Before you Start a new Nonprofit

Someone asks me every week about starting a new non-profit. The idea may be great, the need may be there and the person asking me may be the exact right person to do it. Even so, I always ask “Is you starting this nonprofit the only way to move forward?” Sometimes it is.

Starting a new nonprofit is time consuming and expensive. You have to retain an attorney, file paperwork, create a plan, build a board of directors and jump through a lot of hoops before you ever get to raise one tax deductible dollar or offer one iota of the services you seek to provide.

Plus, there are already lots and lots of other agencies competing for resources, board members, and attention. Most of the time, there are other options.

There are plenty of nonprofits already in the world, some doing what you want to do. Call them. Go meet with their leaders. Ask lots of questions: Ask about their history and the length it took them to become viable. Ask about the need their program’s address and their funding streams. Ask about their programs and their impact. Ask about their organizational values and about best practices.

If you feel like there is some synergy, perhaps there is an option for you to create a program under another organization’s auspices? This is going to be the most attractive (to them) if you come to the table with a funding stream or if your idea for a program doesn’t need any resources. If that is the case, request you be allowed to partner with one of their staff or volunteers to form a committee to explore and implement your idea. If you have a funding stream, either because your idea is for social enterprise or because you have already secured a donor, perhaps they will consider putting you on staff or becoming a fiscal agent to your program.

Fiscal agents are mostly used by new programs that do not yet have a 501 (c) 3 partnering with an established agency. That means the established agency will allow you to use their 501 (c) 3 to accept tax deductible donations. Fiscal Agent agreements vary greatly. The only real consistency of which I am aware is they are all determined by whatever is included in the memorandum of understanding that establishes them. There are some agreements that allow the nonprofit to manage the money raised by the program, put the staff of the program they are assisting on the payroll and offer access to insurance. There are others that do not, but do allow the program to control the finances they generate. My understanding is the fiscal authority lies with the fiscal agent (established nonprofit), even in the second case, and the programmatic authority lies with whomever entered into the agreement with the nonprofit. As such, nonprofits are, and should be, very careful about what programs they take on as a fiscal agent, and programs looking for a fiscal agent should be equally careful. If you go this route, whether your eventual goal is to become a program of the nonprofit or a standalone agency, possibly competing for resources with the nonprofit, I encourage you to be clear about that up front.

Consider how much control you wish to retain and how much you might be willing give up and for what. It might be worth giving up some control for security, timeliness and to move forward on your idea. Then again, it may not. Only you can decide.

If you have explored the above and still want to start a new nonprofit, the last question I will offer for your consideration is this: do you aspire to employ yourself though this new entity?  I recommend you do not serve on the Board if you are being paid. Many founders initially serve as the Board Chair and acting (unpaid) CEO, and then move to the CEO position once the agency and income streams have been established. It will take some period of time for that to happen, which will require you to have income from another source. If that is your goal, I recommend you share that with everyone you recruit to serve on the Board. Be aware that the Board will have the power to hire a different CEO. Until that time and regardless of their vote, you will work (hard) for a not insignificant period of time without being paid.

There are myriad options to consider before establishing a new nonprofit. On behalf of all the established organizations out there, including the foundations that fund them, I ask you to thoroughly explore your options and plan accordingly. Raising money to support the operations of an established organization is difficult; it is much more challenging for ones that are just beginning.

 
What’s been your experience starting a new nonprofit? As always, I welcome your ideas and experience.

The Role of the Board

Every time I speak on issues related to nonprofits, and I mean every single time, regardless of the topic, someone, usually a Board member or an Executive Director, asks “What is the role of the Board?” It has happened so often, and so consistently, that I don’t even wait for the question anymore, I just include the information. Then, of course, the question that follows or should follow is “What is The Role of the Nonprofit CEO?”

The Board is responsible for governance, which includes Mission, Vision and Strategic Planning; Hiring, Supporting and Evaluating the Executive Director; acting as the Fiduciary Responsible Agent, setting Policy and Raising Money. Everything (Yes, I really mean everything) else is done in concert with the Executive Director or by the Executive Director.

What does that really mean?

It means the Board sets the direction, often with input from the Exec, and the Exec makes it happen, often with support from the Board.

