Summer 2015

Volume 3 • Issue 1

IN THIS ISSUE: 2 Rethinking Financial Sustainability

How to start thinking about sustainability as an orientation, not a destination

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Designing Your Future

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Micro-Enterprise Success

Why design thinking matters in the nonprofit sector

A Q&A with Soles4Souls CEO Buddy Teaster

Volume 3 | Issue 1

Welcome to this issue of NNR EDITOR Susan King

Center for Nonprofit Management

ADVISORY TEAM

Lewis Lavine

Center for Nonprofit Management

Brad Gray

Center for Nonprofit Management

Keel Hunt

The Strategy Group

Rich Rhoda

Tennessee Higher Education Commission

Linda Schact

Nelson and Sue Andrews Institute on Civic Leadership at Lipscomb University

CONTRIBUTORS

Steve Zimmerman

Spectrum Nonprofit Services

Kate Hanisian

Design Impact

37 Peabody St. Nashville, TN 37210 (615) 259-0100 cnm.org For content suggestions, contact Meg Morgan at meg@cnm.org or (615) 259-0100 ext. 304

In today’s economic climate, many nonprofit organizations are searching for ways to become more financially sustainable. Organizations are looking to diversify their funding sources through broader fundraising, more aggressive earned-income efforts, and more creative thinking about revenue sources.

This issue of the Nashville Nonprofit Review is all about financial sustainability. Read from expert and co-author of "The Sustainability Mindset," Steve Zimmerman, as he discusses ways to rethink financial sustainability.

He is reconsidering the common thought of sustainability as a destination and instead considering it as an orientation and a process. Also in this issue, read an introduction to the concept of design thinking and its potential role in the nonprofit sector, and enjoy a profile of a local nonprofit CEO who helped turn around a struggling organization.

We hope you are challenged by the new concepts and opportunities in this issue!

About the Center for Nonprofit Management

Our mission: To create and sustain nonprofit excellence Our vision: Better communities through extraordinary nonprofit services For 29 years, the Center for Nonprofit Management has been a home to Middle Tennessee’s nonprofit leaders. Located in the historic Trolley Barns near downtown, it offers a place to relax, share triumphs and find solutions to problems. At CNM, nonprofit board members, executives and staff have the opportunity to learn how to enhance their services through our comprehensive calendar of skillbuilding workshops, our consulting services and our annual Bridge to Excellence conference. CNM celebrates and recognizes the enormous positive impact made by its nonprofit members through the annual Salute to Excellence awards dinner.

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How to start thinking of sustainability as an orientation, not a destination

by Steve Zimmerman Spectrum Nonprofit Services

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n the recently released “Nonprofit Finance Fund 2015 State of the Sector” report, nonprofit leaders listed achieving long-term financial sustainability as the top challenge they face. (See box on page three) While the unemployment rate, the stock market and other indicators signal an economic recovery, a staggering 76 percent of nonprofits expect an increase in demand for services for the seventh year in a row.

The result is stretched revenue streams and the tenuous financial sustainability of fragile yet crucial organizations committed to building the type of communities we want to live in.

While the current situation may sound dire, financial sustainability has been elusive for decades. Kate Barr of Nonprofit Assistance Fund aptly pointed out in her Nonprofit Quarterly article “Déjà vu All Over Again,”

organizations have been claiming financial sustainability as their biggest challenge for the past 25 years.

Perhaps this is because we’ve been thinking about sustainability incorrectly. From focusing solely on finances to viewing sustainability as a utopia to travel to and stay, it is time to toss these misconceptions aside and update our thinking for today’s environment.

Sustainability typically brings an immediate focus on an organization’s finances by board and staff. However, financial sustainability lies not in a silo on its own, but in recognizing and appreciating the deep interconnectedness between mission impact and financial viability.

Every decision made within an organization affects the ability to both accomplish the mission and remain 2

Nashville Nonprofit Review

financially viable.

The two ideas are of one piece, held together and not independent of one another over time. It requires high impact, relevant programming to engage others in contributing to your financial sustainability either through philanthropic support or earned revenue. Therefore, we need to update our definition of sustainability to encompass both financial sustainability—the ability to meet the needs of the present without compromising the future—and programmatic sustainability—the ability to develop, mature and cycle out programs to be responsive to constituents over time.

