YOUR GO-TO GUIDE FOR RUNNING A

NONPROF IT ORGANIZATION

July | August 2015Volume 1 Issue 6

July | August 2015Volume 1 Issue 6

PUBLISHER/ EXECUTIVE DIRECTOR Randy Hawthorne

MANAGING EDITOR Lyndsey Hrabik

SENIOR EDITOR Lincoln Arneal

ART DIRECTOR Melissa Ward

INFOGRAPHIC DESIGN Devin Thomas

COPY EDITOR Shannon Wilkinson

CONTRIBUTING EDITOR Matt Spitsen

CONTRIBUTOR Nick Small

HOW TO BUILD YOUR NONPROFIT’S CULTURE (ONE BRICK AT A TIME) by Randy Hawthorne

MYTH BUSTERS: WHY DONORS SHOULDN’T RELY ON THE OVERHEAD RATIO by Lincoln Arneal

DISPELLING THE OVERHEAD MYTH [INFOGRAPHIC] by Devin Thomas

THE BUSINESS MODEL: HOW YOUR NONPROFIT CAN OPERATE LIKE A BUSINESS (AND OWN IT) by Lyndsey Hrabik

WHAT’SINSIDE: p.3 p.6 p.8 p.11

What a crazy first half of the year it has been. That’s right, half of 2015 is already over. At the beginning of January, the Nonprofit Hub staff moved into a

new building that offers coworking opportunities for nonprofits (lincoln.nonprofithub.org).

Although we’ve been in the nonprofit world for quite awhile, it was still a big challenge for our team. The topics we’re covering to help our readers—we deal with the same things! That’s why we wanted to dedicate an entire magazine issue toward operating your nonprofit. We know it isn’t always a breeze.

It’s nearly impossible to be 100% focused on your mission when you’re trying to make sure you’re making ends meet, focusing on general operations and just trying to stay sustained overall.

That’s why this issue discusses how running your nonprofit like a business could help you sustain your organization (p. 3). We’re diving into nonprofit culture and how that defines your brand, the people working for your organization and your org’s DNA (p. 6). And last but certainly not least, we’re talking about one of the most debated topics as of late in the nonprofit sector—the overhead myth (p. 8).

If we can help make operating your nonprofit run more smoothly, you can get back to focusing on making your mission happen. And that makes us incredibly happy.

LYNDSEY HRABIK MANAGING EDITOR

EDIT ORLETTER FROM THE

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HOW YOUR NONPROFIT CAN OPERATE LIKE A BUSINESS (and absolutely OWN it)BY LYNDSEY HRABIK

THE BUSINESS MODEL:

We’re all money-chasers in this world. The difference between businesses and nonprofits is what we decide to do with that money.

Think about it—if a nonprofit is doing good but not making much money, they won’t be able to exist for long. When it comes to businesses, they know a thing or two about sticking around for good. Let’s talk about some ways you can run your organization like a business while still maintaining that nonprofit image.

STARTING OUT: OTHER OPTIONS

When starting a nonprofit organization, it’s important to first determine if there’s a need for your mission. Ask yourself if

anybody is already doing what you want to do. Once you’ve determined a direct need exists to form a new venture around your idea, it’s time to decide how you’ll do it.

With the growing options for doing good in the world, a number of do-gooders are opting for B Corporation status instead of 501(c)(3) status. A B Corp does not have a 501(c)(3) status. Instead, B Corps operate as a business and pledge a percentage of their profits, time and resources toward doing good.

B Corps are certified by a nonprofit called B Lab and need to meet certain standards. Those include social and environmental performance, accountability and transparency. B Corps boast the tagline, “people using business as a force for good.” Some

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notable businesses operating under the B Corp model include Ben & Jerry’s and Warby Parker.

While this model works for some people, it’s definitely not for everybody. Your nonprofit can still be a 501(c)(3) and use business practices to operate.

Aiden Livingston is the founder of Casting to the People and author of multiple books, including a guide for the next generation of social entrepreneurs. He talked about the negative stigma around operating your nonprofit with business practices and its falsity.

“A business is not necessarily an evil thing,” he explained. Let’s explore more of what exactly he’s talking about.

BUSINESS PRACTICES—SCALABLE AND

SUSTAINABLE

Organizations are constantly evolving their missions and striving to be better, which is part of the reason Livingston stressed the importance of the ability to grow in the nonprofit sector.

