Professional Development Archives - TurnAround Executive Coaching

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.

  1. 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

The biggest 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.

Forprofit companies 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 growth

Most 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.

Bonds are 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 growth

New ideas 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 than forprofit

Without 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

Most 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

Entrepreneurial 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.

Nonprofit 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 inception

Boards of 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.

Forprofits 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 in place.

  1. 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?

Most 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 this community.

With these 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.

Major forprofit 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

Like nail 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

People might 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

This 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.

Conclusion:

Did you 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.

Many nonprofit leaders face an unending mountain of tasks with no clear path to a better life and leadership. I managed the chaos — by Mastering the Rockefeller Habits.

Capital One Bank has graciously agreed to host so its free for you. June 20 at 8:30am – 10:30am at 320 Park Avenue. Write me at tompkir1@gmail.com for a reservation.

Leaders get lost in a fog of numbers when they only need 7 Key Financials to make decisions.

I hope that you can join me at OpCon, June 13th, where I will be on a panel “What Nonprofits Need to Know About Nonprofit Accounting and Finance”.  If you come with a CPA, bring aspirin as they recover from an encounter with a Management Accountant. If you’re a CEO, bring champagne to celebrate as you learn about 7 numbers that actually help you manage your agency.

In my book “Doing Bad at Doing Good”, I discover that the best nonprofits have an Operations Budget model that only requires 7 key financials. I’ll have copies of that available for attendees!

When you’re ready for a coaching investment, let’s talk! https://taconsulting.live/our-nonprofit-promise/

Why There Are Summits

Verne Harnish collects thought leaders twice a year to help businesses and nonprofits who want to grow. Scaling Up philosophy is that to 10X your business, you have to 10X your people. And to 10X your people, you have to 10X yourself. Summits are two days of nonstop quality ideas – like getting a drink from a high-pressure hose. One company brings along a secretary just to take 25 pages of notes to review afterward.

Speakers/ Thought Leaders At Atlanta Summit May 21-22
The Atlanta Summit May 21-22

Scaling Up Summits and Coaching are an investment of time and money with the promise that your nonprofit will get tools to grow.

BUT

There is also a cheap approach to the firehose if you’re not sure. Buy the books now that Summit speakers have written and you’ll be convinced of the value.

Reading is a Cheap Way to Drink at the Firehose

I have started to read a book a week to get ready.

Last week, I read a book from one of the Summit speakers who will be in Atlanta in May. Mariya Yao wrote ‘Applied Artificial Intelligence – A Handbook for Business Leaders.’ It’s an easy read and gets leaders up to speed on using Artificial Intelligence in your nonprofit. (Spoiler Alert – you are already using weak artificial intelligence, so you have started!)

I’ve been scared of Artificial Intelligence because it sounds expensive. It sounds like new software ($$$) and new staff to understand the software ($$$) with me to raise the money ($$$$)

Mariya begins with the cheapest of ideas -what do you want to know? Artificial intelligence starts with the intelligence of leaders! Who knew? I actually brought managers together last Thursday to ask that question. What a great session as people gave different ideas as to why the school is so successful. I made a tool to guide our discussion. Email me if you want to try something with your team and I’ll send a copy.

Join Me in Atlanta, Invest in Future

Join me in Atlanta after you read a book and see what you’ll will get. Invite board members too. We’ll have a late night session Tuesday night to meet and review the day. Text me before you register because there is a nonprofit rate.

Keep reading for scaling!

Are you turning around a difficult situation? It’s lonely. That’s why we all gather twice a year who are gathered in this business to hear stories of success and to share our struggles.

It’s not an easy event because so many thought leaders are onstage with great ideas. Tom Peters was a speaker in May. You will end up tired and with a new sense of partners in the determination to lead your company to success!

The Fall ScaleUp Summit in Denver (16-17 October, 2018) is nearing capacity, with 800+ business leaders and 12 bestselling business authors gathering together to focus on high-growth strategies. Register now to reserve your space — preferred seating available for teams of three or more.