Great organizations develop, mature and innovate their mission-specific programs in concert with continuous development, maturation and innovation of their fund development programs. In order for organizations to truly be great at delivering impact, they need to be great at resourcing it. When making decisions, leaders must consider implications to both impact and financial viability—and the return on both aspects.

The second aspect of sustainability to reconsider is that it is something to be solved. Sustainability is spoken about as a destination that, once achieved, generates revenue streams in perpetuity. However, markets, donors and those who pay for services continuously evolve.

There are innovations in services, ebbs and flows in funding and new demands for demonstrated

excellence. Each of these contributes to a changing definition of “what is sustainable?”

Rather than being a destination, sustainability is an orientation, an ongoing evolution of how an organization provides great impact and supports it in a financially viable manner. Revenue streams may come and go depending on the economic and political environment in which a nonprofit operates—just as programs may come and go as new best practices and approaches emerge. Being sustainable is not held in clinging to the status quo, but rather embracing change in a strategic manner that builds upon an organization’s strengths, leverages available resources and addresses community needs.

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Rather than being a destination, sustainability is an orientation, an ongoing evolution of how an organization provides great impact and supports it in a financially visible manner.

Held together successfully, these two aspects of sustainability form a mindset and a way of organizational being that combines both programs and finances and allows for continuous improvement as board and staff execute strategy, observe their market and constituent’s needs, and adjust their approach.

So, what does it take to be

About the 2015 Nonprofit Finance Fund State of the Sector Report

For the seventh year, the Nonprofit Finance Fund surveyed 5,400 leaders from nonprofits nationwide to share the details of financial challenges and opportunities that affect their ability to create positive social change.

Key findings include: In many cases nonprofits are still hampered by insufficient funding and a lack of investment in long-term sustainability. For some, financial health indicators have improved: 47 percent ended 2014 with a surplus, the highest in the history of the survey. However, 53 percent are reporting three months or less of cash-on-hand.

Nonprofits said that top challenges were: • Achieving long-term sustainability (32 percent) • The ability to offer competitive pay and/or retain staff (25 percent) • Raising funds that cover full costs (19 percent) Some of the ways nonprofits are investing in their future include: • 51 percent collaborated with another organization to improve or increase services • 44 percent hired staff for new positions • 33 percent upgraded hardware or software to improve service or program delivery • 29 percent conducted long-term strategic or financial planning.

Review the full report at nonprofitfinancefund.org.

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sustainable?

It requires a group of people—preferably both board and staff—who embrace this mindset and are committed to the hard work of understanding the organization and its business model of what drives impact and finances. But not just any group of people. They need to be able to ask hard questions. Too often in our sector we obscure or duck hard questions because we’re nervous the answers might be an affront to someone’s passion for the mission. The truth is quite the opposite.

Asking whether it is time to end the untouchable programs or questioning whether your organization truly understands the needs of your constituents is one of the essential roles of nonprofit professionals and board members.

Leadership needs to roll up their sleeves, engage in the hard questions and explore answers.

Some of the key questions boards and staff should be asking include:

organization by talking less and listening more.

How do we define impact? The

movement of the philanthropic and public sectors toward funding impact has been well underway for many years now.

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what success is or what a “quality program” looks like can lead to fundamental and deep philosophical discussions about the purpose of the work and the common goal.

How does each program contribute to our impact? At the same time as

defining impact, boards and staff should understand how each program in the organization contributes toward the intended impact. Every program may have value, but not every program has the same value.

In the loud discussion in our sector between direct and indirect costs, we can't forget the simple truth...these are Having a discussion around the all legitimate costs to contribution to intended impact and operate our programs.

For organizations to shift their perspective from raising funds for individual programs to funding the outcomes and impact those programs are contributing to, they must first define the intent of their efforts – or impact. For many nonprofits the conversation defining

whether the organization delivers the program in an exceptional manner are conversations that need to happen more often in a structured manner within nonprofit organizations.

Creating a process for candid open dialogue on these issues is a key

What do our constituents need? The

fine art of listening plays a crucial role in strategy. Numerous planning processes spend too much time internally focused on the wants and desires of board and staff without having adequate representation from or having heard the voices of those served and those investing in the organization. Spending time understanding the needs of the organization’s constituents helps frame opportunities and challenges by those who rely on the organization most. Start on the path toward a more sustainable

Fundraising—not just for individual programs but to the outcomes and impact those programs are contributing to—is one key to e achieving financial sustainability. l

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considered as a first strategy. After all, leadership presumably already understands the pitfalls with existing programs and can mitigate any challenges.

