When: Sep 18, 2019 08:00 AM Cambodia Business Growth
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When: Sep 19, 2019 08:00 AM NonProfits Recession Proofing Eastern Time (US and Canada)
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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.
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..
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.
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).
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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/
You are days away from an unusual Nonprofit resource. Mingle with Forprofit companies and learn growth secrets. You know how to offer your service with excellence. the ScalinUp Summit in Atlanta May 21-23 will make your work sustainable (and you’ll sleep better!)
I particularly recommend
Nonprofits are just a special version of all companies. It takes resources to do things. The activity needs to generate more resources so that more can be done. There has to be a sustainable plan.
https://bookauthority.org/books/best-nonprofit-ebooks
The other 51 – let me know if you find a good one!
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
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 –
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.
Add nothing because there is no history to indicate
Add $6,000 because he will take CLASS Professional Development and depreciate over two years – his expected tenure
No addition because there is no knowledge of history and culture
Add nothing because he has no network
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.
Change nothing because you do not know about accepting accountability
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.
Add nothing because this will be established by Jim’s performance
No, subtract nothing as the compensation is correctly established.
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
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 –
None, so no added asset
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.
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.
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.
None, so no added asset. It is carried with Historical knowledge
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.
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.
Not a consideration since she has little effect in Marketing or Program
Add nothing
No, subtract nothing as the compensation is correctly established.
She is highly valued and the overall fit with the team is worth $45,000 over three years
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 –
None, so no added asset
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
Ha. The last thing that she learned was where a new restaurant opened for lunch
$1,000 ($12,000 over 10 years). Beth knows how the boiler works when there is a problem
None, so no added asset.
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.
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.
Not a consideration since she has little effect in Marketing or Program
Add nothing
No
No, She destroys about $5,000 of value annually ($50,000)
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
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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.
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?
Next Steps
What do you do with assets? You increase their value and extend their useful life.
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.
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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.
Abstract
CEOs need to invest intentionally and annually in professional development for key staff in order to achieve the objectives of the Strategic Plan.
Adding a New Asset
Many nonprofits are service industry corporations with few fixed assets.* That means the success of your company is the result of your wise use of two items:
Meir Russ argues that you need to take your key managerial training expense out of the Income Statement (Expensed at a year or less) and make a supplemental Balance Sheet with a new category of Managerial Assets. So the success of your company is now the result of your wise use of three items:
The rationale is that we invest in our key managers with the expectation that they will bring new skills to work everyday and that new productivity will last more than one year. This is not that novel an idea in other industries. Performers already look at life this way. They insure parts of their body with the expectation that its value will last more than one year. “As the Beatles sang “I wanna hold your hand”, their business managers were busy insuring their fingers for £200,000 – a colossal sum at the time…. More recently Bruce Springsteen’s voice was covered for $3 million.” (Hunter, 2003)
Let’s assume that your average key staff member has a job tenure of 5 years in your company. Create a supplemental Balance Sheet that records the professional development asset and depreciate the expense over that period of time instead of the normal pattern to expense it all in the year that it occurs.
The result is to showcase whether you leverage talent with training or are satisfied with the current state of affairs. If the new account has a balance of $0, I can predict the failure of your Strategic Plan.
Intentional Investment for Success
Your key players face the struggle to implement the Strategic Plan. If they don’t do it – what is your Plan B? The Strategic Plan, by definition, is not easy. Your key managers need to improve their skills to meet the challenge of tomorrow. Placing those expenses on the balance sheet gives attention to :
Like anything else I write about, these conversations are about as pleasant as a trip to the dentist. But the CEO is solely responsible for the wise use of labor, materials, and assets to accomplish the Strategic Plan. Leveraging the value of your managers is arguably the most strategic action that you can take. Publicly reporting it will make sure it happens and it’s also a better way of looking at leading the company than Financial Accounting allows.
Increase Tenure of Key Managers
All of us have a dream of who we can be. I have met very few employees who really feel that they are in the perfect place. I can tell you that if you tell a key employee that you are willing to invest $5,000 every year in their professional development, you are guaranteed to extend their time in your agency. Your reports will feel appreciated and understood.
You can’t keep progressing on the Strategic Plan when key talent quits repeatedly. They take too much institutional history and culture with them.
