Forum's members, drawn from business, federal and provincial governments, the voluntary ... Aaron Good for supporting th
Adapting and Thriving
INNOVATIVE PRACTICES BY SMALL AND MEDIUM NONPROFITS EMERGING FROM THE ECONOMIC DOWNTURN
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Public Policy Forum Building Better Government The Public Policy Forum is an independent, not-for-profit organization dedicated to improving the quality of government in Canada through enhanced dialogue among the public, private and voluntary sectors. The Forum’s members, drawn from business, federal and provincial governments, the voluntary sector and organized labour, share a belief that an efficient and effective public service is important in ensuring Canada’s competitiveness abroad and quality of life at home. Established in 1987, the Forum has earned a reputation as a trusted, nonpartisan facilitator, capable of bringing together a wide range of stakeholders in productive dialogue. Its research program provides a neutral base to inform collective decision making. By promoting informationsharing and greater links between governments and other sectors, the Forum helps ensure public policy in our country is dynamic, coordinated and responsive to future challenges and opportunities. © 2011, Public Policy Forum 1405-130 Albert St. Ottawa, ON K1P 5G4 Tel: 613.238.7160 Fax: 613-238-7990 www.ppforum.ca ISBN: 978-1-927009-13-0
About this report
The nonprofit sector is integral to advancing many aspects of Canadian society, from arts and culture to sports and recreation to health, education, and even business and professional associations. Fortunately, Canada can proudly boast one of the world’s largest and most impactful nonprofit sectors. However, despite the vital role which nonprofits play, many organizations face ongoing challenges. Many struggle to survive. Small and medium nonprofit organizations face, perhaps, the greatest stress in the sector. In challenging economic times, such as the one that we have recently experienced, some might consider smaller nonprofits to be a “species at risk” – one in need of special attention to sustain and grow. Many of these small organizations are, however, nimble, innovative, and resourceful. They successfully respond to pressures. Many are adapting and thriving. Through this study, the Public Policy Forum examined both the challenges facing small and medium nonprofits in Canada and the promising practices that they are adopting. Over the past several months, the Forum conducted a survey and a series of interviews with nonprofits that have been particularly successful in grappling with challenges. In consulting with these organizations, we identified a series of innovative practices that have contributed to their success and a few suggestions for governments and other funders to help more organizations adopt some of these practices. We believe these innovative practices and recommendations will be useful to nonprofits that are navigating their own unique challenges, and to those that support the sector. The Public Policy Forum thanks our partners The Wellesley Institute, SiG@MaRS and the Ontario Arts Council for their support for this project and for the sound advice that they provided. Without their support, this project would not have been possible. I especially want to thank my team for their hard work and dedication, including Lee Allison Howe for conceiving of and developing this project and Crista Renner, Ryan Conway, and Aaron Good for supporting the research and drafting the report. We look forward to continuing to work with our partners across all sectors to help advance this important work.
David Mitchell President and CEO Public Policy Forum
Introduction
The Nonprofit sector is critical to the well-being of Canadians Canada’s nonprofit sector impacts almost every aspect of Canadian life. Nonprofits impact a range of areas including youth development, environmental sustainability, and quality education. They are also the driving force behind arts organizations, local sport and recreation, health care provision, and independent research. There are over 160,000 individual nonprofit organizations in the country, one of the largest nonprofit sectors in the world. Most importantly, the nonprofit sector provides essential and transformative services in every province and territory across Canada. Without nonprofits to fill these vital roles, quality of life for many Canadians would likely diminish. The nonprofit sector employs over 2 million Canadians, accounting for 12% of the economically active population. Volunteers contributed 2.1 billion hours in 2007, equivalent to over 1 million additional fulltime jobs. The sector is a significant component of the economy. Nonprofits in Canada generated more than $100 billion in economic activity in 2007 (7% of GDP) 1. While some nonprofits are large and well known, most are small. Over 80% of them have less than $500K in revenue2 and fewer than five full time employees. While this report focuses on these smaller nonprofits, many of its findings may be equally applicable to larger organizations in the sector. Nonprofit organizations are facing an increasing number of challenges. Despite the fundamental role that nonprofits play, many face significant organizational and operational challenges.