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Asking questions and exploring answers is an important start in the quest toward greater sustainability,

Stay adaptible to the changing marketplace.

ement in assessing which programs lead toward greater sustainability.

What are the true costs ofour programs? Beyond the impact,

board and staff need to understand the comprehensive resources needed for accomplishing impact. This includes not only the program staff salary and direct expenses, but the essential—and too often considered ancillary—costs of evaluation, marketing, storytelling, fundraising, finance and administration. In the loud discussion in our sector between direct and indirect costs, we can’t forget the simple truth that these are all legitimate costs necessary to operate our programs.

Who else is serving our space? The

social issues that most nonprofit organizations seek to address today are complicated and have lasted for generations.

No one organization, working by itself, can accomplish the broad mission and impact that board and

staff desire. Having an understanding of the context in which the organization operates across private, public and nonprofit sectors is essential for impact.

Leadership needs to understand not only the organization’s strengths and core competencies but where other community agencies might have strength and how they can engage and leverage others’ talents for a common goal.

Have we fully invested in our success? It is not uncommon when

looking at revenue strategies that an organization’s best option appears to be the one it hasn’t yet tried. While the grass is always greener on the other side of the fence, there is a cost to not fully understanding the potential pitfalls.

Overlooked in this thinking are the bright spots and competencies that an organization currently operates and could grow. Investing in current successes might not be as glamorous as new options, but needs to be

Static plans are not nimble enough in today's environment ... the three to five-year roadmap doesn't equip leaders with the tools necessary...

but the answers represent the situation at a given point in time.

The world is not static like a snapshot, but rather a dynamic motion picture that continuously evolves.

To position an organization to thrive with relevance, impact, financial vitality and ultimately sustainability, leadership—of which everyone involved with the organization plays some role—must build on the answers and exhibit characteristics of strategic agility, relationship management and candor.

Strategic Agility For-profit industry is often in various states of disruption.

Companies compete for market share, struggle to better understand their changing consumer needs and innovate to drive change. Business models continuously evolve to respond to this changing 5

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environment.

The nonprofit sector is not immune to these external forces with organizational business models also evolving and changing over time.

Strategic planning is meant to address these changes by assessing the environment and preparing a proper response to further the organization’s mission.

But static plans are not nimble enough in today’s environment. The three to five-year roadmap doesn’t equip leaders with the tools necessary to constantly assess their context, learn from implementation and adjust. There is still a need for understanding long term impact, but this needs to be combined with the ability to read the market, understand constituents and be adaptive to take advantage of opportunities and quickly combat threats.

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Having a lens toward impact only works if an organization has a culture that allows for and encourages honesty when assessing effectiveness.

As important as the second word, agility, the first is even more important—strategic.

Jumping at whatever opportunity surfaces will not lead toward sustained impact and, in fact, may diminish the organization’s ability to demonstrate results.

Being able to be flexible while keeping the eye on the long-term goal is a fine art and knowing when to jump and when to pass at an opportunity is an important discussion.

critical tools on the path toward greater sustainability.

Relationship Management

Sustainability lies not in some brilliant solution, but in a sustained effort of engagement, self-reflection, analysis, trust and courage from a group of people who exhibit these characteristics and are inquisitive and unafraid to ask and answer the hard questions.

Working with others is essential for any organization to accomplish impact. Whether board, staff, volunteers, constituents, funders, elected officials, business leaders or others, it is important to have a strong relationship based on trust.

It would be nice but unrealistic to write a piece on sustainability that offered one easy-to-implement strategy.

In order for nonprofits to accomplish their audacious goals, they need to leverage the talents of everyone. This starts with building strong relationships, understanding where others are coming from and keeping an open mind while searching for shared goals and values.

Having candid discussions, making strategic decisions and, perhaps, ditching the status quo for a new, more sustainable future is not for the weak.

Candor and Rigor

If we think of sustainability in this manner, we’ll realize that financial sustainability will always be a top challenge of nonprofit leadership, but one worth continuously exploring to realize our missions and create better communities.

