barriers

Capacity Building and the Overhead Myth

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The concept of capacity building seems to be unique to the nonprofit sector, although it's immediate definition could apply to any organization, or anyone for that matter:

Capacity building or development is the process by which individuals, groups, organizations, institutions and societies increase their abilities to: perform core functions, solve problems, define and achieve objectives; and understand and deal with their development needs in a broad context and in a sustainable manner."

Within the nonprofit sector, capacity building has gained substantial attention over the years, primarily because we all created an environment where nonprofits did the opposite: their activities consumed capacity, every bit that they had.

Why do nonprofits eat away at their capacity rather than use it to build more?

1. Nonprofits are mission-driven, to the core.

There are always more mouths to feed, babies to save, and water to clean. The job is never done and the leaders we attract to serve within nonprofits are motivated by the mission, lacking the long-term perspective of a seasoned executive.

2. Funders and donors demand it.

The unfortunate truth is that private foundations, corporate funders, and many major donors are still part of the problem: they want warm fuzzies in exchange for their cash, so they only award it to nonprofits who promise to use it for direct services.

3. Government and industry organizations made capacity building a black mark of doom.

This is the holy "overhead" percentage myth. Here in Utah, as in many states, it is printed with pride, or shame, directly on your charitable solicitations permit, supposedly as a way to protect the donor.

Industry organizations, like Guidestar, the Better Business Bureau Wise Giving Alliance, and Charity Navigator, touted the overhead percentage as the single biggest determinant of whether a charity was worthy of a donation. Luckily, they have since removed the thorn that demanded service over capacity to serve and are trying to undo the damage.

The overhead percentage, if you're unfamiliar, is simply this: all of your spending on anything besides programs and services as a percentage of your total spending.

Charities have attempted to live up to superhuman standards: to perform their charitable services while spending as little as possible on leadership, marketing, fundraising, talent development, research, and organizational development.

The result is a nonprofit organization you should never want to invest in.

An ill-equipped executive team with zero experience leading an organization or managing its finances. The inability to attract any talent to it's employee pool. Poorly delivered services as employees receive zero development or mentoring. High turnover since employees are asked to perform miracles in a crappy office with no supplies or support.

Even more critical is that a nonprofit where 90%+ of funding is eaten up by services is extremely inefficient.

They cannot deliver their mission effectively because every dollar donated is just a dollar. It does not get multiplied by investing in marketing or fundraising where it could turn into 5, 10, or even 100 dollars. It cannot be invested in the salary to recruit a talented Executive Director with the experience and abilities required to do more and better.

Capacity building is the inverse of this mess. It is a purposeful investment of resources in increasing efficiency, engaging in strategic growth, and refining internal mechanisms for service delivery to become more effective.

Nonprofits have an obligation to seek new and even more effective ways of making tangible progress towards their missions, and this requires building organizational capacity.

All too many nonprofits, however, focus on creating new programs and keeping administrative costs low instead of building the organizational capacity necessary to achieve their aspirations effectively and efficiently…This must change: both nonprofit managers and those that fund them must recognize that excellence in programmatic innovation and implementation are insufficient for nonprofits to achieve lasting results.

Great programs need great organizations behind them.”

Effective Capacity Building in Nonprofit Organizations, Report for Venture Philanthropy Partners by McKinsey & Company (2001)

Which is your organization engaging in? Fear or hope?

The Nonprofit Management Audit

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The goal of a management audit is to identify your internal blind spots - the risks the organization is incurring due to gaps in day-to-day operations. It's more commonly practiced within the corporate world, but non-profits are especially at risk for unknown weaknesses. Passionate, well-meaning people found beautifully optimistic nonprofits everyday. There is a notion that a running a "charity" will be nothing like running a business; nowhere near as difficult.

While most fail quickly, many nonprofits make it past infancy to the point of acquiring space, allocating a stable salary for the founder-turned-Executive Director, and hiring a few staff members.

This is the next major fail point.

The compliance requirements, reporting, paperwork, payroll taxes, liability insurance, property tax exemption declarations, sales tax reimbursement requests, charitable solicitation permits, business licenses, accounting systems, spreadsheets, meetings, and much more aren't what the founder envisioned.

Without experience, it's nearly impossible to recognize which puzzle pieces are missing and which will cause you the greatest grief. This is where the management audit comes in.

A professional management audit should be conducted by a consulting firm so as to provide objectivity and hopefully some resource-saving expertise. But organizations of all sizes should engage in regular, internal management reviews to continuously build an infrastructure that is sustainable and protect your 501c3 status.

