Wisconsin Public Television University Place Entrepreneurship in Society  Dennis Johnson Building Success in Nonprofit Enterprises  February 29, 2012 UP694  cc >> Jeanan Yasiri Moe: This is Entrepreneurship in Society, a course that is offered through the University of Wisconsin School of Human Ecology. I'm Jeanan Yasiri Moe. As we begin today, I would like to extend thanks to our partners for supporting this course, the UW Office of Corporate Relations, the UW College of Engineering for their technical support, and financial support that's provided through the Ewing Marion Kauffman which is committed to advancing academic education in entrepreneurship. Additionally, we'd like to thank our media partners, Wisconsin Public Television and their University Place crew for taping today's lecture. I'm pleased to introduce our special guest today, Dennis Johnson, vice-president of advisory services with Forward Community Investments. Forward Community Investments provides its clients with guidance and resources that help to build a strong, secure and sustainable statewide non-profit community. Dennis has been with Forward since 2010 and holds and MBA from the University of Nebraska Lincoln and did his undergraduate here at UW. So he is a Badger. He brings to his role strong skills in working with nonprofit executives on organizational development planning and facilitation as well as budget planning, project management, and human resource functions. Today, Dennis is going to be discussing building capacity is building success in nonprofit social venture enterprises. 

Please join me in welcoming Dennis Johnson. [APPLAUSE] >> Dennis Johnson: Well, thanks, Jeanan. I appreciate the opportunity to be here and talk a little bit about what Forward Community Investment does and how we are helping to build the capacity of nonprofits across the state of Wisconsin. How many of you, just maybe with a show of hands, are you familiar with community development financial institutions? Anybody? No. Okay, maybe. Someone's got a little bit there. We are a CDFI. So we are chartered by the US Treasury, and our initial charter was around providing access to capital to nonprofits. So if there's anybody here in the business school or pursuing any of those types of programs, really what our aim is to provide access to capital for nonprofits that cannot find conventional financing. Either the rates are not attractive, the terms are not attractive, or, quite honestly, in the economic environment in which we find ourselves today, many nonprofits can't go to a conventional financial institution and get credit. 

Just as many small businesses can't get credit today, but it's even more exceptionally hard for nonprofits. So we've been around for about 20 years. We started in 1994. We have lent close to $30 million in our history. We are based here in Madison, but we are a statewide organization. Up on the overhead screen here are just kind of the lines of business that we serve. We're divided into four different areas. One is advisory services which, as Jeanan had mentioned, I'm responsible for. That includes learning opportunities similar to this, but most often we work closely with nonprofit executive directors and board members to help build their capacity around nonprofit finance. We also do some one-on-one consulting around nonprofit finance, that's included in advisory services, and a couple of other initiatives. 

Because we are a community development financial institution, we are required to raise capital to lend. So oftentimes individuals, institutions, will ask us and wonder, well, where do you get your money from to lend out to nonprofits? And so our money comes typically from financial institutions themselves. Because we lend to low to moderate income serving population nonprofits, they get CRA credit with their investments with us. We also have many socially responsible investors that are looking for a more local or regional type of investment. You may have heard of the Calvert Fund which is a national mutual fund company that invests in socially responsible investments, and oftentimes you can send your money into them, and you don't really know where it's going. And so as a CDFI, investments that come to us are being lent here in the local community. So we've done local projects here in Madison and across the state for the last, like I said, almost 20 years. Talking a little bit about our lending services. We do loans. We do lines of credit. 

We do loans for working capital. We do pre-development loans. Many different types of activities in our lending department are things that, again, traditional lenders would not really look at. We'll look at subordinate positions in a third or a fourth position. We'll go up to a 95% loan to value. So we're really doing things that are more creative than many traditional lending institutions. And then the last bullet here is around our research initiatives. We, for the last four years, have been doing a statewide nonprofit economic impact survey. And we're going to talk a little bit about that here in a few minutes, just some of the trends that we're seeing there, but those are included in our research initiatives. So, here's our mission and our vision. 

Our mission is to transport communities by building capacity and mission-based organizations through leveraging lower cost capital, expert advisory services, and timely resources. And our vision is a strong, secure, and sustainable nonprofit community across Wisconsin. So, again, we're here to build the capacity of nonprofits and really try and help them be more successful in achieving their mission, and that's our mission. Just some goals for today. I was talking with Jeanan here before we got going about some of the other speakers that you've heard this semester or maybe are coming. I guess there's one coming after me here in a few weeks which I think is interesting. But I want to provide some context first on what I think the Wisconsin nonprofit community looks like. So I'm going to reference back to the survey that we completed last fall, provide a little information around what the landscape looks like today for the nonprofit community, and then I want to jump into helping you understand some of the trends that the sector is seeing. I understand that one of the readings from today might tie closely to that, and that was not planned. She did not tell me what you had on deck as far as the pre-reading, but I think it will merge nicely there. 

And then I'm going to jump into really what is capacity and what is capacity building. What's the difference, why is it important for the sector, and how can we explore some effective practices in building capacity. And then, lastly, share some ways that our institution is helping organizations with their capacity building. So that's kind of a road map for today. So, here's a few statistics. And I think oftentimes when you think of nonprofits, people have a misperception, perhaps, of what type of organizations that they are. The university, obviously, is a nonprofit organization, a very large nonprofit organization. There are healthcare institutions that are nonprofit organizations. There's also the local food pantry. There's community development facilities. 