Having a lens toward impact only works if an organization has a culture that allows for and encourages honesty when assessing effectiveness. Inviting rigorous examination and debate with different points of views makes organizations stronger. It is the leaders’ job to encourage these conversations among both board and staff in a non-defensive, nonthreatening manner.

The rewards of relevance, financial stability, deep impact and sustainability, however, are outcomes worth the process.

Steve Zimmerman is the Principal of Spectrum Nonprofit Services, www. spectrumnonprofit. com, and the co-author of"The Sustainability Mindset" with Jeanne Bell.

Candor and the ability to care about the impact the organization is having above all else, while being respectful toward each other, are 6

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Why Design Thinking Matters in the Nonprofit Sector

by Kate Hanisian Design Impact

Ever wonder how online banking became so easy? Or what genius thought of squeezable mayo? Or how great it is that your iron shuts off automatically—even if you forget to unplug it?

There are thousands of invisible efficiencies like these built into our daily lives. They silently make our lives easier, more effective, or in best cases, more joyful. (Maybe you are reading this article from the convenience of your smart phone while sitting in an ergonomic chair, gently tapping your foot on soft, wall-to-wall carpet).

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For example, we can get a package all the way around the world in 24 hours, but still haven’t designed access to fresh fruits and vegetables for our local citizens.

We’re inundated with sophisticated campaigns that get us to buy more clothes, but come in contact with very few that get us to compost.

We can order pizza and have it delivered to our house in less than 30 minutes, but haven’t figured out how to get food stamps to applicants for at least seven days—and most people have to wait for up to 30 days.

You get the drift.

All of these pleasant experiences have something in common: good design.

We can get a

So, what can we do about this design inequality? How can we design package all the affordable solutions to pressing needs?

We know that design can way around the How can we use design to make the dramatically improve products, world in 24 hours, but world a better place—for everyone? services and how people interact still haven't designed One place to start is to apply the same with their environments. The access to fresh fruits and processes and methods that designers problem is that design has vegetables for our local have been using for years to problems historically been geared toward the citizens. of civic and social importance. top 10 percent of society.

While some of us have overwhelming access to products and services that make our lives easier, the majority of the world’s population suffers from complex problems that remain unattended by design.

While chronic social problems are inherently more complex than those of say, automatic irons, design thinking is now being used to identify innovative solutions for pressing social needs around the world

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(to read more, check out ideo.org, Catapult Design, Center for Urban Pedagogy, d-school, 2012 Clinton Global Initiative, Design Impact—to name a few).

would visualize their insights, including input from both inside and outside the waiting room experience. Finally they would narrow down these opportunities, explore potential solutions through prototypes and obtain feedback from citizens throughout their process. Eventually, they would deliver an improved service design.

The good news is you don’t actually have to be a designschooled designer to think like one. As noted in Fast Company, “design thinking is a proven and repeatable problem-solving protocol that any While the above While business or example is an chronic profession can abbreviated social employ to achieve summary, the point problems are extraordinary is that design inherently more results.” While thinking can help complex ... design historically it has stakeholders gain a been reserved for thinking is now fresh look at the being used to corporate and problems they face identify innovative consultant design daily and find solutions for studios, there are alternative now opportunities pressing social approaches to needs around the for nonprofit leaders, solving them. world. government employees and other If you’re a noninterested folks to learn the same profit leader, service sector creative processes used by professional, government official, designers. For example, if you or concerned community member, wanted to improve a service such we encourage you to see what as, say, the waiting room at a design thinking can do for you. If hospital, a design-thinker would we can create decorative door first compile an interdisciplinary, jambs, and shoes that light up, non-traditional work team. They and video cameras the size of my would research who uses the thumb, we most certainly can use waiting room, how they use it, that same thinking to make our when and where. They would communities stronger, healthier, interview key stakeholders and and more equitable. observe how these users interact with the service—noting every Design Impact is a nonprofit pain point and success. social innovation based in

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Balancing their “beginner’s mind” with their need to deeply analyze the entire service, they

Cincinnati firm made up of designers, community development practitioners, social entrepreneurs, and educators.

Continue the conversation

Resources

Inspired by this issue to learn more financial sustainability and how you can rethink your organization's current strategy?

Below are some resources to help you get started.

Books and websites

The Sustainability Mindset

Steve Zimmerman and Jeanne Bell Looking for more on the Matrix Map? The tool was introduced by Jeanne Bell at Bridge to Excellence.

