Advice To Business People Joining Nonprofit Boards

Congratulations! You’ve just joined the board of directors of a charitable nonprofit. If this is a new experience for you, you are in good company. Many businesses today encourage their staff to serve on nonprofit boards.

You’ll share the experience of board service with individuals from all walks of life. A few may already be old hands at nonprofit governance. A rarer few have attended workshops or studied some of the literature on nonprofit board governance.

Many, however, are learning on-the-job… just like you.

Maybe your organization provided you with a comprehensive orientation to help you start your work on the board. Maybe you were teamed with a more experienced director who is serving as your mentor. With luck, you joined a superb board that’s filled with great role models.

It’s not unusual to feel a little unsure of yourself at first. You should find the reception welcoming, as most nonprofit staff and directors relish the opportunity to benefit from the business savvy, strategic mindset, professional connections, and access to resources that directors from corporate backgrounds can contribute.

Yet, I frequently hear complaints that all of those desired qualities seem to evaporate as soon as a business person is elected to a board. And I often hear business people describe their frustration with their board service.

So here are a few insights about nonprofits that I’ve realized over the last 30 years — and a few tips to help make your board service more rewarding.

Let me start with the insights.

Nonprofits have a different bottom line.

In business, the bottom line is easy to understand – it’s all about profit. Even if your business advocates a dual bottom line (social responsibility and profit), profit doesn’t take second place.

In a nonprofit, there is no private inurement. The bottom line is the delivery of a public benefit – for example, an artistic contribution, environmental protection, or health promotion. Determining what that public benefit is, how to deliver it and how to evaluate performance isn’t always easy.

Imagine you are on the board of an organization dedicated to the promotion of practices for good mental health. Can you concretely define what success looks like? What evidence would you point to? What changes would your small agency claim responsibility for? These are the challenges that will face you as a director of a nonprofit board.

Nonprofits are valued for their prudence, commitment to service and fiscal restraint, yet are expected to produce significant community benefits.

In the for-profit world, business owners are rewarded for taking risks – usually with other people’s money (venture capital). Under-capitalization is warned against. And a personality like Donald Trump is lionized for his opulent lifestyle and forgiven for past business failures.

Not so in the nonprofit world. Here, individuals are expected to make sacrifices for the common good in the name of service. Making do with less is a familiar mantra. Pick up a business publication, and the virtuous charities are the ones with the lowest overhead.

Meanwhile, nonprofits are being admonished to “act more like businesses.” In reality, most nonprofits are extraordinarily small, much more comparable to “micro-enterprises.” According to data available through the National Center for Charitable Statistics, over 80% of registered US public charities had annual revenues below $250,000 in 2004. At these smallest of nonprofits, nominally-paid staff or their volunteer leadership often have limited experience in nonprofit management and resource development — yet they are expected to operate as efficiently and effectively as multimillion dollar, professionally staffed organizations.

It’s surprising that these tiny organizations get anything accomplished at all. But they do! From the neighborhood soup kitchen feeding the hungry to the volunteer land trust preserving hundreds of acres of open space to the volunteer ethnic organization staging an annual cultural festival for 20,000 participants, many tiny nonprofits are making significant and valuable contributions to their communities.

Nonprofits are expected to consult with their stakeholders and to collaborate with their colleagues.

It’s not unusual for business people to comment on the pace of decision-making that occurs at many nonprofits. Change may happen more slowly than they are used to.

Because nonprofits are accountable to their community for doing good, stakeholders (like consumers, funders, politicians) expect to have some say in their functioning. If your nonprofit depends on public generosity for a sizable portion of its revenue base, you need to ensure that your constituents understand and support the actions you take, or you put at risk their goodwill and continued financial support.

Decisions and actions both big and small often rely on volunteers.

If a nonprofit has no or limited staff, volunteers are performing much of the work. The biggest decisions of all – where to dedicate resources, what community needs to focus on, and what strategies to deploy – are made by volunteers, you, the board.

Imagine your business-self managing a motley crew of unpaid staff with varied levels of expertise, skills and experience. Family and work demands always take priority over their volunteer commitments. Managing volunteers requires all of the skills and tools you would use with your paid staff, absent one obvious and highly motivating reward — money. Get the idea of the challenges you face?

Despite these differences, there are many experiences that nonprofits and businesses have in common.

Whether for- or non-profit, all enterprises need to be responsive to their marketplace. All enterprises need business acumen and effective operations to be successful. Quality research and information are essential for good decision-making. Ethical behavior and accountability maintain public goodwill. And every enterprise needs the structures, systems, people, skills, strategy and self-reflection that are essential elements of success.