There's community centers. And I think oftentimes nonprofits don't maybe get their full value and the recognition that they deserve, and so here's a couple of things. In Wisconsin, they are the fifth largest employer. Almost 250,000 people across the state of Wisconsin work for a nonprofit. In rural parts of the state, which is oftentimes where we're working with clients, many times they're the largest employer in those particular communities. Up until recently, I would say nonprofits have been quite a stable employer given the uncertain economic conditions and things that are happening across the state and across the country given our certain uneconomic opportunities that I think it's not quite as stable as it used to be but if you look at historically they are a stable employer. And the last point here is really one that really gets back to our mission in really trying to help build the sector is that I think oftentimes the organizations that are doing the heavy lifting in these communities is really critical to the well being of the residents and the individuals living in those communities. So it's really critical those services they provide, whether that's a community center and maybe it's for at-risk youth, maybe it's for the elderly, they're really oftentimes serving populations in our communities that, if we're not really paying attention closely to, we may not realize who's helping to bring those services to the community and making sure that it's supportive. So, one of the things that we talked about recently is, I did a learning session in Wisconsin Rapids yesterday and we talked about this idea of the new normal. And here's a picture of our economic outlook update from last November. 

And really fully appreciating the demands on Wisconsin's nonprofit community have exponentially increased in the last few years. Nonprofits can really no longer work on the models that they have historically. I think that's really a large part of setting the stage for today is there's two things that are really going on. One is economic and the other is there are trends changing, that we're going to jump into here in a little bit, that really are creating nonprofits to get stronger, to get better, to be more effective, to really be more focused on their mission and make sure that they are really serving the individuals and the organizations that they have sought to achieve when they got that nonprofit status. Our survey results from last fall, a couple of interesting statistics that I wanted to share is that, again, we focus on the nonprofit finance area. So many of the questions are focused around cash flow, budgeting, what kind of reserves you have in place, and those tie directly to whether or not that organization is going to be able to continue to sustain itself through these uncertain economic times. So a couple of quick statistics that came out of this survey from last fall. The one being 51% of the nonprofits surveyed have less than three months cash on hand last fall. You can probably imagine if you look at yourselves and think what do I have in my savings account, how am I getting through the month to make sure I pay my rent or my tuition or whatever is going on. Organizations, nonprofits included, just like any small business have to really pay close attention to the cash they have on hand so that they can make payroll and pay their fixed and their variable expenses each month. 

So this particular statistic is really quite startling to us that more than half the nonprofits that we surveyed across the entire state, which we put out about 6,000 nonprofits on our list served, we use other organizations like Jeanan's group here at the university and other partners around the state to try and get the word out. More than half of them have less than three month's cash on hand, which is really, I think, a startling statistic. 46% of those reported government funding decreases in their last fiscal year. I think that's one thing that we probably tend to see and hear on the new, read about, that our government funding is shifting radically and quickly and that organizations really are kind of in a tailspin and trying to figure out, okay, if I'm not getting as much funding from government to run my programming, how am I going to continue to either do the programming or how am I going to do it differently to make sure that we're fiscally responsible. One other thing, nonprofits that were more financially secure and capable were more likely to pursue long-term strategies for success. And that's really where we kind of are going to today and around capacity building is that we're really trying to help build nonprofits to be stronger, to be more effective, and really look for some strategies that maybe have not historically been prevalent in the industry. I think if you think of the for-profit sector, which is where I spent the majority of my earlier career, it's always about making a dollar for whether it's a publicly traded company or it's an independently owned company, it's the bottom line, and I think nonprofits have always been really focused on their mission, which they need to be, but in today's world those lines are blurring and they are having to shift and look for more creative ways to generate revenue to sustain their programming. And then the last point from the survey here is the more financially secure a nonprofit was in its future, the greater likelihood of success. And I think that speaks to the sector in general as well in that the more confident they were about the type of programming they were doing, the more likelihood they were going to be successful. And that's one of the gains that we see in the capacity building work that we do is that organizations that are financially secure and that are confident tend to have greater outcomes. 

So here's two slides, I think, that cover a couple of things here that are interesting. The first one, capacity building is about strengthening and preparing for challenges and opportunities. It looks at how prepared they are for change, on the left-hand of the screen you see here, and on the right-hand side, how solid of a grasp on the environment do they have. And we looked at them and cut the data in three different ways. If they were having some type of chronic financial problems, if they were healthy but they felt that they were vulnerable, or if they really felt that they were financially healthy. And nonprofits that are financially confident feel more prepared than vulnerable or struggling nonprofits. That might be intuitive, again, but I think this confidence is directly tied to available cash reserves but appears to reflect nonprofit leadership as well, which is going to be, again, one of those pieces that we're going to come to as it relates to the capacity building is that it really comes down to leadership in the organization. And that's not just in the organization but that's also the board of directors that are governing these organizations. The other slide here that also came from the survey is around confidence in their service approach and concerns about how to react to things that were happening. Again, we cut the data and looked at whether or not they were having some chronic financial problems, were they healthy but vulnerable, or were they financially healthy. 

And here you can see that financially healthy nonprofits are more confident about the services and less concerned about the potential changes. And for service confidence and reactions, the difference between struggling nonprofits and those that were vulnerable was less extreme. So, again, you may look at these numbers and think if they're more confident, those that felt that they were in a financially healthy space, they agreed they were more confident in their service approach. Those that were having financial problems were certainly more concerned. So hopefully that gives you a little bit of context about some things that are happening in general across the sector. The next section here is really what I want to talk a little bit about a consulting firm in California that prepared a large national study around the convergence of some trends that are happening in the sector. And I think this really speaks to why organizations need to be doing things differently and also why they're exploring different types of social entrepreneurship opportunities. So this came from La Piana Consulting. They developed this monograph, again it's called convergence, which sought to eliminate several key trends and, really, their interrelationship between the two. So that's kind of the diagram here that you're seeing on the screen which are especially relevant to nonprofits as they look towards the future. 