If you want to learn more, visit nonprofitsustainability.org.

Opportunities at CNM

(visit cnm.org for more) CEO Conversations: Exploring the Matrix Map Wednesday, June 17 Change Management: Preparing for the Future Thursday, June 25 Consider an expert.

From managing grants to creating a financial plan that supports your strategic plan, CNM's experts can help you plan for the future of your organization. Learn more at cnm.org.

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Nashville Nonprofit Review Q&A

Micro Enterprise Success Q&A with Soles4Souls CEO Buddy Teaster

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oles4Souls is a Nashvillebased, global nonprofit distributing and selling shoes throughout the developing world and uses a micro-enterprise model that allows them to earn almost 60 percent of their annual revenue.

Buddy Teaster, Soles4Souls CEO, recently talked about the micro-enterprise during CNM’s Bridge to Excellence nonprofit conference on May 12, 2015.

Recently, he sat down with us for a Q&A about microenterprise, how it promotes the mission of Soles4Souls and helped bring the organization back from some financial challenges: What is the mission of Soles4Souls?

Since 2006 [when Soles4Souls was founded], we have distributed about 25 million pairs of shoes and millions of pounds of clothes in about 127 countries and we do two things with the product that we get donate. We give away the new product that is donated to us, which is about half of our work.

All of our used product—and some of our new if we have permission—we put into what we call microenterprise which means we sell to people in the developing world and they re-sell as a way to make a living.

What is a micro-enterprise and how does it function?

So we don’t have a formal definition. For the most part, it’s a very informal economy. They may have a formal space at a market or it may just be they get shoes and they find a place when they have shoes.

Other than saying it’s a really small, usually oneperson business, usually a woman, we don’t have much more of a formal definition than that.

What we do see is one woman—who has probably been the most successful microentrepreneur that we’ve worked with—she has employees, she’s gone to other parts of the country to sell shoes. She’s certainly moved more into wholesale than retail and that allows her to make more money.

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After facing some very public financial challenges, how has the micro-enterprise model helped Soles4Souls bounce back?

As we got clear about “we do sell shoes, here’s why we sell shoes and here’s the benefit of doing this and let’s own that” it became something that we were able to go to our donors—and corporate donors in particular—and say “here’s what micro-enterprise means.”

And where they thought we were taking their shoes and doing things they didn’t want, they now thought “If we’re a part of that, we love that.”

What, in part, that’s allowed us to do is have a much better relationship with our partners. It’s also allowed us to access product that had not been on the table before. So we’re able to move that into microenterprise channels where they can pay more.

For most of our stuff, we get $1 per pound for used shoes. Some of this stuff that we would not have had access to before, we can sell for $5 a pair. Suddenly, we have more money that we can use to fund our free distribution.

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We've had some partners who don't understand [micro-enterprise] and I don't fault those people, it just means we haven't told the story well enough yet.

Our mission is to think about wearing out poverty and sometimes that’s long-term like micro and sometimes that’s short-term like “I need help right now.”

What stumbling blocks would you warn a nonprofit about that is considering to incorporate microenterprise into their funding strategy?

One stumbling block is it can be weird to mix this earned-revenue if an organization has only relied on grants and philanthropy before.

I think another one is that it can confuse your donors and your partners if you’re now starting to sell stuff.

donor.” We’re earning our way also.

And so I think that’s an important part of our message. We’re trying to be consistent with our mission.

For example, one of the things we had to do to keep ourselves out of trouble is consider our mission. We could sell it and people would love to have it in the developing world.

But that’s not our mission.

So we have a metric for ourselves for how much we’re giving away and how much we’re putting into micro and for us, it’s about 50/50. So we had to put something in place to make sure we did not get out of bounds.

We’ve had some partners who don’t understand [micro-enterprise] and I don’t fault those people, it just means we haven’t told the story well enough yet.

Internally, the tension between do we have enough product to give away and do we have enough product for micro-enterprise, is an everyday reality.

By having this micro-enterprise revenue stream, we have allowed ourselves to earn, this year, 55-60 percent of our revenue. So when we talk to potential donors or potential partners we say we’re social enterprise and we support microentrepreneurs. We’re not saying, “We support entrepreneurship, but will you just write us a check and be a 10