Braving the Economic Reality: Five Effective Nonprofit Practices

Editor’s note: The following article was originally published in the May 2012 issue of Insights, the monthly publication of Dance/USA affiliate member the Arts Consulting Group. It is re-printed here with kind permission.

By Rebekah Lambert

Unlike arts and culture organizations, nonprofits in the human services sector have traditionally depended heavily on government funding. A recent article in the Stanford Social Innovation Review (SSIR), “Five Ways to Navigate the Fiscal Crisis,” successful funding strategies for such nonprofits. The authors, Daniel Stid and Willa Seldon, show how these practices allow human services organizations to “seek and secure public funding while advancing their mission, sustaining their organization, and retaining some room to maneuver in the process.”

Cultural organizations, of course, tend to have very different funding models than those dedicated to human services. In 2009, human services nonprofits received more than $100 billion (representing about 65 percent of their total revenue) from government agencies via contracts and grants for the delivery of services. By contrast, a National Endowment for the Arts Research Note published in April 2011 documented government contributions to nonprofit performing arts organizations at just 4.3 percent of total revenue.

We’ll look at how Stid and Seldon’s five fiscal navigation practices in the social services arena translate compellingly to addressing challenges faced by museums, orchestras, zoos, theater companies, aquariums, public broadcasters, and other arts and culture institutions.

PRACTICE ONE: GET TO STRATEGIC CLARITY
Particularly during economically challenging times, it is of utmost importance that senior management and board leaders have strategic clarity. This consists of a sound and shared understanding of mission, vision, and values superimposed with insights into the intended impacts that their organization is meant to have in serving their community. With this knowledge, informed decisions about the strength of various programs can be made, as those programs relate to purpose, to audience, and to generating the revenues needed to meet expense parameters.

Stid and Seldon recommend that human services nonprofits get to strategic clarity by setting “priorities for where, how, and with whom you seek to have impact,” while understanding “the true cost of each program or set of services” and making “better decisions about whether or how to pursue a particular opportunity for . . . funding.” There is no question that this recommendation translates to arts and culture organizations.

In his Good to Great and the Social Sectors: A Monograph to Accompany Good to Great, Jim Collins elegantly describes the key elements that, together, create strategic clarity. They are: Passion (understanding and believing in your organization’s values and its mission), Skill (understanding what and how your organization can best contribute to your community), and Resources (such as time, money, and brand). The intersection of these three components is where strategic clarity is achieved.

PRACTICE TWO: DIVERSIFY FUNDING STREAMS
Organizations that have a diversity of funding mechanisms — and diversity within those categories — are more resilient and less vulnerable because different groups of funders and supporters are likely to weather economic transitions differently. For organizations that get most of their funding from government sources, Stid and Seldon recommend that they vary that funding across agencies, programs, and contracts, and that they do this strategically by playing to their skills and focusing on their mission. This holds equally true for those in the culture sector in the sense of diversifying all contributed and earned revenue funding streams to achieve depth and breadth of support.

To this end, organizations can diversify and bolster the ways that the community can “invest” in their value proposition. These can include: purchasing memberships, season, or single tickets; contributing annual, capital, or special project funds; sponsoring a concert or exhibit; making a legacy gift and more. It is important to ensure that the composition of each of the groups providing these different types of support is as diverse as possible.

Another way to approach the issue is to ask yourself the following questions in making a funding diversification assessment:

• Are you heavily dependent on financial institutions for program sponsorships?
• Does your major gifts program rely on the same small group of donors who have been supporting you for decades, or are you bringing in new donors whose capacity to give comes from diverse sources?
• Does your ticketing offer different price points to bring in audience members from various socioeconomic levels?
• If your mission is to serve a larger geographic area, does your funding mix and board representation reflect its diversity?
• Are your communication strategies targeted to resonate with different kinds of supporters whose values may be in alignment with more than one “case statement”?
• Can you expand earned income opportunities by partnering or sharing resources with other organizations? Perhaps your company can provide discounted space rental if you own your facility or lease equipment if you own instruments that others might be unable to afford to purchase.

PRACTICE THREE: IMPROVE PRODUCTIVITY
As has been quoted many times in the orchestral field when considering cost reductions, “it takes the same number of musicians to play Beethoven’s Fifth Symphony today as it did 100 years ago.” But while it may be true that arts and culture organizations have unique challenges in terms of increasing “productivity,” we are not in the manufacturing industry. It is therefore important not to let perceived obstacles prevent your organization from exploring other ways in which it might be both more efficient and productive.

In order to improve efficiency, one area to consider may be investment in critical human or technological capabilities. For example, is your organization still tracking different types of data on separate, cumbersome spreadsheets that don’t “talk” to each other? Most likely, it is well past time that you transitioned to an integrated customer relationship management and/or point-of-sales system that integrates tickets sales, memberships, donations, class registrations, educational programs, and other activities. This may be a sizable investment of time and money, but delaying such a transition will not reduce these costs in the future and will likely hurt your organization’s bottom line in the meantime.

In another example, Arts Consulting Group’s October 2011 survey, Understanding the Decision Making Process of Nonprofit Partnerships: From Collaborations to Mergers, highlighted some ways that organizations are working together to increase productivity. Some 41 percent of respondents reported strategic partnerships in which they are collaborating with other organizations on administrative or other functions. More than two-thirds cited cost-savings as a motivating factor for partnering with others. Another way to improve productivity is to plan, track, and adjust how you use marketing and fundraising tools. This will help ensure that you use your valuable resources of time and money in the most cost-effective and impactful way. Are you utilizing volunteers effectively in these areas?