The idea behind this thought piece was to spark discussion across the nonprofit sector and to have these ideas inform ongoing planning and strategy development given this new economic reality. Now, this study came out, I believe, in early 2010, so it's about a year and a half, 18 months ago. But the research identified five key trends converging to reshape the social sector. While each dynamic has profound implications for how nonprofits will do business in the future, it's really the convergence of those five that are going to transform the sector. So I'm not sure, I think you can probably see them pretty well here, but they range from these demographic shifts that are redefining participation in the sector to technological advances that abound in the sector, networks that are enabling how work to be organized in new and different ways, interest in civic engagement and volunteerism is certainly on the rise, and sector boundaries are certainly blurring. So each of the five major trends is changing the way that nonprofit sector operates. I'll just give you a couple of examples. For example, nonprofits increasingly develop profit generating enterprises. Corporations are becoming increasingly active in the social sphere, and out of this mutual crossing over, new organizational forms are emerging. And I think that may tie to, perhaps, one of the pieces that you're reading about today for this particular session. 

In the past, those seeking to create social impact were primarily driven by a single model, the nonprofit. The future will bring a wider array of structural options and a greater willingness to experiment as well as heighten demand for accountability and compelling measures of social value. So historically, nonprofits it's been around mission. Historically, for-profit organizations, it's been around profit. And now we're starting to see those two kind of merging and blurring some. So the driving question can be, what do we really want to accomplish? And I think you're seeing more for-profit organizations trying to take a mission related approach to their business model, and you're seeing more nonprofits that are really trying to find ways to generate revenue. Successful organizations, obviously, will quickly move beyond those traditional assumptions about how those goals are attempted and think again creatively about those structural forms. So if we take a look at each of these five particular trends, the first one, again, these demographic shifts are really redefining participation. This probably is not a surprise to anyone. There's some data up here that shows the age of the population in the United States in 2010 and what it's projected to look like in 2030, and I think we've been hearing for some time around, oh my gosh, the baby boomers are retiring, they're retiring, how are you going to replace all of these workers in the workforce? And really there's a couple of different things that are going on there. 

Obviously, younger generations comprise and increasing percentage of the workforce, and they bring with them new values and expectations around work, around activism, and around the use of technology. The dynamic may challenge the ability of nonprofit organizations to attract and provide a place for this new generation to find meaningful participation. Younger people have different expectations in what they want out of their jobs and out of their work and their lives. In addition to the management challenges presented by a new set of workforce values and expectations, the current leadership of the sector, of the nonprofit sector, is really faced with this inevitable task of succession planning. And I think one of the things that is really kind of emerging here is this idea of shared leadership models, and they're newer, I think more progressive, how can we get everyone involved, how can we take more of a team approach to the work in which we're doing and the decisions that are being made, and that's really very different than traditional and hierarchical management leadership models. So the challenge is not so much the whole changing of the guard that was feared. I think about five years ago everyone was thinking all these baby boomers are going to leave the workforce, but I think that really has not played out as much, and part of that is economy. I think many of them have decided to wait, perhaps stall their retirement. So we have this new challenge, maybe not so much that there's this exodus of all of this knowledge and skill set in the workplace, but now we have younger people who bring a different skill set and a different knowledge and we have a more mature work base that is not quite ready to leave the workforce. So a couple other things on the demographic shifts. 

A couple things here. What we would call a responsive nonprofit, those that are more progressive and really trying to be ahead of the trends, in this particular context a responsive nonprofit is really diverse and intergenerational. Its leaders have market awareness and respond strategically. Their organizational infrastructure includes those systems of shared leadership that I was just talking about. The second trend, technological advances abound. The rise of social media has challenged nonprofits to embrace new ways of connecting and communicating and really demanding greater openness, greater transparency with their constituents and their stakeholders. With the plethora of new technology tools comes the need to improve both organizational ability to choose among them and which ones to use. I was chatting with Jeanan before we got started. One of the things that we have included in this presentation with other groups is this idea that is social media a fad. Is it something that's passing in the way, and I contemplated whether or not I would play that today, and I was thinking I have to really think about the audience. 

Most of you, I'm assuming, are significantly younger than I am and are probably all over the social media. And so I don't think it really serves the greatest purpose to say that social media is not a fad because you probably know that and realize that by Facebook and Twitter and YouTube and all the other technologies that are out there. But as an example of this technology advances abound, one of them is that there's a tendency for the eager nonprofit to jump into social media to create a single organization wide web identity. Our organization, honestly, has struggled a little bit in gaining some space in that Facebook, that Twitter, that social media, and one of the things we have struggled with is that I think historically nonprofits have really wanted to have one voice. They wanted to present themselves as kind of one tone, one tenor, and when you look at social media and if you have multiple people in an organization that are trying to manage that social media, it's difficult to have one voice and one tone and one tenor when you have multiple people that are trying to have in impact, whether that's Twitter, whether that's blogging and whatnot. So, I think nonprofits that are effective in adopting new technology understand that it's today social media culture, people want authenticity. They don't want an overly marketed message. They want it to feel like it's natural and that it's authentic. They want to hear real stories from actual participants in a nonprofit's activities. They want the opportunity to be more than the passive audience members whose social activism is limited to writing a check. 