So, as a nonprofit director, how can you best put your business experience to work?

Here are a few tips to get you started.

Focus on the bottom line the mission.

As I said earlier, in a nonprofit, the mission is the bottom line. If you think of your community as your shareholders, achievement of your mission is the shareholder value that you’ve promised to deliver. However your nonprofit has committed to making the world a better place – by filling an unmet need, solving an important problem, creating new knowledge, or by increasing the level of joy or beauty for the people who live here – everything your nonprofit does should be measured against how well it is fulfilling that mission.

Don’t under-capitalize.

Successful nonprofits also need the financial and other resources to get the job done. So while you focus on the mission, don’t forget to ensure that your organization has a well-developed capacity to obtain the resources it needs to keep moving forward. The fewer staff you have, the more likely that you, a leadership volunteer, will play a critical role in obtaining those vital resources.

Do your homework.

You wouldn’t think of starting a new company or making a major business decision without quality research to inform your decision. Yet, many nonprofit board members are tempted to make decisions based on their personal feelings or individual experiences. Do your research. Don’t conjecture. Seek out best practices and benchmarks. Keep up-to-date on issues affecting both nonprofits and your charitable mission. Ask for time at board meetings for education as well as action.

Share what you know.

Just like your business, your nonprofit needs your skills as an entrepreneur, a resource-getter, a strategic thinker, a people-motivator, or an organization builder. That’s why they recruited you. Apply those talents to your work on the Board.

Ask board leadership for your job plan and annual performance measures.

Just as you provide your employees with job descriptions and clear expectations for performance, you should expect the same of your board. What is it that you have committed to? What will you achieve during your term of office? What are your personal priorities? What resources do you have to work with? What relationships are critical? What are the limits of your position? How will you be evaluated?

Be serious about legal matters.

It’s tempting for volunteers, especially in all of those tiny organizations, to think – “those rules don’t apply to our little local agency.” Whether you are a $100,000 or $100 million nonprofit, you are similarly bound by federal or state statutes.

Do you know your legal responsibilities as a director? Do you understand the federal, state and local regulations governing your nonprofit? Be vigilant about these matters. You may expose yourself to personal liability if you are negligent or willfully violate the rules.

Hold core values of stewardship and ethical behavior.

The nonprofit sector depends on the trust and confidence of the public for its existence. When a nonprofit violates that trust, it places the whole sector in danger of losing the unique privileges afforded to tax-exempt organizations. Nonprofits survive because they have promised the public that they will use their resources wisely for the community good and not for personal gain – the essence of stewardship. It’s easier to be ethical when you’re committed to wise stewardship.

Combine an entrepreneurial attitude with patience.

In their study of high performing boards, the international consulting firm of McKinsey & Company report that nonprofit leaders tell us that “when boards… devote time to providing expertise, helping managers get access to people and resources, and building managerial capacity, their organizations benefit the most.”

At the same time, McKinsey and Company stated in a report on nonprofit capacity building that “almost everything about building capacity in nonprofits (and in for-profit companies) takes longer and is more complicated that one would expect.” Entrepreneurship and patience are important virtues.

Last, but definitely not least, be courageous.

It is not easy to be a good board member. It’s hard to rock the boat or risk offending business colleagues by asking questions that everyone else seems to be dodging, or by insisting on right but difficult courses of action. Even setting goals takes tremendous courage. But nonprofits need, no, they require the courage of board members. As Dr. Martin Luther King Jr. said, “the time is always right to do what is right.” It’s just not always easy.

Good luck. Enjoy your board service.

Why Nonprofits Don’t Raise More Funds

“Cash is King,” they say. Sooner or later, nonprofit organizations need to raise funds because funds are the lifeblood of their existence and ability to fulfill their missions. On this much we probably agree.

And we have been blessed. How can we complain when in 2007 Americans gave a record $306.4 billion to nonprofit causes? Charitable giving in 2008 will likely be higher. It’s a wonderful record of generosity unequaled by any other country in the world.

But still, we all know too many nonprofit organizations struggling along on shoe-string finances. So the question is, in a nation so wealthy and so demonstrably caring why don’t nonprofits raise more funds?

The answers are not rocket science, not magical mystery, not happenstance, not “out there beyond our control.” No, while it may be hard medicine to swallow, nonprofits must take responsibility. It’s a bit like Abraham Lincoln saying everyone over 40 is responsible for his or her own face. In other words, our life is there for the making. The choices we make and the choices nonprofits make have consequences. The answers to our fundraising question are rooted in a number of basic things nonprofits all too often don’t do.