Twice a year, I gather with nonprofit leaders who want to dream of greater mission. Can you invest two days on possibilities instead of problems? Check past summits with Verne Harnish online to see the great value! Text me to register.

President Obama said in a recent interview on Face the Nation that the most critical quality for a good President is to form an effective team because the job is simply too big without great support (7/24/2016). His comment is actually the Key Performance Indicator for anybody who is leading a company.

Your job is to choose wisely, lead the team, and solve team disputes!

It’s critical to know if you have chosen staff wisely. Most companies now spend more on service and administration than manufacturing. The balance sheets of older days focus on hard assets but most of your company is likely to be service and administrative. You need a balance sheet that measures whether your staff are building your company or wrecking it.

The literature on determining the asset value of employees is still emerging. While various models each have their benefits, it’s easy just to set up parameters and starting thinking in this new way.

I will present 12 elements of an Employee Asset Based approach. I follow that with three examples of a new staff hire, a valued older staff member, and a problem staff.

 

Elements of Employee Asset Based Value

  1. Value of Job Ability -Training and certification which leverage effectiveness
  2. Determined DNA – to complete company mission
  3. Continuing Education
  4. Historical Knowledge of Company and Culture
  5. Network
  6. Ability to contribute to team with justice and peace (honesty, harmony)
  7. Willingness to accept accountability
  8. Impact on Profit of Company and Retention of Students
  9. Impact on Critical Number
  10. Is the compensation too high for this position?
  11. Would you enthusiastically rehire this staff member?
  12. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

 

How would this look in the real life examples of Jim, Elisa, and Beth?

 

Jim – The New Hire

Assume that you pay market rate for Jim who is capable of fulfilling the position description for teacher. That is all expensed as payroll. Assume pay of $40,000 per year. Debit that amount to payroll expense (just as normal)

Review the list of 9 Elements –

  1. Value of Job Ability -Training and certification which leverage effectiveness
    1. Training and certification which leverage effectiveness

Jim has a Masters in Bilingual education and the DOE would pay $52,000 for this. Credit $24,000 to Equity Professional Added Capital and Debit $24,000 to Professional Assets. Since you expect the teacher to stay for 2 years before the DOE discovers the difference, credit a depreciation account for Professional Assets for $1,000 a month (2 year schedule) and debit expense for Professional Expense.

  1. Determined DNA

Add nothing because there is no history to indicate

  1. Continuing Education

Add $6,000 because he will take CLASS Professional Development and depreciate over  two years – his expected tenure

  1. Historical Knowledge of Company and Culture

No addition because there is no knowledge of history and culture

  1. Network

Add nothing because he has no network

  1. Ability to contribute to team with justice and peace (honesty, harmony)

Change nothing because he is not yet part of a team. You need his truthfulness, compassion to others, and willingness to live for company results more than his own. If he steals, lies, cheats clients – these will all reflect badly. If he has a reputation for peace and justice, then it adds value.

  1. Willingness to accept accountability

Change nothing because you do not know about accepting accountability

  1. Impact on Profit of Company and Retention of Students

Add $9,000 in expected future profit because you believe that the presence of a Dual Language UPK teacher will add two seats to the three year old program and 2 retention effect students in After School programs. Add this in the same manner as # 1 and Depreciate over 5 years to account for the final residual effect.

  1. Impact on Critical Number

Add nothing because this will be established by Jim’s performance

  1. Is the compensation too high for this position?

No, subtract nothing as the compensation is correctly established.

  1. Would you enthusiastically rehire this staff member?

Change nothing because you don’t know. This score is the sum total of all the desired attributes fitting into a package that adds value

  1. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

Change nothing because there is no history to indicate

Summary for Jim:

You hired him at $40,000. He adds $39,000 of value to the balance sheet. That amount will be depreciated over the remaining expected time of employment. The balance sheet should be adjusted in the yearly appraisal with Jim. He should see his value to the company and propose how to increase it. He correctly may feel that his compensation should be adjusted in Year Two.

On the surface, you have made a smart opening choice. The continuing months are critical as they will add or destroy value.