Tell your board that you can keep a key staff member Ms. Gold 7 years instead of 5 years for $35,000 ($5,000 per year). Mention that you can implement a key objective of the Strategic Plan with the help Ms. Gold. If I could get that bargain, I’d give the extra $35,000 myself!
Conclusion
You are richer than you thought. Those managerial Professional Development Costs are not going to be used in one year. They are going to stay for year 2, and year 3, and year 4 …….. They are one of your keys to complete the Strategic Plan. You simply must treat them that way.
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.
*Hospitals and museums are examples of capital intensive nonprofits. The rationale of the managerial reclassifying of expenses should still be valid.
Hunter, Teresa. “What Price an Arm or a Leg?” The Telegraph. Telegraph Media Group, 29 Jan. 2003. Web. 07 June 2016.
Russ, Meir. Management, Valuation, and Risk for Human Capital and Human Assets Russ (2014-10-15). Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-Disciplinary, Multi-Level Theory . 1st ed. New York City: Palgrave MacMillan, 2014. Print.
Synopsis
There are ways to manage the risk gap between authority and responsibility in your organization and this article is about three of them.
Introduction
Non profits have a treacherous dance partner in government. Government loves you today but treads on you tomorrow. This commonly happens when a serious error is made by one of your staff members. The government agency is highly attuned to the optics of the story as well as the performance failure. Their favored way of responding is to cut ties immediately, leaving you with a lot of unfunded good staff and various other bills and liability.
How does a human service provider avoid being crushed by an elephant during their tango?
Case Study
Let’s look at the SCO story that recently unfolded. Three recent news articles about SCO involve massive charges of abuse by foster parents in their network. The Daily News reports that NYC ‘cut its placement ties’ within a week of the charges.
According to Guidestar, “SCO has provided vital human services throughout New York City and Long Island for more than 100 years.” They have an annual budget of $258 million, most of which is provided by government. Their recent contributions for the year were only 3.3% of their revenue. They have 6 major program areas where they provide services. A heavy hitter. Their most recent fiscal year reported a deficit of $3.5 million. SCO has 5,000 staff members.
Let me start with a disclaimer. I know nothing about SCO except from public news sources. I have no contacts within the organization. I only use these reports to understand the pressures that the senior management team can face if they are not proactive to manage risk of pending explosions.
A key problem is your disconnect between authority and responsibility as your nonprofit scales up.
Have you ever had a favorite restaurant or hairdresser that got larger and was no longer the pleasant experience that you remember? I was in a small takeout place yesterday that is incredible. The owner is behind the counter with 3 staff. Although he was arranging food, he was also watching the other 3 and helping, telling, and showing exactly what he wants to prepare for me.
He is 100% responsible to me as the customer for a great experience. He also has 100% authority. It’s very easy for him to watch the other staff as they go about their work. His authority only slips if he takes a lunch break or a day off. His responsibility to the customer always stays at 100%
Scaling up past the lemonade stand size business involves the disconnect between 100% responsibility and some percentage less for authority. And that is where the risk lies. I doubt very much that the Executive Director of SCO personally ordered a social worker to place children in unsafe homes. He is responsible for the problem but disconnected from the authority to prevent the problem. SCO is actually a minor example. The federal government lists 2.7 million employees. Think of what the President of the United States gets blamed for – 100% of them.
There are ways to manage the risk gap between authority and responsibility and this article is about three of them.
With the deli and with the President, systems better be there to protect authority because they are 100% responsible to me for a great experience.
The only way to keep authority high is to develop systems of reporting and control. For example, at my company, I discovered that weekend custodians were not staying for the full work shift. This never happened during the week when I was present. We added a system. To protect management authority, we bought a time clock and cards to replace the sign in sheets. As the staff grew and a 2nd site was added, some staff were clocking in for both themselves and their friends by punching two time cards. We changed the system. We changed the machines to biometrics — to protect management authority. Then a weak manager ignored lateness by overriding the system to check certain staff in before they arrived.
I fired the manager. It is not easy to maintain a control system. Which leads me to my second point.
2. ReConnect Authority to Responsibility by Embedding Values
Scaling up past the lemonade stand size is not easy. Scaling Up in any service organization is not easy. Scaling up 5,000 staff in a regulated nonprofit is not easy.