They want to be on the inside. They want to co-create the dialogue, and communication must be continuous, it must be personalized, it must come from multiple sources. And all of these trends pose cultural challenges for many nonprofit leaders. Again, if you think of the demographics and, historically, many nonprofits have leaders that have been in those seats for a long period of time, there are some demographic and some cultural challenges there. Successful nonprofits will use technology strategically as part of an overall communication plan, not just because it's a novel and because it's a tool for advancing the mission, not an end in and of itself. They want to be clear on their goals, their expectations, and consider a new kind of ROI. Rather than return on investment, we're taking that as return on insights and really getting to understand and know what's going on inside that organization. A responsive nonprofit is experimenting in this context for technological advances with new tools strategically, crowd sourcing ideas and content, using social media and web 2.0 tools for fund raising and friend raising, which I think is a big trend that's happening right now here in Madison actually. And, obviously, capitalizing the opportunities for virtual work. I would imagine you're all using Blackboard or some iterative of Blackboard, and so I think this idea of how we work in a virtual space and really in this global economy has changed significantly, and that's one of those trends that I don't think nonprofits have really kept up with. 

The third one around networks enabling work to be organized in new ways. Working with and through networks is not necessarily new. The traditional concept of networks includes coalitions in the nonprofit sector. It might be alliances, it might be partnerships, some type of learning communities, and various other collections of individuals and organizations working towards a common goal. However, with the advent of these new technologies and new norms for working collaboratively, the potential impact of networks is increasing exponentially. There's a piece in the La Piana convergence study that came from the Monitor Institute, and it refers to these new ways of applying network theory and technology to traditional work as working wikily. I'm sure you're all familiar with wikis. And observe that allows for far deeper and more meaningful collaboration that was previously possible. It's now just as easy for an organization to learn from and collaborate with an individual located across the globe as it was with that nonprofit across town. And so I think those types of technologies are really helping to network and bring people together. 

Again, a responsive nonprofit in the context of networks is really nurturing those networks. They're regularly working with  geographically dispersed individuals. They are working with dispersed organizations and other networks to accomplish goals, to be transparent with their collaborators and their competitors, and striving for that systemic impact as much as organizational success. So, I think the thing on the bottom of this particular slide is pretty key in that formal organizations are no longer the only way to get things done. The fourth trend, and I stole this picture from your website, I don't know if you recognize it but I have sourced it there on the bottom, is around civic engagement and volunteerism is rising. I think one of the things, as we look at this particular trend, is the election of a former community organizer to the highest office in the United States serves as a vindication of the nonprofit sector and an inspiration for increased civic engagement. Yet, much of this energy has been captured by the public sector led by the Obama Administration rather than, perhaps, by the nonprofits. Excuse me, together with the rise of opportunities for direct engagement through online activism and virtual volunteering, this puts nonprofits in a precarious position demanding that they meet rising expectations and also continue to prove their added value. So, in coming years, we anticipate and unprecedented number of active retirees and also this new generation of younger professionals who were raised with community service. So maybe just by a show of hands, how many of you are volunteering somewhere today or providing some type of community service? I think that's just a trend that continues and so it kind of gets back to the demographic shifts. 

You have a younger generation who, I don't want to say that's an expectation, but it is a part of their DNA in growing up today in that you give back. And we have a retired workforce that's coming into the population and trying to continue to give something that they have perhaps been giving over time. So it really presents this tremendous opportunity for the sector, but only if the sector really learns to successfully engage both of those parties and figure out a way to help them work closely together. Together with the rise of opportunities for direct engagement through online activism and virtual volunteering, this puts nonprofits in, again, a precarious situation demanding that they meet rising expectations and prove their added values. So, on the fifth one, I think we're on the fifth one now, is this idea of sector boundaries are blurring. So I think this kind of gets, again, to perhaps one of the articles that you've read for today, but this idea that the sector, blind, competitive environment is emerging when Wall Street investment houses are starting to compete with local United Ways. It's really interesting, community foundations, those that are for donor-directed funds and a growing emphasis on corporate social responsibility really means that the social virtue is no longer perceived as exclusive to that nonprofit brand. There are many for-profit companies that are trying to leverage through social entrepreneurship and other means this way of trying to perhaps imitate and use some of the success that the nonprofit sectors had for a long time in their business models. So, meanwhile, as donor demands for accountability and evidence of the impact intensify, regulations that once preserved that unique role for nonprofits are now all of the sudden coming under fire, and they're really at risk. So, the idea of cross-sector collaboration, new organizational forms, whether that's an LC3 or some of the other forms that were on the front slide here, certified B corporations, are you familiar with certified B corporations? They're corporations that are really trying to advance social issues and mission related work but still also have some type of a profit model. 

C4s are on there as well. I think these trends will seriously challenge nonprofits to maintain their tenuous hold on identity as a sector and not just become under-capitalized competitors in this increasingly blended economy. The blurring of the sector boundaries creates opportunities for a growing number of public, private, and corporate nonprofit collaborations to share learning and innovation. I think that's really kind of the beauty of what's coming out of this is that you've got that for-profit model, you have this nonprofit mission model, and they're coming together, and, yes, it might be a little bit contentious at times because they're coming at it from two different ways, but it really is helping to improve both worlds, I believe, and I think that's a real positive thing. Some organizations are taking things a step further and really becoming those kind of hybrid organizations where they're operating simultaneously in multiple sectors. So you may have a for-profit corporation that also has a nonprofit business entity within that, and you may have a nonprofit business entity that is now starting a for-profit company to generate some additional revenue streams. So everything is really kind of getting blurred as we would say. In the context of this fifth trend, a responsive nonprofit is really actively considering implementing and/or funding those alternate organizational structures, cross-sector partnerships, and ways to make markets work for the organizations and those it supports. So, there are three priorities for the future that kind of came out of the convergence monogram. One was around leadership. 