 

Elisa – Hired 10 Years Ago at Age 40

Assume that you pay less than the market rate of $50,000 for Elisa who is capable of fulfilling the position description for Human Resources. Assume pay of $40,000 per year. Debit that amount to payroll expense (just as normal).  The $30,000 remaining is added to Professional Assets and Professional Added Capital and depreciated over 3 years)

Review the list of 9 Elements –

  1. Value of Job Ability -Training and certification which leverage effectiveness

None, so no added asset

  1. Determined DNA

Elisa is totally committed to the mission of the company and stays late and takes work home. She is a model for younger employees. Add $60,000 and depreciate over 3 years.

  1. Continuing Education

You will propose a certificate course online for $5,000 because it will give her more skills and increase her expected date of departure by one year. Add to Professional Assets and depreciate over 3 years.

  1. Historical Knowledge of Company and Culture

Significant knowledge of history and culture. It will take 3 months of compensation to replace. Add $10,000 to Professional Assets and Professional Added Capital and Expense over 3 years.

  1. Network

None, so no added asset. It is carried with Historical knowledge

  1. Ability to contribute to team with justice and peace (honesty, harmony)

Elisa has age and experience and a kindly manner. She works in the background with you to keep the team together and let you know quietly about unresolved issues. It’s worth $30,000.

  1. Willingness to accept accountability

Elisa rarely makes an error. She knows that her value to you is in being correct.  Her determination not to disappoint relaxes you to focus on the leadership job. It raises your effectiveness by $60,000 over 3 years.

  1. Impact on Profit of Company and Retention of Students

Not a consideration since she has little effect in Marketing or Program

  1. Impact on Critical Number

Add nothing

  1. Is the compensation too high for this position?

No, subtract nothing as the compensation is correctly established.

  1. Would you enthusiastically rehire this staff member?

She is highly valued and the overall fit with the team is worth $45,000 over three years

  1. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

Change nothing

Summary for Elisa:

You hired her at $40,000. She adds $240,000 of value to the balance sheet. That amount will be depreciated over the remaining expected time of employment. The balance sheet should be adjusted in the yearly appraisal with Elisa. She should see his value to the company and propose how to increase it. She correctly may feel that her compensation should be adjusted in Year Two. She may have other proposals because she understands the appraisal and company very well.

You have made a smart choice in Elisa and retained her. Your leadership skills will be tested to retain her but it’s worth the struggle.

 

Beth – Hired 20 Years Ago

Assume that you pay less than the market rate of $40,000 for Beth who is barely capable of fulfilling the position description for Secretary. Assume pay of $28,000 per year for 10 years. Debit that amount to payroll expense (just as normal).  The $120,000 remaining is added to Professional Assets and Professional Added Capital.

Review the list of 9 Elements –

  1. Value of Job Ability -Training and certification which leverage effectiveness

None, so no added asset

  1. Determined DNA

Beth is unfocused. She isn’t determined to accomplish the job because it’s all hazy in her mind. Showing up is her idea of determination. Unless she has a critical errand for her family. Debit $10,000 per year to Professional Added Capital and Credit Professional Assets. Unfortunately, you assume she will work until retirement in 10 years so the total debit and credit is $100,000

  1. Continuing Education

Ha. The last thing that she learned was where a new restaurant opened for lunch

  1. Historical Knowledge of Company and Culture

$1,000 ($12,000 over 10 years). Beth knows how the boiler works when there is a problem

  1. Network

None, so no added asset.

  1. Ability to contribute to team with justice and peace (honesty, harmony)

Beth has disappointed many employees over her career. They see that she gets paid for doing very little. She actually accounts for $100,000 ($10,000 per year) in reduced effort by others because they see that hard effort does not pay.

  1. Willingness to accept accountability

Beth always has a reason that a phone call was lost or mail that wasn’t sent. She costs about $120,000 over 10 years.

