Sisyphus Looks Inward: Nonprofit Short and Long-Term Decision Making Starts with Honest Self-Assessment
This article is the second installment in a series produced for the JMT Consulting Blog. Click the following link to read the first article in the series, “Sisyphus Had It Easy: The Case for Nonprofits to Prioritize Long-Term Solutions Even When Short-Term Challenges Abound”.
Upon finding out in part one of our series that he’d been eclipsed by nonprofit executives rolling multiple rocks up multiple hills at the same time, Sisyphus stopped on his mountain for a moment to reflect. He asked, “Is this who I am? Is this what I want to do? Am I happy?” Perhaps Sisyphus could learn a thing or two about rock-rolling from today’s nonprofit leaders, but those leaders could benefit from Sisyphus’s newly discovered introspection and soul searching. Even during prosperous times—and especially during difficult ones—nonprofits must continually evaluate, assess, and come to terms with their own financial, organizational, and mission being. Introspection is the precursor and launch pad for the practical and strategic decisions nonprofits make. What is often less clear is how to evaluate a nonprofit’s unique amalgamation of programs, priorities, mission directives, finances, and values as indicators of long-term success.
In part one, we identified two continuums crucial to nonprofit success that run in parallel and feedback on one another: financial health and mission independence.
We know these two continuums must at some point intersect. Suppose we rotate the financial independence continuum 90 degrees to form the Y-Axis. Mission independence remains on the X-axis. This creates a four-quadrant nonprofit self-assessment matrix in which the X and Y axes are based on measurable criteria.
Each of these four quadrants has a unique set of existential challenges, opportunities, and questions that must be explored and understood. While an honest self-evaluation process is necessary for all nonprofits, there is no prescriptive right or wrong. One size does not fit all.
The Y-Axis: Tracking Your Position on the Financial Independence Continuum
The following questions reflect an organization’s position on the continuum of financial independence:
Is the organization accumulating the unrestricted net assets essential to financial independence over time?
Unrestricted net assets represent organizational capital controlled by the nonprofit, not the donor, and are generally built up over time through accumulated surpluses. Organizations can benefit from unrestricted net assets in a variety of ways:
- As a primary source of reserves
- As an accessible pool of capital to invest in mission, leadership, operations, and/or research and evaluation
- As a source of revenue with a flexible spending rate
- As a source of short- and long-term liquidity
This pool enables an organization to run deficits when needed, to invest in strategic planning, to weather storms such as COVID-19, and to take advantage of immediate opportunities, especially during times of societal transition.
Does the organization have a sustainable business model contributing to financial independence?
For most organizations, this means having a diverse, flexible, and mission-aligned set of short- and long-term grants and contributions, income from restricted as well as unrestricted sources, robust earned income streams, and a solid development capacity. Striking a balance between government grants and contracts, earned revenue, and contributions from foundations, donors, and private companies not only spreads risk around but contributes to a sustainable business model. It’s critical that an organization’s expense structure, including a viable indirect cost recovery rate and a credible investment in fundraising, be aligned with revenues over time, as well as factor in expenses related to strategic planning and long-term investment.
Is leadership putting short- and long-term liquidity and debt in the right perspective?
Finance committees that obsess over cash-on-hand, especially when the organization is not necessarily in cash extremis, tend to put off addressing long-term, big-picture strategies and trajectories. Developing a clear understanding of the business model’s ebb and flow of liquidity will limit cash flow surprises and allow organizations to plan and prepare.
The X-Axis: Tracking Your Position on the Program and Mission Independence Continuum
Are programs financially supporting the level of mission independence your organization wants?
Program financial health is a key determinant of program independence. Breaking down individual programs, program departments, program management, and program fundraising by revenue, expense, and net income numbers will provide an objective metric for determining a program’s independence. Programs that are fully funded over an extended period of time by multiple funding streams are more likely to be in control of their own destiny.