“Being scalable, being sustainable—if anything that’s the thing people need to strive for,” Livingston said. “It’s not a distraction from your mission, it enables your mission. It helps you to do more good for more people.”

Think of it this way: The more scalable and sustainable your venture, the more likely you are to keep moving forward toward achieving your mission. How can your organization strive for these two paths?

Livingston discussed a duality model where organizations separate their donors from their most loyal and dedicated donors.

For example, charity:water tells their donors 100 percent of their donation goes toward their cause because they segment their donors. Public donations are put entirely toward funding water projects, while private donations cover everything from staff salaries to basic office systems to office rent and supplies.

“These (private) donors are some of our most dedicated,” charity:water’s site says. “Their investment fuels our long-term mission, our ability to scale as an organization and our mission to continue using 100 percent of public donations for water projects.”

“ A BUSINESS IS NOT NECESSARILY AN EVIL THING.” AIDEN LIVINGSTON

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In order to make this model work, organizations must have a strong pool of private donors that believe in funding the overhead because they see all of the great things your organization is doing. While it’s not for everyone, it has proven successful for certain organizations. Overhead is necessary for every organization, no matter who covers the cost. See why judging nonprofits solely on their overhead ratio is harmful for the nonprofit sector on p. 8.

PARTNERSHIPS CAN HELP YOU THRIVE

Livingston said nonprofits can partner with businesses to both learn best practices from them and to increase donations.

“Strategic partnerships are definitely something I think are underutilized in the nonprofit world,” he said.

When starting your own partnership, find a business that is interested in the mission of your nonprofit organization. Then decide what kind of partnership works best for both parties. It could be strictly matching gifts, it could be a mentorship partnership for your operations or both.

REMEMBER—WE’RE ALL IN SALES

There’s one last business operation that your nonprofit should pay attention to. Unfortunately in the nonprofit sector, we have sales jobs. It doesn’t sound like what you signed up for, does it? While it may not be the same as a sales job at a for-profit, we still have to sell our organizations. We sell other people on our missions so that they’ll have the same passion we do.

One of the best ways to handle the sales aspect of your job is to learn the best way to tell your story. You truly sell your story when you make a human connection with your constituents. Take some time to look at how some of your favorite successful businesses in the for-profit world are succeeding with their marketing. Most often, you’ll find that they’re telling their stories in a way that connects on a personal level and makes you want to give. Your organization can do the same thing.

* * *

Get out there and make operating like a business work for your organization. Whether that means you decide to become a B Corp, adopt a few best business practices or strike up a partnership and mentorship with a business, get out there and do your best. Business models don’t have to be scary—they can help you succeed.

“ BEING SCALABLE, BEING SUSTAINABLE— IF ANYTHING THAT’S THE THING PEOPLE NEED TO STRIVE FOR.” AIDEN LIVINGSTON

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Company culture isn’t just for startups and businesses; it’s a fundamental part of every nonprofit’s DNA. Your culture helps to define your brand and, in

part, determine the type of people who should be part of your organization.

And to be clear, every organization does have a culture. The question is, did you help to define and build it, or did it just evolve?

Ideally, you want your nonprofit’s culture to be purposefully built. It’s important for every nonprofit to have a set of values and beliefs that define how people do things in the organization. Some people think that company culture refers to workplace perks and benefits—and yes, those things are a part of it. But culture runs deeper than fun holiday parties and free pizza on Fridays. In many ways, your culture is the foundation of your organization. It can impact everything

from your nonprofit’s overall effectiveness to the passion and commitment with which your team works.

Most importantly, it protects and demonstrates the core values you maintain.

If you’ve wondered how to make your culture more focused and in line with what you stand for, here are some steps to take:

• BE SURE LEADERSHIP SETS THE TONE. The first thing your organization needs to do is develop a set of core values that you can both manage and hire to. Do you want to have a culture of teamwork? Then your executive team must truly function as a team. If you want “fun” to describe your culture, then your leaders will need to embrace that value as well. You can’t build an authentic company culture if your leadership doesn’t buy into

HOW TO BUILD YOUR NONPROFIT’S CULTURE (ONE BRICK AT A TIME)BY RANDY HAWTHORNE

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the model you’re trying to create. It will feel like you’re fighting a losing battle, and that’s not fun for anyone.