I talked a little bit about this earlier, but skilled leadership really will be essential to the sector's ability to successfully navigate the trends described in the convergence monograph, and the changes these trends bring about will call for a rethinking of concepts of nonprofit leadership. More than a response to generational shifts, though, is who is doing the leading. This will require that nonprofits really look at their organizations that will be led into the future. And at any given time, dozens of new and emerging tools as well as many more that are not so new but are not yet widely adopted are available for volunteer engagement, for fund raising, for friend raising, for again working wikily, engaging in managing and dispersing in a mobile workforce. So just about everything else and organization might want or need to do to advance on its mission is certainly possible. It is tempting, somewhat, to jump on the technology bandwagon. I mentioned earlier that we're dabbling, and I would say dabbling lightly, in Facebook and trying to figure out how we can better use that, but I think organizations, nonprofits particularly, have to be careful in that they're not just following whatever the technological whim is at the time and making sure that they're really leveraging themselves for that because the sheer number of new technologies entering the marketplace from one month to the next really presents some major strategic challenges to nonprofit leaders, and really understanding the options and recognizing those tools and technologies with the greatest potential for positive impact within the context of their organization is really critical and crucial to them. This shifting environment creates numerous opportunities for nonprofits to partner, we talked a little bit about that earlier, with others in news ways, and at the same time it also brings new competitive challenges, often with those very same individuals or those same leaders. Being able to recognize when to collaborate, when to compete, I think that's going to be one of those key trends from a leadership context. This will also require that nonprofits know what they uniquely bring to the table. 

What are their competitive strengths? What are their advantages that they can really offer? And, quite honestly, that they have a realistic and objective understanding of their own value proposition, which I think sometimes some nonprofits have really struggled with. So, how do nonprofits prepare for change? We're transition now into the capacity building context. Whether that's an economic change, the things that are going on in the environment, or whether that's kind this idea of these five trends from convergence. They need to focus on continuous improvement and in building the capacity of their organizations. So that's one of the ways in which our advisory services at Forward Community Investments really works with nonprofits around the state to help them build their capacity. And we talk about capacity building and sometimes the vernacular is not really well understood, quite honestly, even within our own industry, much less outside of our industry. So I wanted to just kind of maybe go through and give you a couple of definitions here. The first one, is I think, from the Knight Foundation and from Connolly and York, two practitioners in the capacity building arena, but there's a couple of key words here. One obviously is mission. We are mission-focused organizations. 

So, around what is capacity? Capacity is that ability of nonprofits to fulfill their mission in an effective manner. Effective being the key word there in the Connolly and York definition as well. In that capacity is this wide range of capabilities, knowledge, and resources to be effective. So, I would say if you're wondering, capacity building in the for-profit sector is probably organizational effectiveness. That's probably the similar to them. So, what is capacity building? Whatever is needed to bring a nonprofit to the next level of operational, programmatic, financial, or organizational maturity in order to more effectively and efficiently fulfill its mission. This is a definition from the National Council of Nonprofits, but, again, a couple of key words there. Next level, you're trying to help move them along this cycle of continuous improvement. The other thing here in this particular definition that I would point out is that it's not just one area that they're getting better at. It's looking at it from a holistic viewpoint. 

So whether that's operational, whether that's programmatically, whether that's financial, which is our core competency, or whether it's organization maturity, it's really looking at this holistic approach and trying to determine how these pieces of the organization fit together. And then, obviously, the other word that is bold there is mission again. Mission driven, it's all about mission in our sector. The tools that Forward Community Investments offers to help support this work reflect these particular definitions and are really aimed to accomplish this. So, why build capacity? We've been talking about the trends, we've been talking about this new normal, uncertain economic times, but competition obviously is greater. Whether it's competition from the nonprofit down the street who's maybe providing similar services, whether it's competition from the for-profit sector and that they're starting to really look at more mission related work, but there certainly is more competition across organizations. And quite honestly, there's more competition for funding today. Funders have less valued endowments than they had a few years ago and so they don't have the same amount of resources to actually donate or grant to particular organizations. Government, obviously, is changing as well. So they're really competing for more than just financial resources. 

They're also competing for talent in getting strong leaders, getting strong board members and whatnot. There's also this idea of this increasingly complex environments, which I think feeds back into those five trends again. Things are getting certainly more complex for the nonprofit sector. Change is becoming the norm. Nonprofits really have to learn to be more responsive and have a higher level of capacity to respond to changes that are happening, particularly when they're happening as fast as they are. And then the last one here, escalating scrutiny in a demand for effectiveness and efficiency, I think, whether that's government, whether that's funders, whether that's volunteers, there is this heightened scrutiny around what are your programmatic outcomes? How are you achieving the mission that you set out to achieve? The definition on the bottom here, the note here from Venture Philanthropy Partners talks about nonprofits really have an obligation to seek new and ever more effective ways of making tangible progress towards their mission which requires building organizational capacity. So, our model at Forward Community Investments around building the capacity really looks at this continuous kind of cycle of assessment and benchmarking, again we have a tool that we use with organizations that looks at nine elements of organizational effectiveness, which I'm going to show you here in just a minute. So they assess at a point in time of where they are on these nine elements. Then they take the results from that particular exercise and they work on an action plan. Like most things in life, if you have results but you don't do anything with them, then they don't really matter much. 

So it's really making sure that you're implementing the activities from your action planning. A couple other things in the upper left-hand corner here is this is a continuous cycle and a continuous process. The organizations that we work with to help build their capacity, we typically work with them on a 12- to 18-month cycle. So we assess, we help them do their benchmark, we help them design their action plan, and then we follow up with them on a quarterly basis by providing some what we would call accountability coaching to them to really help make sure that they're living out and agreeing and doing the things that they said they were going to do in their action plan. And then, ultimately, we go back and reassess them to see where they've had gains over that particular period of time. So the nine elements I was just mentioning here. Here are the nine elements that we have designed in our particular tool, and our tool was an adaptation of McKenzie's tool. There are some really wonderful capacity building assessment tools out there, but ours was designed with some influence from McKenzie's tools, so we describe it as comprehensive yet concise. Sometimes organizations look at it and go, oh my gosh, how are we going to do all this work? But really it is pretty manageable. But it all starts, again, with mission, vision, and strategy on the top of this diagram here. 