  1. Impact on Profit of Company and Retention of Students

Not a consideration since she has little effect in Marketing or Program

  1. Impact on Critical Number

Add nothing

  1. Is the compensation too high for this position?

No

  1. Would you enthusiastically rehire this staff member?

No, She destroys about $5,000 of value annually ($50,000)

  1. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

See above

Summary for Beth:

You hired her at $28,000. The sum total of credits and debits to the Balance Sheet is a negative $238,000. Debit to Professional Added Capital and Credit to Professional Asset.  That amount will be depreciated over the remaining 10 years of expected time of employment.

You have a choice to make and your leadership skills will be tested to fire her and replace. Beth has one skill and that is to keep this position. She knows a Board member or she scares people or she is older and can’t get another job or she has an alcoholic husband and pays the bills. You can only remember that you’re not her father, mother or banker. You have a responsibility to the company and the people who receive its benefits.

Conclusion

Notice in these three examples (drawn from real life examples) that the real value is added by longer term employees who are effective (+$240,000). The biggest effect is not firing those who are destroying your company (-$238,000). New employees typically add the least (+$39.000)

In this example, you can increase the asset value by $279,000 or $41,000. The non performing staff member will kill your business.

What will you do this week to add Professional Capital to your company?

Notes

Russ, Meir. Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-disciplinary, Multi-level Theory. N.p.: n.p., n.d. Print

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

power-of-three-tile-small.jpg?fit=515%2C515&ssl=1

We all look at our financials to determine how the company is performing. The problem with your financials is that they were invented in 1494 by Luca Pacioli (improving the Babylonian system of 5000 BC.

Would you not agree that an update is necessary?

The current financial system is oriented towards manufacturing. In 1995, service industry portion of high income economies was 66%. I can guarantee it’s grown since then.

Recording Labor as an Asset

There have been three economies in history – agricultural, industrial, and technological. Current financial accounting is dangerously biased towards an industrial economy that does not record the financial position of high income countries and their companies.

In high income countries, labor can now be divided into 3 parts.

  1. Unskilled labor where technology destroys labor. Dyson has a vacuum that takes pictures of the room and climbs over obstacles. Why do you need the cleaning lady? Technology has even destroyed sex work since people with similar desires can connect with each other voluntarily. While unions and civil service slow the disappearance of this sector, it is marginal.
  2. Skilled labor is the next to disappear. When did you go to the bank and find a teller? Did you check yourself out at Walmart or the grocery store? Self driving vehicles will replace all drivers.
  3. The sweet spot in a technological economy is talent. You cannot replace the creative, heuristic, critical talent. In a perfect world, we would see an explosion of the arts and frontiers of science.

In the current world, you will face a dearth of talent to hire and a million resumes from skilled and unskilled labor every time you post a job.

What to do?

  1. Expense all your skilled and unskilled labor as financial accounting requires.
  2. Conservatively estimate the revenue that each talent based employee adds to the company and the estimated length of service. Add that to long term assets.
  3. It will increase your assets and equity in most cases. If you are in trouble, it adds to your liabilities and shows that you are highly leveraged.

Next Steps

What do you do with assets? You increase their value and extend their useful life.

  1. Invest heavily in talent to increase their value. Add professional development as an asset instead of an expense
  2. Examine your labor pool and invest in Professional development to convert skilled labor into talent and assets
  3. Look for technology that replaces skilled and unskilled labor

Conclusion

We cannot solve the life problems of labor that is not needed. This is where government policy and philosophy steps in to guarantee an economic floor.

For the current moment, you need to add value to labor to turn it into an asset. You will find that employees are so thrilled that most will stay longer than your conservative estimates of an asset allowed. You will win. They will win. Your stakeholders will win. The best kind of scenario.

Meanwhile, your balance sheet reveals a true picture of your expense and assets as an organization. Are you ready for the current economy? Your new balance sheet will tell.

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

Sources

“Growth in the Service Sector.” (n.d.): n. pag. World Bank. Web. 16 July 2016.

Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-Disciplinary, Multi-Level Theory . Palgrave Macmillan. Kindle Edition. Russ, Meir. N.p.: n.p., n.d. Web.