“Board members are responsible for setting the mission, vision and strategic plan.  The Board sets – meaning discusses and votes to adopt or revise – the mission statement, which answers why your organizations exist. The Board also sets the vision of the organization. A vision statement is a description of what the organization will look like at a specified time, usually 3-5 years, in the future.”

“The Board votes upon the strategic plan, after participating in a strategic planning process “in which the board, staff, and select constituents decide the future direction of an organization and allocate resources, including people, to ensure that target goals are reached. Having a board-approved, staff-involved strategic plan that includes effective measurements and the allocation of resources aligns the organization, provides direction to all levels of staff and board, and defines the path for the future of the organization. It also allows leadership, both board and staff, to reject divergent paths that will not lead to the organization’s intended destination.” Governance the Work of the Board part 5

It means the Board hires, supports, evaluates and, when necessary, fires Exec, and the Exec hires, supports, evaluates and, when necessary, fires the staff. For Board members, that means that you work through the Executive Director if you have a problem or need something from the staff. For the Exec, even though you don’t need their permission, having input from your Board before you fire a staff member, especially one that is well known, will help build organizational cohesiveness and extend your career longevity.

Fiduciary responsibility means that the Board – and not just the Treasurer but the whole Board- is responsible for safeguarding the community’s resources and ensuring accountability and transparency. They also must understand and formally approve finances, audits, and the 990. Fiduciary responsibility doesn’t end with finances; it also includes programs. Boards are entrusted to understand how and why an organization’s programs fill a need in the community, the numbers of people who participate in those programs and their impact, as well as how those programs connect to mission.

Setting policy is also the role of the Board. Policies are usually recommended, written and, later, implemented by the Exec, but they are voted upon and passed by the Board. Typical policies include personnel, code of ethics/conflict of interests, whistle blower, confidentiality, crisis management and/or communication. Your agency should, and does, also have by-laws (also called codes of regulations) which should be followed, periodically reviewed and if revised, voted upon by the Board.

The last piece of Board responsibility is fund raising. The Exec cannot raise money alone. The Development Director cannot raise money alone. The Board cannot raise money alone. Fund raising works best in a culture of philanthropy when both the staff and the Board are working together. The Board’s role is to set the fund raising goal, embark on the campaign, open doors, introduce staff, “make the ask” when appropriate, pick up the tab for lunch when possible, and thank the donor. The staff is responsible for training the Board, coordinating the assignments, preparing the askers with relevant donor information, drafting and supplying whatever written information will be left with the donor, including a letter asking for a specific dollar amount, attending the meetings as necessary and documenting the meeting in the database as well as writing the formal thank you note, and then creating a plan to steward the donor.

There is also a strategic and generative piece to Board service, or at least there should be. We have already reviewed strategic planning and I encourage you to expand that to include strategic thinking. It is not enough to have a strategic plan that made your Board members crazy and now sits on a shelf. Strategy is not a one day thing. Strategy requires direction setting, questioning and the committing of resources to ensure the destination is reached. It also requires the rejection of things that are outside the scope of our plan, or the revision of our plan. It necessitates having a culture that allows for and encourages questioning, and sometimes dissent. Board meetings should include robust discussions.

Finally, and least often, there is Chait’s generative mode. Generative is a much deeper conversation about the underlying issues and how to impact them. Richard Chait presents generative discussions as ones that “select and frame the problem.” He says “committees need to think not about decisions or reports as their work product, but to think of understanding, insight and illumination as their work products.”

Honestly, if Boards are just going to approve the things put in front of them, anyone can do that. We don’t need our community’s best and brightest to serve on our Boards for that. We do need our community’s best and brightest to lead, to govern and to be strategic about the needs of our communities and generative about the issues we face.
As always, I welcome your insight and experience.

Officer Terms

A friend of mine quoting the President and CEO of an organization on whose Board he serves said yesterday that “when the Board leadership turns over every year, the CEO, in effect becomes the Board Chair.” I hadn’t thought about it before but that is exactly right!

One of the more challenging aspects of serving as the CEO of a nonprofit is having a new boss every two years. I say two years because on average, most community based agencies have Board Chairs appointed for one-year terms renewable once, and most of the time, they are renewed. That means most CEOs get two years to work with their Chair – and even getting a new Chair every two years is a challenge! Just when you were getting used to the old chair, and just when that chair was really hitting her stride, we switch!

