Nonprofits in Crisis: Time to Look in the Mirror

For many struggling nonprofits, it is time to look in the mirror and have a courageous conversation about your organizations’ strengths, impact, and right to exist.  This article is the sixth in a series on courageous thinking for nonprofits. The premise of the series is that the social sector is facing significant public policy, funding, and cultural challenges emerging from the new political administration. In this context, we do not have time to deal with imploding nonprofits, so weaker organizations need to look in the mirror.  I have been talking with my peers about this topic for a while. Late last fall, I wrote about a small nonprofit in rural Connecticut that “ran out of money.” In that article, I outlined the collateral damage of a nonprofit failure.

Since then, I have had conversations with three colleagues speaking about different nonprofits in crisis.  One is a nonprofit that is slowly bleeding because of unstable revenues. To cope, they are cutting staff hours, doubling workloads, and looking for the “big win” grant proposal. A second agency hired an executive director (in over their head) who hemorrhaged nearly six figures of organizational financial reserves in less than eight months. A third organization (with a nonprofit consultant on their board), bet the farm on an earned income scheme that did not work out so well.  

Then last week, in the Portland Tribune, a cover page article reads: “Cash crisis sinks health nonprofit.” It appears that Upstream Public Health had cash-flow problems “went unnoticed.”  In fact, in the Tribune article, the board chair (at that time) is quoted as saying, “It was absolutely a shock to all of us.” Elsewhere in the article, the board chair blamed the previous executive director, stating, “So I wish [the Executive Director] had caught it sooner.” Further quoting from the article, “the urgent cash crunch prompted the nonprofit to limit employees’ hours in January and issue layoff notices last month.”  On February 27, 2017, the nonprofit published an article on its website that stated,

“We have taken a hard look at our finances and our options and concluded that Upstream can no longer remain an independent organization. We will seek opportunities to combine our work with organizations that share our mission, philosophies, and passion. Upstream will not retain any staff after February 28. Together, the staff and Board are working with Upstream’s funders and long-time community partners to mitigate the impact of this situation.”

All the examples above share the characteristics of having a weak, ineffective board, inadequate fiscal controls and/or revenue forecasting, executive directors without much professional experience, burning through reserves to cover income shortfalls, and flying without a clear strategic plan and sustainable revenue strategy.  Do one or more of these characteristics keep you up at night?  If so, perhaps it is time for some disaster planning.  To help you start, here are five questions for such a conversation (which are the flip side of core competencies).  

1.  What is your organization’s impact? Above all else, your right to exist as an organization is about the impact you create. Organizational impact, not program impact. Your organizational impact is what happens beyond delivering a program or service. It is measured by your community leadership, role in changing public policy or changing community norms.  The services you deliver may make a difference but if your organization is simply a shell through which you provide a program or service, then perhaps you should merge with an organization that can fiscally sponsor your program. Infrastructure costs money and organizational impact alone justify that cost. How many environmental education enrichment stand-alone nonprofits do we need?  How any stand-alone animal rescue nonprofits do we need? How many stand-alone youth mentoring nonprofits do we need.  Too often nonprofits fail to wrestle with the question “are we a program or an organization.”

2.  How competent is your board?  The strength of a nonprofit organization is in the fitness of its board. By law, it is the Board of directors who are ultimately responsible for managing your nonprofit enterprise.  Despite this, I have encountered many nonprofits whose board of directors tolerate the tyranny of low expectations. More than one nonprofit leader has pitched to me that I should join their board because “it does not take much time outside of coming to board meetings and donating to the organization.” I have witnessed boards haplessly muddle through poor financial reports, nod compliantly to the whatever the executive director says, and argue over who will get “stuck” being the board secretary. If your nonprofit has a board where effectiveness and strategy are absent, you must question your organization’s right to exist.

3.  How effective and strategic is your leadership? Again, the board of directors of a nonprofit is responsible for managing the entire enterprise. Period. The buck stops with the board.  However, as a nonprofit grows and begins to hire staff, the board typically delegates responsibility to those staff members. However, delegation does not relieve a board of governance. The board must ensure the staff, who now own the delegated responsibilities, are competent to do what was assigned to them or have the support to complete the assignments.  So the question becomes, do you have the resources to hire and support qualified staff?  If the answer is “no,” or worse, “we are not sure,” your nonprofit needs to ponder changing its structure and operations.

4.  What do your financials tell you? Look at your profit and loss statement and balance sheet. What is the story behind the numbers? If the story is one of aging accounts receivables, little cash reserves, routinely tapping a credit line (with the carried balance continuing to creep upward), a narrow revenue pipeline, and an occasional skipped bill payment or, (have mercy), late payroll then your nonprofit must seriously consider the sustainability of your enterprise. If your financial profile is weak, you might be a program, but you are likely not an organization.

5.  Who is standing in your way? On more than one occasion, I have received a call from a concerned board member or colleague with “inside knowledge” that a nonprofit is veering off course but an Executive Director, founder, or prominent board member(s) are standing in the way of an honest conversation. Whether it is a small vanity nonprofit (see here) or a more mature organization that is in denial, someone  needs to stand up and push for an honest conversation as uncomfortable as that might be.

Ignoring the weaknesses in your nonprofit is unethical and irresponsible. Leadership requires you to assess your situation and have a disaster planning discussion. As self-serving as it may sound, this is one of those times where you need to hire an outside nonprofit consultant with considerable experience to be an impartial facilitator. Those on the inside of an organization often lack the clarity to be objective.  An outside voice can help you stay above ego, nostalgia, pride, and magical thinking and help your organization name the truth.  Such a dialogue is the first step of a longer thoughtful, planning process that could include the process of dissolving, restructuring, or merging your nonprofit organization.   

Too often, social sector relies on philanthropic Darwinism to thin the herd of nonprofits that perhaps should not exist.  I believe that it is the time that we on the inside of the nonprofit world, start holding ourselves accountable for our successes, falterings, and failures. Honesty, accountability, and transparency are needed now more than ever. The nonprofit community must view as courageous and strengths-based, the potential of consolidation and merger. No other posture is acceptable as the east winds start blowing.

As always, your thoughts are welcome.

~ Mark

Postscript. Two days after the Tribune article on Upstream Public Health was published, the board of the nonprofit launched a new website and a forward-thinking update titled Upstream is moving forward! The pathway includes the appointment of a management consultant to head the organization’s board of directors, the addition of new board directors, and the commitment to rebuilding the nonprofit (starting as a volunteer-driven organization). In their words, “We look forward to working with the people of our state and the public health community to become a powerful voice for a healthier Oregon.”  Upstream also removed the February 27 assessment quoted above.  It appears that the new Upstream board is confident that, like the mythical Phoenix, the organization can rise from the ashes. I wish the team well as I have always had admiration for the work of that they do.

Photo Credit: Pexels

Mark Fulop

Mark founded Facilitation & Process in 2009 to help organizations and communities bridge the gap between where they are today and where they want to be tomorrow. He’s led dozens of Portland nonprofits, government agencies and philanthropic organizations through complex change initiatives including strategic planning, revenue planning, board development, collaboration, and facilitation.