Each of these methods of improving productivity will be most effective if organizational clarity has been achieved (see Practice One). The clearer the vision and organizational goals, the better people will be able to look for creative and productive ways to improve systems and operations to reach those objectives.

PRACTICE FOUR: MEASURE OUTCOMES
Outcomes measurement answers the question: What are we doing that is really effective and to what end? This provides opportunities for organizational learning and can guide plans for improved program development and delivery. Accurately measuring outcomes allows your institution to report its positive impact in the community more reliably and effectively to funders and to convince them of organizational value in direct, concrete terms.

Arts and culture organizations sometimes struggle with outcomes or performance measurement, but as Stid and Seldon note, “If the goal is to stay focused on mission, then measuring outcomes is essential.” A human services executive quoted in the SSIR article put it this way, “We started focusing more on measuring our outcomes as a result of our organizational curiosity — What are we doing that actually works? We also have come to believe — looking ahead to the future — that if we couldn’t answer that question, our funding would go to someone who could.”

Often, arts and culture organizations come closest to communicating impact in grant reports or end-of-year appeals by focusing on education programs for young people, highlighting how many children were served and how they were changed through the experience. If outcomes measurement is new to your organization, start with one program and just a couple of things to track. Focus on the audience — the beneficiaries — and the impact that the program has on them. For example, and quite simplistically, if your goal is to increase appreciation for your particular art form, a short survey after a performance or exhibit opening might ask attenders to report how they “felt” by their experience, what they “thought” about the experience, and whether they will come to a subsequent event.

PRACTICE FIVE: KNOW YOUR CUSTOMERS AND THEIR NEEDS
This is the basic concept of aligning your mission-driven activities with what your stakeholders, including your funders, need and want. According to Stid and Seldon’s research, the organizations that are most effective in engaging government support view government decision makers as customers. “They try to understand their concerns and unmet needs, and they design compelling solutions.” Often, nonprofit organizations are inclined to focus only on the beneficiaries of their programs as the customer, rather than the funders of those programs as the customer.

This segues beautifully to arts and culture organizations in several key ways. Listen to your patrons and donors, your volunteers and partners. Engage them in conversations about the impactful work you (and they) are doing. Seek to understand both their needs and desires. Have you incorporated a community engagement process into your strategic planning? Do you have accessible mechanisms for supporters to give feedback and ideas and do you respond promptly and openly to them? Answers to these and other questions will put you in a better position to shape funding requests, design (or adapt) programs that community members want to attend and support, and create compelling messages that resonate with the people you are trying to engage, motivate, and cultivate.

THREE BEHAVIORS TO AVOID
As a sidebar, Stid and Seldon’s article offers tips on behaviors and practices to avoid during challenging times, all of which translate to arts and culture organizations. First, even in a crisis, don’t be afraid to make tough choices about changes in leadership, staffing, or operations. In other words, don’t put off the hard decisions. Second, don’t get caught in a negative mindset. Stay positive and open to opportunities to strengthen your organization. Network, collaborate, and don’t be afraid to ask for help. Finally, don’t fall into the trap of panicky, short-term decision-making or crisis management. Take a breath and keep sight of your responsibility for the long-term stewardship of your organization, in tandem with your mission, vision, and values.

CONCLUSION
Ultimately, advancing your organization in good times and bad requires clarity of vision, focus on mission, discipline of thought and practice, and proactive engagement with the community. No matter the type of nonprofit organization, the five practices outlined above can provide a roadmap that, while not failsafe, will enhance your organization’s ability to serve its community and achieve lasting impacts by providing it with the funding needed to do so effectively.

Sources:
Good to Great and the Social Sectors: A Monograph to Accompany Good to Great, Jim Collins. Harper Collins 2005.

“Five Ways to Navigate the Fiscal Crisis,” Daniel Stid and Willa Seldon. Stanford Social Innovation Review, Winter 2012.

Understanding the Decision Making Process of Nonprofit Partnerships: From Collaborations to Mergers, survey conducted by Arts Consulting Group. October, 2011.

Rebekah Lambert joined Arts Consulting Group in November 2009 with over 19 years experience in performing arts management, planning, board development, policy formulation, union negotiations, artistic administration, operations, and program planning. Over the course of her varied career, she has proven herself to be a thoughtful, creative, and flexible leader. From 1996-2003, Lambert served as executive director of the Eugene Symphony, where she completed eight concert seasons with surpluses and doubled the orchestra’s endowment fund. Lambert began her career in arts management in Los Angeles with positions at the Los Angeles Philharmonic and the Young Musicians Foundation. After completing the American Symphony Orchestra League’s Orchestra Management Fellowship, she went to the Honolulu Symphony, first as operations manager and then as orchestra manager. After finishing her MBA in 1994, she was executive director of the Symphony of Southeast Texas, where she professionalized that orchestra’s administrative and fundraising capacity.

Prior to joining Arts Consulting Group, Lambert worked in executive leadership for a large human services agency, where her duties included program supervision, coaching senior managers, and planning. She led a successful change process that resulted in a new model of service delivery to meet state quality goals. She served as a Peace Corps volunteer in Albania from 2003 to 2005, where she engaged in capacity building efforts with municipalities and non-profit organizations. Lambert holds a Bachelor of Music degree from the University of California, Santa Barbara and an M.B.A. from the Yale School of Organization and Management.