• ASSIGN AN OWNER. It might sound unnecessary, but your organization needs one person who is directly responsible for its culture. Of course, that person can’t build it on his own, but he can cast a vision and push everyone else in the right direction. Ideally, assembling a small team lead by your “culture owner” will help define and create the type of culture you want to see in your nonprofit. So first step: Find someone who’s a natural leader and passionate about team and culture building.

• LISTEN TO YOUR STAFF AND VOLUNTEERS. Ask them often how their job is going or if they have any suggestions for improvements. Give them an outlet for ongoing feedback and encourage them to communicate openly. Understanding what makes your staff happy begins with getting to know them better—and they are the ones who ultimately will define and carry out your culture in the long term.

• BE SURE THAT YOUR COMPANY’S CULTURE

ALLOWS PEOPLE TO MAKE HONEST MISTAKES. When a mistake is dealt with harshly, it dampens people’s excitement for what they do and makes them fearful to

try new things. This will breed a negative culture. On the other hand, an attitude of acceptance and positivity will encourage risk-taking and camaraderie, and ultimately, a positive culture.

• SHOW STAFF MEMBERS HOW THEIR JOBS

AFFECT THE FINANCIAL BOTTOM LINE. When people understand how valuable their jobs are to the overall success of the organization, they will naturally become more dedicated and committed. If they don’t, then it’s likely they’re not a good culture fit and you may have the opportunity to find someone who is. When you have a well-defined culture, you’ll get good at hiring the people who just seem to fit and embody the same values that your organization does.

Last but not least, communicate. Always. Communicate your values and culture, both internally and externally. In meetings. At events. In emails. Reward employees who advance your culture, and be open and honest with those who don’t. As your organization grows, a culture that’s been purposefully and carefully built will help keep it on track, steer hiring decisions for the people responsible and safeguard your company from spiraling into something you don’t recognize.

And along the way, you may even end up having a lot of fun.

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MY T H BUSTERS:WHY DONORS SHOULDN’T RELY ON THE OVERHEAD RATIOBY LINCOLN ARNEAL

Dilemma: It’s Friday night and you are going out for dinner. Usually the debate focuses on what you’re in the mood for, how much you can afford and who

your dinner companions are.

However, what if the debate boiled down to just one option: whether or not the food was rotten.

Rottenness is not a very useful criteria for picking where to eat, but GuideStar President and CEO Jacob Harold said this scenario happens every time a person chooses to rely upon a nonprofit’s overhead ratio to make a donation.

“Obviously we want to avoid rotten food, but that doesn’t mean it’s the only thing you think about when picking. You also care about things like taste and nutrition,” Harold said. “With nonprofits, all that overhead can do is be one of many data points that can help you weed out the few cases where there really is a problem, but it doesn’t tell you anything about who is excellent.”

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Of all the information reported by nonprofits, overhead, which includes employee payroll, utilities and other operational expenses, is often relied upon by donors too heavily. It’s assumed that the lower the overhead cost, the more effective a nonprofit is, which is just wrong, Harold said.

To counter this belief, GuideStar partnered with Charity Navigator and BBB Wise Giving Alliance on a collaborative project called the Overhead Myth. The project started two years ago when the companies launched a website (overheadmyth.com) decrying the reliance of nonprofits on overhead ratios.

The first step in the project was a letter directed at donors explaining the misconception of solely using overhead to determine the effectiveness of a nonprofit. Harold said overhead can indicate rotten nonprofits, which might involve cases of fraud, but not the impact of their work.

For example, museums have to pay for large (and often valuable) collections, security and insurance. However, the higher overhead rate does not mean a museum is less effective than a food bank at achieving its mission. Sandra Miniutti, the CFO and vice president of marketing at Charity Navigator, said her company has worked since its founding to provide data about charities to better evaluate their performance and project has helped spread the word more.

“(Overhead ratio) is an important metric for donors to can look at, but in a balanced point of view and it should not be taken

as the whole story,” Miniutti said. “Charities have to pay for mundane things like keeping the lights on.

They have to withhold some of your donation to fundraise for the next dollar. That is just part

of the work and without it they can’t have programmatic impact.”