John Mullins says that efficiencies of scale in a service organization are more difficult than in a product company. If you are making lawnmowers, there is an assembly line to build them and some easy quality assurance tests at the end. With a service company, the customer has to consume the service and then discover afterward if the quality is acceptable. If your staff member is unskilled, not suited to the job, indifferent to your way of working, despondent over a personal problem, fighting with a coworker, hung over from last night, ill …….
Many human service companies also hire professionals. People who have passed exams and received MA degrees sometimes are more like cats than sheep. They have learned other values and are not expecting to be attuned to corporate direction.
There are many ways for a service provider to fail through the work of staff.
a.Embed Values by Preaching Values
The management team needs to have a set of company values that is baked into the company architecture. The management team and the Executive Director need to conspicuously demonstrate and repeatedly refer to company values. One of my company’s values is to possess ‘Determined DNA’. As I explain to staff members, work in education involves results. I don’t want to hear good reasons why the students failed. I want to see multiple creative attempts to result in student success. Some staff members can buy into Determined DNA. Others feel that our corporate culture is too demanding and look elsewhere. Your company values should please some people and make others uncomfortable.
Most nonprofits will help themselves with values regarding quality, putting clients first, and not giving up.
b. Embed Values by Firing Quickly
In the 1970’s, American products were poorly made. Many cars had defects before they left the showroom. Carmakers got religion after Toyota and others reduced defects and grabbed market share. Americans have gotten used to zero defects. We talk about Six Sigma and other defect prevention schemes. People expect that level of quality in your human services.
In my company, we hire staff who are rapidly categorized in three value matches – A, B, and C. My goal is to retain the A’s, develop the B’s, and fire the C’s. I don’t want the B’s to stay static – they have to improve to A or move to C.
I take no joy in firing a person and disrupting their life. 95% of my staff team buys in to the company values and seems happy at work. I don’t want scared or defensive staff wondering if their job is safe. Those feelings have to be coordinated with the fact that I need to direct an agency responsibly. When I fail to keep the desired results for clients as Job One, I let my authority erode even as my responsibility remains the same.
3. ReConnect Authority to Responsibility by Investing in Administration
Administrative costs at SCO are 7.3% of revenue, according to their Annual Report. I find it hard to understand how that level of investment will pay for systems, technology, and labor costs of managers for the ideas that this article has introduced. This may just be the way that costs are distributed on the SCO 990 report. The bigger point is that systems are built with technology and it isn’t cheap.
Government has a fantasy that bigger players will experience so many economies of scale that overhead of 10% or less is quite reasonable. SCO is involved in Early Childhood, in residential treatment and other activities which have mandated ratios of staff to client. These kinds of services are resistant to economies of scale.
Verne Harnish writes about the ‘Valley of Death’ between $1-$5 million in revenue for a company. That is the range where you need a full administration and are slowly getting efficiencies of scale to build it.
$5-$6 million provides the administration with all the key players. After that, further economies of scale for service companies are limited. You cannot overfill classes, add nighttime PreK classes, or reduce professionals. I would expect a $250 million operation to have a Sales, General, and Administrative overhead of about 15%. Maintaining authority as well as responsibility for an agency has its own costs.
Conclusion
Directing a human services company has special challenges with labor often comprising 70% of the total budget. The only way to keep the agency proceeding in one direction is to keep watching for ways to reconnect authority and responsibility.
Many directors avoid the work of joining those two qualities. If it seems too difficult, the SCO story should be a warning. Someday, that gap will come to the attention of government when one of your staff grabs the authority and marches in an illegal direction. And the government won’t worry one moment about all the good you have done. Or your 100 year history. And the rest of us will hungrily line up to grab your contracts. J
The human spirit is often independent but orchestra conductors show us repeatedly that we can direct the magic of nonprofit staff to play a united song.
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Harnish, Verne. Scaling Up: How a Few Companies Make It… and Why the Rest Don’t. N.p.: n.p., n.d. Print.
Mullins, John. The Customer Funded Business. Hoboken: Wiley, 2014. Print.
“SCO Annual Report 2014.” (n.d.): n. pag. SCO Annual Report 2014. SCO. Web. 31 Mar. 2016.