That's really driving all of the things that the organization is doing and really is the foundation of the work within the nonprofit organization. Then it's looking at their service delivery, and impact. Do they have a logic model in place? Are they measuring their impact? How are they communicating their impact? But really making sure that they have strong service delivery and impact in place. And that's surrounded on both sides of this diagram by leadership. Again, whether that's leadership within the organization or leadership on their board, that's that kind of human capital component and making sure that all of these things are coming together through the talent of the organization. It's not to say that the five elements on the bottom are not as critical as the others. Clearly, financial is critical today for organizations to sustain themselves, but really they're kind of more foundational and pillars holding up these other elements of the organizations. So management and development of human resources, strategic relationships, which again gets to that kind of blurring in those trends and who are you working with, whether that's a competitor, whether that's another collaborative organization, whether that's a for-profit, whether that's a government agency. Financial and legal management, again understanding their cash flow, budgeting, those types of concepts, legal management around the risk management, those concepts. Operations and infrastructure, really looking at the facility of the organization, making sure that they have technology plans in place and that they're able to keep up in some of those trends that we talked about. 

And then resource and revenue development is really what has historically been known as fund raising. So what kind of plans do they have in place to really generate sustainable revenue models for their organization? So, a couple of factors to consider when organizations are going through effective capacity building. The first one here talks about the funders. Many funders appreciate organizations that are intentionally building their capacity. So we encourage organizations that are going into this type of work to share their efforts with their funders so that they can build closer relationships with them. The other piece that I think oftentimes clients that we work with at Forward Community Investments is that we use capacity building to help inform other types of work that they are doing. If they're looking at a business model enhancement, if they're looking at some type of strategy development, looking at their organization to see where they have current strength, where they have opportunities really can help inform those other types of strategic conversations that they're happening. I mentioned earlier that eventually you want to repeat the assessment and the benchmarking and the action planning processes. You would not necessarily measure did they have the same score, the same results in one particular area because obviously external factors can play in what might be driving the change in some of those elements over a particular time period. But really looking more at how did they impact their action plan when they were going back to reassess from the prior capacity building activity. 

A few factors here that challenge capacity building progress. These are probably not much different than they are in any other sector. But a lack of readiness to engage and a commitment to change. Some organizations that we work with, that kind of inertia, we've always done it this way, they're just not ready to change and they're not ready to engage. Changes in leadership or an absence of leadership are both two significant concerns that really have challenged the capacity building progress. If there's not a director in place, if there's not a strong board in place, it's really difficult to impact that without those levels of leadership. Lack of time, many of the organizations we work with say we just don't have the time to do this. But it's like anything else, if you really want to impact the results that you're having, you have to put some effort in. The severity of the organizational need, we have some organizations that come to us and we would describe them as kind of being on death's door. Going back to the survey in the beginning where we talked about how much cash did they have on hand, we have gotten calls from around the state from organizations saying we can't meet payroll in two or three weeks, what can we do? That's not the time to start trying to go on a capacity building process. 

They really have other more critical issues to take care of. And then those organizations that fail to act on their results obviously challenges their progress. So here's some factors that contributed to gains. Kind of the opposite of what we just saw on the other slide there as it relates to what challenged them. Having a competent and highly skilled board. Having strong executive leadership in place. Using the tools as instructed. We encourage people to really follow the process and not be jumping around. Making sure that they're following through. Assembling a team. 

We would consider this very much a team orientation to organizational effectiveness and that it's not just leadership, it's not just board, it should be some combination of both. And then defining goals with specific action steps is really clear as well. And having a clear understanding of mission and vision. The action planning piece, it's based on the assessment, based on the capacity building benchmarking assessment. We really encourage to focus on causes, not necessarily, again, the particular ratings in those nine elements, but really to identify priority areas and high leverage areas where there is some leverage that you can try and make some quick, what we call quick hits. But also, determining actions and resources that are available you have to be realistic with the action planning piece as well. Good action planning practices, a couple of best practices here that we encourage organizations work to reach consensus but be rigorous. Again, when we're facilitating these conversations with nonprofits around building their capacity, oftentimes it can be divisive and a little bit confrontational, but we really encourage them to work toward consensus but we want them to be rigorous. So we try and kind of draw that out when we're working with them. It's key to identify key partners that would contribute to the success. 

Whether those are funders, whether those are other stakeholders, you definitely want to make sure you have your partners involved in the action planning as well because oftentimes they're the ones who are going to help you achieve your action plan. The third one here is kind of the opposite of that inertia comment earlier, but really incorporating a range of new actions and resources into the plan. You want to make sure that you're not just doing things the way that you've always done them. There's some saying around the definition of insanity is continuing to do the same thing and expecting different results. Oftentimes, we have organizations that we work with and they think that they're going to raise more money or broaden their mission or serve more clients, and they're not really doing anything differently than they've historically done. So you kind of scratch your head and go, well, how's that going to work? So it's really thinking about having new ideas and new actions and resources into the plan. And then sharing the results with your full board, with your staff leaders, is another one of the best practices that we encourage is really making sure that there's good communication across the organization with the action plan. So here's a few things to avoid in the action planning process. Relying on a few individuals to complete it. You lose that team wisdom, that team buy-in. 