According to Imagine Canada’s February 2011 Sector Monitor, 22% of charities consider themselves to be ‘at risk’. While this represents an improvement from the 29% reporting that they were ‘at risk’ in summer 2010, it remains concerning. Based on Public Policy Forum and other research, nonprofits are experiencing four key challenges: 1. Increased demand for services as economic conditions decline, the population ages, and government services are reduced. 2. Pressure on revenues as government budgets are frozen or decline, foundation endowments and giving has decreased, and individual donors have become less stable, and subject to changing priorities. 3. Increased accountability and transparency requirements from funders, and a greater need to measure and demonstrate impact. 4. Challenges in meeting staffing and leadership needs as individuals retire and budgets are stretched. Small and medium sized nonprofits are particularly impacted by these challenges3. High performing nonprofits are effectively adapting to address these challenges Addressing these challenges during the last three years has forced many small and medium nonprofits to reevaluate how they work. Some organizations appear to be doing relatively well – they are adapting and thriving.
Michael Hall, Change is in the Air: The Economic Realities of Canada’s Nonprofit Sector, The Philanthropist, Vol. 23-1, 2010 2 Statistics Canada’s National Survey of Nonprofit and Voluntary Organizations (2003). 3 Imagine Canada’s Sector Monitor, Vol. 1, Issue 3, Feb 2011 2
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Through this study, the PPF identified successful organizations and examined how they are adapting to address challenges. We asked experts to identify successful nonprofits with budgets under $500,0004 and disseminated a survey to 110 organizations from across the nonprofit sector. Based on survey responses, we conducted 22 in-depth interviews with leaders from high performing organizations and with sector experts. Interviewees were selected to provide a balance in representation by area of focus, approach, and geographical region. Specifically, we conducted interviews within the arts and culture, social service, and environmental nonprofits in Ontario, and with a sampling of organizations in Western and Atlantic Canada. All of the organizations surveyed had fewer than 30 employees, and 75% had fewer than five. Three quarters of the organizations had been operating between six and 25 years. The successful organizations studied have adapted to challenges. They have experienced:
Increased demand for services More than half of the study participants have experienced significant demand increases. Shifting demand driven by a weaker economy, an aging population, and reductions in some government services has forced them to innovate and augment their capacity, either through growth or strategic partnerships. Some have added or expanded programs. Others have developed partnerships to meet demand.
funding, nonprofits must tailor the nature and number of their activities to funding levels and key priorities.
Heightened demand for transparency, accountability, and communication of impact The administrative burden of some types of funding requires additional skills and attention. This is particularly challenging for small nonprofits that operate with minimal, or no, paid staff. Meeting funder data requests with existing staff levels was a common issue highlighted in interviews. For some, meeting this challenge has required new skills, structures, and a clearer plan.
Challenges recruiting and retaining skilled staff to lead and strengthen organizations 40% of respondents cited staff shortages as a key challenge to furthering their mission. Staff shortages are driven by a confluence of challenges in recruiting staff, including: an increased need for management skills, decreasing budget flexibility, retirement of longstanding staff, and greater competition for new staff from other sectors. One respondent noted that, “It used to be you either sold out, or you lived your values for less money. Today’s emerging social sector leaders want to both make an impact and have financially rewarding work.” The pressures of these shortages are forcing many nonprofits to reevaluate their management and governance structures.
Less stable revenue from funders 40% of respondents report stagnant or declining revenues from governments and other funders. As governments address growing deficits and mounting debts, it is becoming increasingly difficult for them to maintain or increase funding to the nonprofit sector. As grants from government and other sources move increasingly from core-operating support towards less stable project-related
Partners included the Ontario Trillium Foundation, The United Way of Greater Toronto, The United Way of Ottawa, and Community Foundations of Canada, The Wellesley Institute, SiG@MaRS and the Ontario Arts Council.