Miniutti said donors should evaluate organizations by examining other financial factors such as:

“ CHARITIES HAVE TO PAY FOR MUNDANE THINGS LIKE KEEPING THE LIGHTS ON. THAT IS JUST PART OF THE WORK AND WITHOUT IT THEY CAN’T HAVE PROGRAMMATIC IMPACT.” SANDRA MINIUTTI

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• Does the charity have a rainy day fund? • Is it growing or shrinking? • Is the organization financially stable? • Do they have good governance practices? • Is their board diverse? • Do they conduct an annual audit?

Harold said the response to the first phase was overwhelmingly positive. Hundreds of blog posts were written about the letter and the CEOs of Charity Navigator and BBB Giving Alliance received a standing ovation when they served on a panel a week after the first letter’s release.

However, the work was not yet finished. Miniutti said the first letter was well received within the nonprofit industry, but it didn’t have the same penetration with donors. In 2014, the three companies issued a second letter—this one aimed at nonprofits asking them to help spread the word about the overhead myth.

If nonprofits don’t want people to rely upon the overhead ratio, Miniutti suggests they provide other information to complete their financial picture.

“We have to come up with a way to look at results,” she said. “Part of that is to encourage institutional funders and individual donors to step up to the plate and pay for that. We may have some bad overhead ratios for a while, while we invest in the tools we need to really do a good job investing.”

Both Charity Navigator and GuideStar are working to help paint a better picture of a nonprofit’s true impact. For example, Miniutti said Charity Navigator is making changes to the financial metrics it uses to rate nonprofits, while GuideStar is overhauling its membership program to encourage more transparency and information sharing with the public.

Part of the problem, Harold said, is that nonprofits send out a billion pieces of direct mail each year that prominently feature the overhead ratio as if it were a proxy for performance. Instead, he encourages nonprofits to use the letters on the Overhead Myth website, which were published under the Community Commons license, meaning nonprofits can use the letters without obtaining permission.

“Nonprofits have an obligation to give meaningful information to their donors,” Harold said. “If they fulfill that obligation, then donors can be satisfied. If they just have a story and their overhead ratio, then we are going to stay stuck in this unhealthy situation that we are in.”

“ NONPROFITS HAVE AN OBLIGATION TO GIVE MEANINGFUL INFORMATION TO THEIR DONORS.” JACOB HAROLD

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As the old adage goes, ‘you need to spend money, to make money.’ Overhead encompasses necessities that continue to fuel nonprofits. However, the misconception is that overhead is negative; that nonprofits should not spend their money on overhead, and instead,should funnel all money toward their mission. Here, we break down what overhead is and what is spent to keep nonprofits open.

Dispelling the OVERHEAD MYTH

50-59¢-10¢ 10-19¢ 20-29¢ 30-39¢ 40-49¢ +60¢

Perceived(What people surveyedbelieve nonprofits should spend)

Money Spent(Cents per dollar)

Reality(What different nonprofits have to spend)

SOURCES: 1.) The Overhead Myth. 2014. 2.) “Survey: Charities Should Spend 23% on Overhead.” The Nonprofit Times. 2012. 3.) “A Board Member’s Guide to Nonprofit Overhead.” Blue Avocado. 2014. DESIGN: Devin Thomas

WHAT S OVERHEAD?

STAFF STAFF T ME

EVENTS MA L NG L STS T STAFF BOARD EXPENSES

MANAGEMENT SYSTEMS

ANNUAL REPORTS

ACCOUNT NG STAFF HR STAFF

$

Administrative Expenses Fundraising Expenses

T ME D RECT MA L COSTS

1

2

Sometimes when nonprofits have higher costs, it means they’re achieving more.

More overhead doesn’t necessarily mean less efficiency.

MORE OVERHEAD

H GHER EFF C ENCY.

HOW MUCH OVERHEAD S TOO MUCH?

Oftentimes,

= 1 percent

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THE MILLENNIAL EDITION

&

&

HOW TO REACH THE

MOST TALKED ABOUT

GENERATION (AND

EVERY GENERATION)

(and how it’s not ALL about them)YOUR ULTIMATE GUIDE

TO SOCIAL MEDIA ON

EVERY LEVEL

THE NEXT GENERATION OF

SOCIAL ENTREPENEURS

AND HOW THEY’RE

AFFECTING CHANGE

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