If you try to work on too many issues, it can dilute the efforts. And if you don't take the time to prioritize, you may end up working on symptoms rather than root causes. So you really want to make sure that you're taking the time to prioritize the right types of activities that you want in your action plan. A few more here. Relying on resources you always want to use and not looking further. You might miss important opportunities by relying on resources that you always use and not looking beyond those ones to try and find something new again. Assuming you can or should do it all. This is probably one of the biggest ones that we tend to see with clients we work with is that their action plan ends up with 10 different things in it. And if you have too many things that you're focusing on, it's really difficult to try and make sure that you're going to achieve those particular gains. And then as we close here, preparing your organization for capacity building. 

Part of this is really repositioning the organization and the leaders within that organization and really helping them understand the tools, understand the process, having good communication. We encourage organizations to consider a formal board resolution regarding the participation. It's, again, a great way to have that level of commitment from the full board by having that resolution. And, obviously, specifically outlining the benefits to the organization that were just on a couple of these other slides. So we have a few recommended approaches. Making sure the materials are shared ahead of time, discussing the capacity building at all of the board meetings. We kind of work through that with our quarterly coaching with our clients but also trying to find a staff or a board member that's going to champion this particular process and really help to develop their capacity building team for that organization. So, I think that is the end. >> Thank you, Dennis. [APPLAUSE]  A lot of fabulous information, and I know that it will pique a lot of questions from folks. 

And I always look out to the students so that they can wave their hands, and I can turn the mic over to them as they do have questions. I want to almost go back, just to start the Q&A, I almost want to go back to the first part of your presentation where you were really presenting a pretty alarming statistic, and I know we have talked about this before that more than half of nonprofit organizations have less than three months cash on hand. And that, just to clarify, it may mean that they know that there are other funding sources coming in but they only have three months of cash on hand. Would that be accurate? >> That would be if they know that there's other sources of funding coming in. I think some organizations are really finding themselves where they don't have the revenue coming in, and that's why they've been depleting reserves over time. So maybe they have historically had more cash on hand, and now they don't. The other thing that we've seen over the last couple of years with the Economic Stimulus Act, there were many nonprofits that received ERRA money, the Economic Recover and Reinvestment Act, and those organizations they got an influx of capital to really help strengthen and improve their organization and perhaps deliver different programming, but, ultimately, if they didn't develop the infrastructure to sustain those enhanced business models, now that the money is gone they're really kind of struggling to continue with that impact. >> I appreciate that further clarification and your emphasis that, yeah, as long as they know that there is more money coming in but they've been depleting resources to date. And, of course, as you mentioned, fewer government sources. Not sure if you have an answer to this, but I was wondering as you were talking about that aspect, are we seeing any particular sector of the nonprofit sector more impacted than others? For instance, we see groups that are more aligned with environmental causes or youth development or health. 

Any of those more impacted than others? >> Health and human services, I think, is disproportionately impacted because of the funding shifts with government funding. Many of them have long time been subsidized. Again, many of the clients that we work with, if you look at the granularity of their funding, oftentimes those organizations have 90% of their funding coming from government contracts. If their government contract is being reduced by say 20%-30%, that can have a significant impact on that organization in delivering their programming. >> One of the areas of building capacity and diversifying revenue sources can involve how an organization really does business. And I know I shared with you the example that the students were involved in reviewing, just in advance of your coming, it was a story, I'm not expecting you to know intimately, but it was a story of a local nonprofit, actually serves statewide and beyond, called ABC for Health. A nonprofit that actually created a for-profit subsidiary, if you will, out of a point of intelligence and a product that they created that will eventually sustain the nonprofit. How prevalent is something like that? Can you speak to that at all? >> I can speak to it a little bit, I think. Setting up a formal, separate legal entity is probably not quite the trend that we're seeing with the organizations that we work with. I think what we are seeing is nonprofit organizations really reevaluating their strategy and going how do we develop alternative means of resource developing, fee for service? I think there are a lot of organizations that 5-10 years ago in the nonprofit sector would have said, well, we gather money either through grants, donations, maybe some type of corporate giving, or through the community foundations, but we haven't really ever had to generate our own revenue streams. 

And I think that's one trend that is significantly changing the nonprofit sector. Many organizations are having to look at what type of work do we do, and how can we generate revenue for ourselves whether they're providing some type of consulting services, I know I worked with a recent statewide coalition. They're working on trying to build the capacity of their 80 members across the state. So we taught them how to use our tools. They're actually using our tools to provide value, add to their members, but they're also gaining a little bit of fee income from that service that they're providing to their members. So I'm not sure that we're seeing as much formalized creating a separate legal entity as much as it's happening organically within the organization and going we've got to come up with some different programming to try and generate some revenue. >> One other question and it kind of goes back to a concept that this group explored very early in the semester and it has to do with creating social ventures. We actually had an attorney that is well-versed in designing and developing nonprofit organizations come in and talk about what that requires. Does Forward Community Investments provide counsel in that at all? You were talking about the different kinds of models that exist out there. B corps and 501(c)(3)s. 

Are you providing advice on that or what are you recommending to people? >> We don't give out legal advice. We're not attorneys. So I would just disclaims ourselves right there. But we do help on the business modeling side in helping to develop those proformas. If they're thinking of starting a new venture, we do help build the business model piece from that nonprofit finance aspect. >> That's helpful. That really is. And I think that what Melissa provided us was really good food for thought that it may not be the answer to develop another nonprofit. >> Melissa Scholz? >> Yeah. >> She does great work. 

>> She does and she certainly shared that information with us. One of the other concepts that you mentioned, and I am happy to hand off the mic to anybody else who wants to tell me that they want to ask a question, thank you, has to do with the concept of merging. And you talked about collaboration really being important. Can you talk a little bit more about why that's so important that nonprofit organizations start thinking about collaborative efforts. >> And we would refer to that is strategic restructuring, actually, in the industry. But essentially, it's mergers and acquisitions in the business world, per se. It is an emerging trend. We get probably one call a week, I would say, that somehow comes through our organization in talking with an organization that says our board decided last night we're merging with so and so. Or we're struggling and we're not sure that we're sustainable, can you help us figure this out? So I think on that continuum of strategic restructuring, it's all the way from maybe on the lower end of, I don't want to say engagement, but on the lower end of maybe it's shared programming. Maybe we're going to do something together. 