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Innovative practices among small and medium nonprofits Each organization examined is adapting to these challenges, and most are thriving. At least three quarters of organizations surveyed have an optimistic outlook. 42% believe that they are ‘better than two years ago’, and another 33% reported that they ‘have never been better’. Their recent responses to challenges contribute to their optimistic outlook. Almost 90% of organizations surveyed have made significant changes during the last three years to address pressures that they were facing. While changes were tailored to individual organizations, almost all study participants believe that others can learn from, adapt, and apply the strategies that they have successfully implemented. The leaders highlighted five key innovative practices that have contributed to their success, including: 1. Developing a clear strategy to generate impact 2. Building strong governance and leadership capacity, and systems to deliver 3. Measuring and communicating their impact 4. Leveraging external partnerships to reduce costs and increase impact 5. Developing new sustainable revenue sources
Developing a clear strategy to generate impact Greater needs and less stable funding require an even greater focus on what an organization aims to achieve and how they will do it. Almost 65% of the outperforming organizations surveyed developed a new strategic plan that articulates a clear and measurable strategy to generate impact. Others have also become much clearer about their goals and means of achieving them without a formal plan. Strategic focus was highlighted as a key success factor byseveral informants. “You have to know yourselves and 3
what you are capable of and where you want to go,” explained one individual. Remaining cognizant of the organization’s overall vision, and its goals and services objectives, should be an integral part of nonprofit operations.
“You have to know your plan and what you are going to accomplish. You need to understand how you will impact people’s lives. You need to know what you do well and then figure out what you do best.” Understanding, aligning, and leveraging an organization’s core competencies is often required for it to deliver results. One informant noted that “You need to know what you do well and then figure out what you do best.” Small and medium nonprofits, in particular, must keep their focus on their strongest potential to generate impact. Overall impact goals should be strongly linked to the organization’s core mission. Others note that it is essential to resist the temptation to take on project funding that may cause an organization to drift from its core mandate.
Building strong governance and leadership capacity, and systems to deliver Successful organizations are focused on leadership. Over 40% of respondents have taken specific action to develop their boards of directors and almost 20% substantially changed their professional leadership. Several interviewees highlighted the importance of an active board that brings critical skills to their organization. Some successful organizations recruited new board members with technical, financial, and fund raising skills that have contributed to their success. In the words of one interviewee, “The worst thing that an organization can do is to end up in a situation where the Executive Director has all the information and the board is under-engaged and under-leveraged”. In this situation, the nonprofit is under-
utilizing a valuable resource. It is critical for nonprofits to foster active board governance in conjunction with the leadership of professional CEOs. Several organizations surveyed have changed their executive leadership by hiring new Executive Directors. In most cases, the new leaders brought general management skills to their organization in addition to their interest and experience working on the nonprofit’s mission. While subject area expertise and relationships are important, they believe that these management and leadership skills are critical to an organization’s success.
them and their organizations. They noted that small and medium sized nonprofits often lack the financial resources to pursue intensive professional development, or to retain outside advisors. A support network for Executive Directors and/or a resource centre for the voluntary sector were suggestions to help support professional development. These approaches could enhance the connecting tissue throughout the sector, support the sharing of best practices, and help to proliferate successful new funding models by improving the ability of nonprofits to identify opportunities for strategic partnerships.
Improvements to governance and leadership capacity serve to enhance the overall business practices of the organization as leaders with strong management skills develop their organizations, processes, and systems. Almost 45% of informants link their recent success to a greater focus on staff development and almost a third cited the development of new business practices. As one informant remarked, “Embrace your goals and vision with passion, but always ensure there is business rigor to back them up”. Strong management extends to financial management. Almost every participant highlighted the importance of cost savings. They focused on reducing expenses, leveraging resources, finding operational efficiencies and improving the board’s financial knowledge. Leaders also indicated efforts to adopt new technology. Appropriate use of technology can increase operational efficiency, improve program effectiveness and generate greater impact for each dollar.
