CEO and less should be expected of the
Board Chair. Nonprofit leaders will know this challenge immediately because
board formation happens before or in the first days of nonprofit existence. Many
nonprofit leaders are foiled completely or weighed down by operating boards who
enjoy the nonprofit as a hobby and diversion from their forprofit jobs.
are usually started by an owner or by partners. New forms of financing are
usually required for growth after revenue tops $100 million. Shares are offered
and a board is formed well after the foundation values, and strategic plan are
Nonprofit leaders are paid less to
lead agencies of similar size to forprofits
Who are the
best paid nonprofit leaders? Usually, presidents of universities and leaders of
medical enterprises are paid salaries of which the rest of us can only dream. Those
salaries are priced high in place of stock options which cannot be offered to a
college president for excellent performance.
At the more
normal level of nonprofit leadership, we are never going to be reimbursed fully
for the knowledge, wisdom, and networks that we possess. When there is a
turnover in the nonprofit C suite, there are less applicants who are highly
qualified by experience and connected in networks as the replacement. The lower
compensation does change the pool of available leadership.
Nonprofit fund raising behavior is
constrained by community values
Let’s assume that our nonprofit needs $10 million dollars for a life saving vaccination program. In this example, we have two choices, Choice one – we can hire a fund raiser who will charge $20 million in fees and produce the $10 million that we need in 3 months and save 1,000 lives from premature death. Choice two – we can have some private receptions and raise $2.2 million per year for five years at a cost of $1 million total (a total net income of $10 million). Which will your board choose?
nonprofits and most media would opt for the ‘reasonable’ fund raising costs of
10% and react in horror to fund raising costs of 66%. A forprofit perspective
would immediately allow the higher costs because the total raised is the same
and the 1,000 lives are saved. Some nonprofit ‘best practices’ are unique to
disadvantages, one might ask why anyone wants to lead a nonprofit! There are
unique opportunities available through the nonprofit structure.
Nonprofits support justice, compassion, & the creative spirit of humanity.
companies are discovering the need for values oriented behavior but values find
their truest home in the nonprofit world. If nonprofits did not exist, would
government, religion, business or military fill the need? Nonprofits add to the
social good when other forces fail.
Service agencies require little capital to begin
salons and flea markets, nonprofits don’t require much cash to start. While
many articles detail the fragility of nonprofits, they are like a rosebush.
Many of the flowers will die quickly but a few will thrive.
Nonprofits are more likely to get gifts and foundation grants
make one-time contributions to a forprofit toy drive or other visible act of
compassion, but nonprofits understand the human need to give as well as receive.
They are a natural home for gifts and grants.
Difficulty of leadership is not a
way to measure value
article is to help nonprofit leaders understand that they are stronger than
they may imagine. It is a very noble cause to lead a nonprofit even though
nonprofit leaders need to be smarter and better than their forprofit peers.
come from social service or teaching and now you want to make a real impact
with your leadership and legacy? It is very possible to do and many nonprofits
are changing lives in every community.
The best way to appreciate and strengthen your leadership is a commitment to lifetime learning. Scaling Up and the Four Decisions are one planning system that equips you to spend less time in the nonprofit problems and more time on the nonprofit results. Choose some planning system and build your skills continuously so that you feel less stress and more satisfaction for all you are giving to the human community.
And contact me Ronald.Tompkins@TAConsulting.live for a partner in planning.