We're going to test this out. Some organizations we worked with that may have been co-location. Maybe we're going to reside in the same space to try and create some economies of scale for the organization. So they're going to share some programming, they're going to share some space. In the middle of the matrix or the continuum of strategic restructuring lies setting up shared administration. So we work with some organizations that maybe they have a full finance department and they might have another member organization that maybe they need help with their finance. So they contractually provide support and services to that other organization. It could also be setting up a management support organization. I don't know if you've talked about MSOs in any of your work here or you're course. But setting up a management support organization or maybe it's one entity that provides support to 10-15 nonprofits around human resources, could be around finance, could be around technology. 

And then on the opposite, the far end of that continuum of scale of strategic restructuring is truly a merger. And so we had actually brought La Piana into Madison about a year ago and did some strategic restructuring workshops. We are continuing to do that work. They are actually training us and a cohort of consultants around the state to better understand their model of moving organizations through some type of strategic restructure because with the economy, with the trends that are changing, we anticipate consolidation in the industry. >> Thanks. >> Hi. Thank you for being here, first of all. My question is, what kinds of difficulties or challenges do you foresee coming out of the convergence of the nonprofit, for-profit, and government sectors? >> Great question. I would say probably cultural. I think the culture of the for-profit, and, again, I can speak because I've sat there for 15 years, it's about revenue. 

It's about making money. It's about generating more customers or selling more product or whatever it is. And so I think culturally that's, and I'm just throwing that out as a Wall Street kind of analogy, it's about shareholder value. And I think in the nonprofit sector, culturally, it's so far away from there that it's about mission, it's about how do we help people, it's how do we combat homelessness or poverty or the elderly or the at-risk, and it's no where near, culturally, how do we make more profit, per se. And I think there's this cultural kind of conflict that's going to probably happen there. I know it's happening there. We see it with some of the collaboratives that we work with is that there's skepticism, I think, on part of the nonprofit sector of really is the for-profit sector doing this because they want to or is it a way for them to perhaps be perceived doing better good for the world and that only helps them sell more of their product? And so I think that cultural conflict is really probably the biggest challenge. >> Thanks. >> You're welcome. Thank you. 

>> Hi. So, thanks for being here. My name is Darian. So, my question is, I have two parts kind of, do you only work with existing nonprofits or do you help nonprofits get started? Do you guys give grants to get to nonprofits that are starting? And then, also, being a consulting type of company, are you charging for your services or is it like a return after the nonprofit is already been successful? >> Sure. I'll try and remember all three of those questions maybe. I'll start with the last question. We are fee-for-service. So we are a nonprofit. We're a 501(c)(3) ourselves. My line of business is we have a fee-for-service model so we charge, basically, an hourly billable rate that we build into our project tool kits when we anticipate how much time it's going to take to do particular work. 

And then we calculate our program costs by using and allocation of administration and overhead. So we are a fee-for-service. Many of our clients are referred to us by local funders in their communities. So maybe they have an endowment with the local community foundation, maybe they're getting funded there, and so oftentimes it's the funder who's willing to help subsidize the cost to do our work because they see the value and they don't want that to stop. So they're willing to make that investment and perhaps in an organization that they're already granting. And your first questions was? >> I think you kind of just answered it. It's do you work with nonprofits that are starting? >> Oh, the start-ups. We're getting a lot more questions from start-ups. It's kind of interesting. You asked the question about strategic restructuring. 

So on one end of the spectrum we're seeing consolidation, but yet, I got a call, actually, this morning from someone. We're thinking of starting a nonprofit. I think that's just part of the entrepreneurial spirit of this sector. But I think it's also a little bit dangerous in that there are so many wonderful nonprofits that are struggling so to have more nonprofits entering that space and competing for those resources, I think we encourage people that call us and say we're thinking of starting a nonprofit is to really try and dig into what's your business model, who are your competitors, who else is doing that, to really get them to go out and look and find who is because I think oftentimes the idea might be good but there might be a way to do it in collaboration with another organization. Thank you. >> Dennis, I've got two final questions. One's real quick. Do you have internships for students? >> We do have internships for students, and we're actually looking for two interns for the summer right now. So if anybody wants to chat with me afterward, please do. >> That's excellent. 

And I'm just going to conclude with this question because it's kind of a segue into something that we'll be talking about in about an hour from now. You mentioned leadership and I am curious about the renewed or the skill set that you referenced that leaders are going to need, in the future, if not already today, to really lead successful social ventures. >> I think, my MBA was in leadership so it's near and dear to my heart, but I would say we prescribe to taking an asset-based approach with the clients that we work with. Our tools are designed that way. We really value, I think, organizations and leaders that take a look at what's working. So whether that's an appreciative inquiry method or I think it really comes down to authenticity and being who you are, living the values that your organization prescribes to, but really making sure there's alignment there as well. I think strong leadership is also in this particular uncertain economy or these trends are really kind of shifting the sector quite drastically. Leadership is about being willing to, I think, stand up and throw a stake in the ground at times and say we're not going to do that or we are going to do this, and it's, I think, about being able to take risks, calculated risks I think is important. But it also is understanding how can you appreciate the value that everyone brings to the table, whether that's for-profits, whether that's start-ups. I think it really gets down to how do you engage with other people in that authentic role. 

>> Well, Dennis, I know the students join me in thanking you so much for being with us today. [APPLAUSE]