Measuring and communicating their impact
“We need processes. We need to move from an entrepreneurial stage to professional management systems that are foolproof which includes structure at a board level and the advisory board level.” To further improve business practices, many leaders cited a need for increased mentorship opportunities and professional supports. Several executive directors actively sought out mentors, particularly those with financial skills, who could help bolster their business capacity. While a few good professional development programs were identified, informants highlighted a desire for more training and coaching in fostering professional development for
Many successful organizations are using the metrics in their strategic plan as a framework to track and communicate their impact. Executive Directors consulted highlighted the importance of clearly articulating the benefits achieved by the organization. This communication is essential to building a community of support with donors and funders, stakeholders, volunteers, audiences, and program participants. Leading nonprofits are developing creative strategic marketing and outreach strategies to engage specifically targeted community support and volunteers. The use of social media tools such as Facebook has also helped nonprofits to build communication networks and to recruit support. The majority of organizations studied have implemented formal evaluations (e.g. balanced scorecard). Some have used consultants to develop and train staff on tracking and evaluation. Most seek evaluations from clients/ participants and some also seek ongoing feedback from funders and other stakeholders. While most organizations have improved their evaluation skills, several executives highlighted the need for more training and professional development in this area. Communicating impact is particularly important when nonprofits are under increased scrutiny. One expert offered the following example. When an international disaster occurs, there is invariably a story on how aid money administered by nonprofits is being spent. Organizations must be prepared to answer these questions and to demonstrate their value through clear, concise communication of metrics that focus on the impact they are achieving. 4
Leveraging external partnerships to reduce costs and increase impact Almost 70% of organizations studied developed new partnerships to reduce costs and/or enhance their impact, and 80% believe partnerships are critical to their success. Some partnerships are focused on driving greater impact. Organizations interviewed have partnered on events, programs, and their corporate functions. For example, some organizations interviewed have actively sought to harmonize mandates with other local nonprofits in order to avoid unnecessary program duplication. Others are coordinating programs to ‘piggy back’ one program on another so as to target similar individuals. One informant noted: “In a small city, it is important to coordinate among nonprofits. We have developed a common arts calendar and we work on some activities and events together. We have regular monthly meetings and we look at opportunities to work together.” In some cases, organizations should consider mergers in order to decrease costs and increase impacts.
“Not every new idea needs a new organization.” Other partnerships help contain costs. Shared office space, and procurement and IT platforms serve to lighten corporate overhead on small nonprofits. Partnerships highlighted included sharing locations or services (e.g. accounting, training) and joint planning or marketing. They also include working with other nonprofits to hold one annual general meeting or volunteer appreciation day for two or more organizations. Study participants believe that multi-sectoral partnerships can ignite exciting new models that combine business skills for added impact without having to create a new organization.
Developing new sustainable revenue sources Almost 60% of organizations surveyed have developed new revenue sources. Many highlighted the benefits of diversifying their revenue sources through social enterprises and new fundraising approaches to reach potential funders (e.g. social media). One study 5
participant explained that nonprofit organizations “Can and should constantly explore ways to generate revenue while achieving impact”. Revenue generating models highlighted include training individuals who have experienced difficulty finding work and selling the products or services that they produce (e.g. bakeries, yard work). Others include selling products or services that foster environmental sustainability (e.g. bicycle parking valet service at festivals).
“Embrace your goals and vision with passion, but always ensure there is business rigor to back them up.” Many leaders consider their entrepreneurial spirit to be a key success factor. Almost two thirds of successful organizations considered themselves to be entrepreneurial and keenly engaged in developing new partnerships and revenue sources. Almost every leader interviewed highlighted calculated risks that led to their successful navigation of the economic downturn. Leaders stressed that nonprofits should ‘think like businesses’ to creatively experiment with revenue opportunities. As executive explained, “You need to experiment and get outside the status quo, [and] seize opportunities.” Others explained that funding must be rooted in a strong business model: “This was started as a NFP but it was focused on how to make money to achieve our mission.” While the importance of developing new funding models cannot be understated, nonprofits should also recognize that the development of a social enterprise is not, in itself, a cureall for funding issues. To succeed, social enterprises should be mission driven and grounded in solid business plans.