So again, why don’t nonprofits raise more funds? Nonprofits don’t raise more funds because they…

  • Don’t ask. Incredible as it may seem, nonprofit leaders who never ask for support are more common than you might think. They’re nice people, but they don’t pull the trigger. Experienced major donors repeatedly tell stories about organizations that interested them but never approached them for support. Maybe the nonprofit hinted it wanted help, maye the CEO entertained the possible donor, or maybe the organization invited the prospect donor family to organizational events, but no one ever popped the question, “Will you help us with a gift of X amount?” So the nonprofit has not because it asked not.
  • Don’t develop a plan. To raise funds you must develop a plan (a written, workable strategy based upon proven principles and processes), and then you must work the plan. This is true whether it’s a boom or bust economy. Sure, during bear markets people tighten their belts and giving is sometimes affected. But one thing we’ve learned over time. Nonprofit fundraising success is more about having a plan and working the plan than it is about the economy.
  • Don’t get the organizational CEO involved as the chief fundraiser. Donors want to meet the person responsible for spending their money and completing the project. They want to meet the person who casts the vision, and who better to do that than the CEO? But amazingly, nonprofit CEOs who avoid fundraising like the plague may be found in every community in the country. Staff members or volunteers can sometimes conduct a campaign without significant involvement of the organization’s CEO. But this only happens when a staff member, volunteer, or board member emerges as in essence a surrogate leader. And even then, the CEO’s absence or half-hearted participation reduces the likelihood of successfully completing the campaign.
  • Don’t develop relationships with their constituents. Nonprofits struggling for funds have generally missed the first law of fundraising: get to know your supporters and potential supporters. People want results from their favorite nonprofits, but they want more than that. They want an emotional bond, a connectedness or involvement, maybe affirmation. People want to be part of something meaningful. Nonprofits too often miss this, crowing about their own accomplishments but forgetting to acknowledge the achievements or the afflictions of their supporters. Nonprofits would do well to understand their constituents’ values, needs, and interests. Money follows the heart.
  • Don’t develop relationships with the right constituents. Some 80% of funds generally come from 20% of your donors. This is an old rule of thumb that’s now morphing to 90/10. Most of the funds you need will not come from direct mail campaigns, email blasts, phonathons, car washes or bake sales, golf outings, or free will offerings. Most of the funds your nonprofit could use will not be gifted from businesses or foundations. Most of the funds you need are in the hands of higher net worth individuals or families-real people with real priorities and real problems and real potential, just like the rest of us. En masse approaches don’t work. Get to know the person.
  • Don’t engage governing board members in actively promoting, networking, and fundraising for the organization. Fundraising efforts sans trustees work with one hand tied behind their backs. Trustees or directors need to “Give, get, or get off.” Nonprofits are not being mercenary when they recruit board members with “Work, wealth, wisdom, and witness” in mind. Being a trustee is an honor, but that’s not really what the appointment is about. Being a trustee entails a willingness to work for the nonprofit, give according to ability, share personal and professional expertise, and speak for the organization in the community. Uninvolved, non-giving boards are recipes for organizational decline and fundraising disaster.
  • Don’t spend money to raise money. Whether budgeted in operations or included in the amount to be raised a fundraising campaign costs 5% to 12% of the goal. The Better Business Bureau sets 35% as an upper limit. Nonprofits cannot raise funds without investing in the process-in professional counsel, in a plan, in development personnel (staff to assist the CEO in fundraising) and personnel development (training on how to solicit support). Nonprofit boards that pinch pennies when it comes to fundraising soon won’t have many pennies to pinch.
  • Don’t recognize the reality of competition. About 1.5 million nonprofit organizations are at work in the United States on religious, educational, humanitarian, medical, or other public causes. According to the National Center for Charitable Statistics that total represents an increase of 36.2% in the past ten years. So while a nonprofit can reasonably expect to find a receptive audience to its pleas for assistance it also must compete with many similar organizations asking for support. Like competition in any other endeavor this puts pressure on nonprofits to distinguish themselves and to learn to state succinctly what makes their organization special and worthy of support. If they don’t, sooner or later they’ll come up “a day late and a dollar short.”
  • Don’t develop excellent programming. While everyone can think of a shoddy organization that somehow survives, still, quality matters. This is especially the case for higher net worth prospective donors. They can afford and they regularly purchase quality in their own lives and they expect it in the organizations they’re asked to support. Nonprofits that use lack of funds as an excuse for lack of excellence create their own self-fulfilling prophecies. No matter how limited a nonprofit’s funds may be, it can still do what it chooses to do as well as it possibly can do it. There is no defensible excuse for lack of a commitment to excellence-at least there’s no excuse a donor prospect will accept.
  • Don’t talk about something other than their need for more money. Nonprofits interested only in acquisition soon find themselves alone. This point doesn’t contradict the need to ask. It just recognizes that donors yearn to be approached with more than an ask. We’re back to relationship and vision. Raise donors and prospective donors’ sights. Talk about plans, solutions, and success stories. Tell prospective donors why and how their support will make a difference. Create hope for something better and funds will come.
  • Don’t develop an ethically impeccable record. Lose trust today and lose support tomorrow. Nonprofits known to have misused or misapplied funds can forget about successful fundraising until the problems have been rectified, apologies made, and new practices put in place. Set in motion highly accountable, highly accessible, highly admirable financial and operational systems. Be above reproach. Ooze integrity.
  • Don’t understand the role of fundraising consultants. Fundraising consultants cannot typically, practically, or ethically act as conduits to wealthy donors. Besides, name-dropping doesn’t work anyway. Nor can consultants guarantee fundraising efforts will be successful. But experienced fundraising consultants can help nonprofits sort issues, put a development plan in place, and encourage nonprofit leaders, partnering with them and increasing their productivity. The highest achievers in politics, athletics, the arts, and business all hire coaches. They want to be the best, so they look for the edge a coach can provide. So should nonprofits.
  • Don’t recognize they no longer have a viable mission. Nonprofits sometimes outlive their usefulness and astute donors are often the ones who recognize this fact before it’s acknowledged by personnel or board members. The reason is that donors don’t usually give their money to lost causes, and they’re not generally as vested as those who work within or lead an organization. It’s never easy to allow a beloved nonprofit to die a death with dignity, but sometimes that’s what ought to happen. Donors withdrawing support is one way this natural process takes place.