When the systems and processes are set, there is a Board Development and Strategic Plan in place, and the Board is clear on their roles and responsibilities, for the CEO it means a new boss, new goals (of the Chair not necessarily the organization) and new processes for communication.

When none of those things are in place and the by-laws/code of regulations call for one-year officer terms it means a lot more; it means starting from scratch, all over again, every year. It can feel like musical chairs, but with new music, new chairs, new people and no rules.

In those cases, the CEO may very well become the de facto Chair, because the Chair, who may or may not have been trained, may or may not have been oriented, and probably wasn’t groomed for the role, isn’t going to be in the seat for long enough to figure out the job.

The other reality is that unless the CEO was trained on building a board – and if the aforementioned sentence has happened, it is safe to assume he was not – he may not even know where his role ends and the Chair’s role begins.

There is, of course, another side to this arrangement. Sometimes it’s a good thing. Some Chairs are elected by default, meaning they’re there and willing but not necessarily suited or trained to the role. In those cases, one year terms are a blessing and offer the Board the opportunity to make a different decision.

In either case, and regardless of length of service, you don’t want your CEO to become the default Chair. It may not be terrible but neither is it governance.

The Board is responsible for governance, which includes Mission, Vision and Strategic Planning; Hiring, Supporting and Evaluating the Executive Director; acting as the Fiduciary Responsible Agent; Setting Policy and Raising Money.

One year officer terms, renewable once, offer a longer tenure and a higher likelihood of good governance. The 1^st year is often a year of learning and by the 2^nd year the Chair CEO relationship has clicked, things are getting done and the agency is moving forward and meeting it goals!

That’s what you want. Turnover in board leadership is healthy, as long as it’s planned turn over, with training, orientation and grooming so the Board and the CEO stay the course, or chart a new course together.

What’s been your experience with Officer terms? What does your agency do? As always, I welcome your insight, feedback and experience. Please offer your ideas or suggestions for blog topics and consider hitting the follow button to enter your email. A rising tide raises all boats.

Running your Nonprofit like a Business?

I cannot tell you the number of people over the course of my 20 years in nonprofits that congratulated me for running my nonprofit like a business and went on to tell me nonprofits should be run like a business. I never knew what to say. Thank you?

It seems to be one of the true disconnects that proves my often repeated phrase “where you sit always determines where you stand.” For those of us who have spent our careers in nonprofits, we hear it as an insult that implies businesses are better run, even though there is ample evidence to the contrary.

For those who were raised in the for profit sector, the comment acknowledges that some nonprofits are run by well intentioned but poorly trained leaders, and it is meant as a compliment. The compliment being that the Exec watches the bottom line and is accountable, professional and transparent.

We want, need and demand that our nonprofits be accountable, appropriate and transparent. However, we also want them to meet mission. Perhaps that’s the disconnect. Businesses have no mission.

Nonprofits have to manage the budget and meet the mission: We expect them to meet the needs of clients in an equitable manner. We insist that they spend money the way it was awarded and budgeted and when that isn’t possible, that the funder approves the change. We expect staff to be held to the same standards, and paid similar salaries for similar work. We count on our Executive Directors to be responsible to the Board and the Board to be responsible to the community.

Now that I own my own business, I can tell you that the checks and balances inherent in running a nonprofit are much more stringent than those needed to run a small business. As a business owner I can pretty much, within the bounds of the law, do whatever I want. I have no Board to report to, or to hold me accountable. It’s my company. I started it. I make the decisions and it lives or dies with me. That is the structure of a small business.

That is not the structure of a nonprofit. Nonprofits are not run by one person for a reason. The Board represents the community as the owners of the organization. The organization exists to meet a need. Businesses, which also address needs, exist to make money.

That’s the real crux of my beef with nonprofits being run like a business. When they are, the Exec leads and the Board is an after-thought; often because the Board was built that way by an Exec that wants to run the nonprofit like a business. The Exec sets the direction, and tells that Board what she or he feels they need to know, and the Board accepts that. There is a lot of rubber stamping and very little governance. In such cases, the Board only becomes engaged when there is a crisis. That was not the leader I aspired to be, and not the Board I built.

I want more from our nonprofits. I want them to meet the level of accountability our communities expect and deserve. I want them to meet their missions. I want them to have an engaged Board and innovative leadership and to move the needle of change in their community.

As always, I welcome your feedback and your experience.