Along with these quantitative metrics, a holistic understanding of programs should include a qualitative, subjective sense of programmatic priorities and systemic accomplishments. A formal evaluation over time can determine program effectiveness and priorities moving forward and allow organizations to adjust and adapt programs in real time based on that determination of what works and what doesn’t. That adaptability based on honest program feedback and evaluation is what will ultimately attract long-term revenue streams.
Is the influence of funders negatively impacting program independence and therefore performance?
Assuming that nonprofit management has the right expertise and experience to understand program goals and how to evaluate program success, funders who bend programs or program evaluation to their own interpretation of success may undermine impact and outcomes. Funder motives can be capricious and interfere with a program’s mission goals and long-term perspective about what compelling mission impact looks like.
Does your budget process highlight and prioritize compelling mission and program objectives?
CEOs, CFOs, and development departments should ask program leaders what they need, rather than what can be cut. A fluid budget process should prioritize investments in salary, staffing, benefits, leadership, and internal education. The organization’s budget should articulate a pipeline of program activities and innovations, define a process for incremental and transformative strategic thinking, plan for ways to capitalize on opportunities, and offer contingencies for what happens if programs or fundraising don’t go according to plan.
What Quadrant Are You In? Assessing an Organization’s Financial Health and Mission Independence
Quadrant 1: “Existential Crisis”
This group aspires just to survive and probably hasn’t figured out what to do afterwards.
- If an organization is in cash extremis, what dramatic steps are necessary?
- Are there clear mission goals beyond merely existing?
- What has been sacrificed in order to keep the organization going? For example, do donors and not organizational leaders control programs and mission metrics?
- Honestly, is the business model even viable in the long term?
- What can be salvaged, and should it be salvaged?
What Quadrant Are You In? Assessing an Organization’s Financial Health and Mission Independence
Quadrant 2: “Considering Retirement” – Financial Resources Without Effective Programming
Financial resources exist but programs have short-term results, with limited systemic impact. Even with the available funding, the organization struggles to articulate long-term mission impact goals and a way to achieve them.
- Are you willing and able to invest the financial resources in effective programs, long-term outcomes, innovation, and research and evaluation — even at the expense of decreased unrestricted net assets?
- Is there a compelling programmatic strategy which justifies the use of the financial resources? Is the organization capable of coming up with such a strategy, and driven to do so?
- Could the financial resources honestly be better spent at a different time, even while delaying may risk mission relevance in the present?
Quadrant 3: “Mission Motivated” – Effective Programming Without Financial Resources
Programming is strong, but financial resources are limited. Despite mission clarity, it is not clear that there are sufficient resources to move beyond superficial impact.
- Does the organization understand the financial resources necessary to invest in effective programs?
- Is the programmatic strategy connected to the financial strategy?
- Are programs structured in such a way that they can generate unrestricted revenue or attract restricted contributions? If not, is there a good enough mission justification for keeping them around despite running deficits?
- Should the organization narrow its focus and fund specific, compelling program areas, reducing the overall scope and size of the organization?
Quadrant 4: “Organizational Self-Actualization” – Optimal Combination of Financial, Program, and Mission Independence
This quadrant represents the land of opportunity, a chance to take transformational risks and rocket to a whole new mission fulfillment level.
- What are the ambitions of the organization given the unique mission opportunities in front of them?
- How does the proactive organization maintain its finance and program imperatives to systematically achieve mission independence?
- Does the organization continue to take incremental or significant mission risks to maintain and grow?
- How does the organization view its responsibility to lead other organizations in the sector, and to share its findings about what has been successful?
Now that your organization has introspected and taken stock of where it is now, it is time to take action. Just as there is a next step for Sisyphus, nonprofits need to identify their next steps while being true to their organizational selves. Every organization plots differently on the self-assessment matrix, so no path is pre-determined. Trade-offs, timing, short- and long-term priorities, and flexibility are all integral to the unique decisions every organization has to make. But organizations no longer have the luxury—in this hyper-competitive and ever-changing environment—to plod along on the same mission or financial treadmill that has kept them in place for years. The organizations that truly take stock of themselves and embark on a path that’s true to their own mission identity and values will be best-positioned in the years ahead to achieve true mission independence, the best formula for actually making a difference.