The times, the economy-circumstances can affect a nonprofit organization’s ability to raise funds. But mostly, nonprofits don’t raise more funds because of things they don’t do.

This is actually good news. It means a nonprofit’s ability to raise more funds is not a matter beyond its control. Your nonprofit can raise more funds if it chooses to do so by taking certain action steps. So be encouraged. You can, indeed, attract more money for the mission. The choice is yours.

Start a Nonprofit: Support Is the Key To Success

There are only a couple of ways in which to start a nonprofit organization. One is through incorporating a nonprofit corporation, then filing for tax-exempt status through the IRS and the other is Fiscal Sponsorship. When starting a 501c3 nonprofit, many put a tremendous amount of emphasis on which process is right while assuming one is more robust than the other. That is a terrible assumption as both ways of creating a nonprofit work well. However, several factors which most forget to give emphasis to is the ease of running the nonprofit, access to answers and expertise, and continual support. Many times the success of the nonprofit depends on the expert help the nonprofit has access to. Read on and I will explain.

Donors are not going to care whether a nonprofit is an independent 501c3 or a Fiscally Sponsored one. The majority of the time, a Fiscally Sponsored nonprofit is going to be easier and much less expensive to set up. If a nonprofit is completely determined to be an independent nonprofit there is always time for that, but can operate the first several years through Fiscal Sponsorship easier. The more important factor to consider is whether the people running the nonprofit know how to run and fund a successful nonprofit. If not, then it is important to align the nonprofit in the beginning with experts that can lend expertise and help in making the nonprofit a success.

Many times if the nonprofit is set up through Fiscal Sponsorship, the sponsoring organization provides 100% support and training for the nonprofit in all the aspects it needs to be successful. The Fiscal Sponsor wants the new nonprofit to be successful and therefore fully supports any training needed to learn to run a successful nonprofit. It is even common for Fiscal Sponsors to include all the nonprofit’s accounting, banking and other ongoing paperwork, affording its staff more time to work on fundraising and programs.

In contrast, when creating an independent 501c3 nonprofit, there is no one on which to rely for expertise or support. Finding expertise and answers can be costly and mistakes can be disastrous to the nonprofit. Accounting will have to be learned or hired out to a CPA. The learning curve can be steep and operation cumbersome until the staff becomes experienced. For those not experienced in running a nonprofit or even a business, it is wise to have good support and help during the first several years.

In summary, ongoing support and easily accessible expertise is a good reason to consider Fiscal Sponsorship when starting a nonprofit. There is always time to switch to an independent nonprofit months or even years down the road once the nonprofit is off to a good start. However, most find that there is no real advantage in switching a nonprofit to an independent 501c3 once the nonprofit is successfully set up through Fiscal Sponsorship.

Learn more about Nonprofits and How to Make them Successful. Copyright 2011 Scott Michael Ringo