Conclusions and recommendations Nonprofit organizations contribute substantially to improving the lives of Canadians. Many nonprofits are, however, facing new and enduring challenges, including increased demand for services, unstable funding, new administrative requirements, and difficulty finding and retaining staff. Despite these challenges, many small and medium-sized nonprofits are successfully adapting. Some are thriving. The organizations studied believe that others can learn from their success by applying some of their practices. They also believe that funders can help them to adapt and succeed. Based on our research, successful organizations offer very specific advice to small and medium nonprofits and to funders. They also offer a range of suggestions to funders on how they can directly help organizations implement the advice and how they can support networks and enabling organizations to drive systemic approaches that will help many non-profits: Develop a clear strategy for impact Nonprofits • Set impact goals that are strongly grounded in the organization’s mission. • Define how goals will be achieved, and align resources and processes around that strategy. Funders • Articulate the impact that they seek to create through their grants and donations. • Directly support nonprofit strategy and organizational development required to achieve impact goals. • Support organizations and networks that help nonprofits develop and execute strategies for impact. Invest in strengthening governance, professional leadership, and organizational capacity to implement the plan Nonprofits • Fully leverage the skills of board of directors in the overall management of the organization and fundraising.
• Recruit and develop Executive Directors with the professional management skills required to run the organization. • Adopt professional management practices throughout the organization. • Assess required skills and leverage opportunities for professional development for executives and board members. Funders • Support organizations to develop and leverage their boards to better fulfill their impact objectives. • Support networks for nonprofit leaders to share best practices, and support affordable professional development workshops for executive leaders and boards. Measure and communicate impact Nonprofits • Integrate the measurement and communication of impact into daily operations. • Use a range of approaches, including social media, to reach and build a community of supporters, funders and volunteers. Funders • Support organizations in measuring and communicating their impact. • Streamline reporting requirements to focus on a few key impact metrics. • Encourage nonprofits to explore opportunities for strategic marketing partnerships. Leverage strategic partnerships Nonprofits • Explore opportunities to share corporate services including space, information technology, receptionists, and accounting. • Coordinate with other nonprofits on strategic delivery of services. • Coordinate on fundraising activities and events (e.g. volunteer appreciation events). • Consider potential mergers
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Funders • Provide the necessary infrastructure, resources and support to enable collaboration – including the physical space and the expert personnel who can help facilitate inter-organization partnerships. • Recognize that effective collaboration requires sufficient support, commitments of time and resources. It is not an immediate means for nonprofits to do more with less.
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Develop sustainable funding models including social enterprises Nonprofits • Seek opportunities to diversify revenue sources (e.g. through social media). • Explore funding models that generate revenue while advancing their mission (e.g. social enterprises). Funders • Support the development of new sustainable funding (e.g. social enterprises).
The Public Policy Forum would like to thank the following organizations for their support of this study:
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Study participants
We would also like to thank the following organizations for their assistance: 10 Carden Street 21 Inc. BEST Black Community Action Network of Peel Carshare Community Arts and Heritage Education Project David Busby Centre Definitely Superior Art Gallery Diaspora Dialogues Eco Superior Environmental Programs Editions Prise de Parole Friends of Fort Erie Creeks Friends of Hospice Ottawa Guelph Jazz Festival Hospice Muskoka Huronia Foundation for the Arts Imagine Canada Jumblies Theatre
Multifaith Housing Initiative Music and Film in Motion (MFM) North York Women’s Centre Ontario Trillium Foundation PEACH - Promoting Education and Community Health Queen of Puddings Music Theatre Co Remix Project Rotary Club of Stratford SiG@MaRS Simcoe County Communities Foundation Summerfolk Festival SWITCH Thames Talbot Land Trust Toronto Neighbourhood Centres Wasaya WeeCheeWayWin Incorporated Wellesley Institute Windsor Classic Chorale
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