To help you get started, here are the major areas I might review during an audit, depending on the goals of the organization:

Foundation

Charitable Purpose By-Laws Mission Vision Strategic Focus Annual Plan Long-term Strategic Plan Impact (Outcomes)

Regulatory & Compliance

501(c)(3) Status Charitable Solicitations Permit Business License(s) Independent Financial Audits (Voluntary or Required) Annual IRS 990 Submission Workers Comp Unemployment Insurance General Liability Insurance Directors & Officers Liability Insurance Policy & Procedure Document Retention Policy & Management Industry-Specific Regulatory Requirements

Executive Leadership Team

CEO / Executive Director CFO / Financial Director Additional Leadership Roles Team Structure & Decision Making Process Development & Coaching Board Chair Involvement Succession Plans

Financial

Zero-Based Annual Operating Budget with Board Approval Frequency of Financial Reporting to the Board Financial Controls in Writing and in Action Bookkeeping Responsibilities Accounting Software / Firm In-Kind Donation Tracking Restricted Funds Management Diversification of Revenue Earned Income Activities & Unrelated Business Income Compliance Annual Financial Review/Audit 990 & Financial Review/Audit Board Review & Approval Overhead Percentage & Sustainability Cash Reserves Physical Assets Security

Board of Directors

Recruitment & Member Induction Process Director Agreement / Code of Conduct Director Terms Director Compensation Conflicts of Interest Policy & Annual Disclosures Meeting Minutes Number of Quorum Meetings Annually Committees Level of Attendance & Contribution Director Onboarding / Ongoing Training Board Chair Succession Plan

Human Resources

Employees - Open Position Postings - Equal Employment Opportunity (if covered entity) - Employment Applications - IRS W-4 - I-9 - E-Verify (15+ Employees) - Regular Supervision - Documented, Regular Performance Reviews - Timesheets - Any Required Training Documentation - Labor Law Compliance Posters

Independent Contractors - Categorized Correctly - Current Contracts - Business License - Professional License(s) - Invoices

Volunteer Applications Volunteer Hours Reporting Background Checks (Voluntary or Required) Confidentiality Agreements Onboarding Process Ongoing Internal Training Opportunities (Voluntary or Required) Disciplinary Action Policy & Documentation Hard & Electronic HR Files Security

Outreach & Development

Strategic Development Plan Development Calendar Website Social Media Grant Proposals & Follow-Up Special Events Major Donors Individual Donors & Stewardship Promotional Materials Outreach Activities Community Engagement Industry Network PR

IT

IT Equipment Phone System Software & Technology Email System Shared Calendar System Accessibility & Security Internet Access Policy

Space, Equipment & Supplies

Space Ownership / Lease Office & Staff Supplies Staff Break Areas

*Disclaimer: I primarily work with nonprofits located in my own state. Some of the identified requirements or permits are exclusive to Utah.

New Tools for the DIY Founder

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I specialize in building the backbone of young organizations, allowing them to scale their impact. Over the years of working within this segment, several consistent pain points have emerged:

  • Preparing a professional annual budget that actually helps guide decisions
  • Setting up compliance activities (business licenses, charitable solicitations permit, labor law compliance, etc)
  • Establishing paperwork and procedures for new hires and independent contractors
  • Implementing financial controls
  • Developing overall policy and procedure documents

Often times, figuring out exactly what is causing the ceiling on your efforts is part of the mystery.

However, I often encounter passionate executives who are know they are missing these pieces, but they just don't have that expertise. This is especially true in the nonprofit sector where founders become CEOs without much formal training on the dark side of organizational leadership: spreadsheets, paperwork, and compliance.

This is why I'm launching affordable toolkits for the Do-It-Yourself founders out there.

Reinventing the wheel is time expensive and often results in subpar outcomes, but hiring the expertise is often cost-prohibitive, even under a temporary consulting agreement.

Instead of paying $300-500 for someone like me to commute, meet you face-to-face, and develop an annual budget, simply throw your figures into a spreadsheet and exchange it for a professional workbook containing your annual budget and variance reports, automatically calculated based on your actual results during the year. All for a flat, affordable fee and in just a couple days.

Already have a decent grip on your budget, but need to convert it to a format that will help you track revenue and expenses easily and present professional reports to your Board? Simply download the DIY Budget template.

Hiring your first employees or bringing on an independent contractor? HR is synonymous with paperwork and payroll demands you do it right. Download the HR quickstart toolkit and get a handy checklist for your new hires plus all the paperwork you need, easily customized for your company:

  • Employment application template
  • Timesheet template
  • Contract template
  • Invoice template
  • IRS Forms

Virtual Budget Prep, the DIY Budget Template, and the DIY HR Toolkit are all available now. More products are on the way, including starter policy and procedure, an earned income for nonprofits workbook, and a financial controls toolkit. Be sure you're on the mailing list to get the latest product updates.

Growing your organization shouldn't mean late nights pouring over IRS publications or scouring an Excel spreadsheet for the broken formula. You have better things to do to advance your mission.

Don't be a Tupperware Leader

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One of my favorite books on leadership is EntreLeadership by Dave Ramsey, probably because I lean toward the entrepreneurial side of the continuum. The lesson that has stuck with me in the years since reading the book was that as a leader, I am the ceiling. To give fair credit, Ramsey takes this concept from John Maxwell's The 21 Irrefutable Laws of Leadership. Maxwell calls it the "Law of the Lid", as in the lid on your organization.

As leaders, we are both our organization's solutions and our organization's problems. Hopefully with more tally marks on the solutions side. Our strengths become our organization's strengths. Our weaknesses = the organization's weaknesses.

This is a fact of life. None of us are perfect.

That being said, if we fail to take a good, hard look in the mirror every so often to become increasingly aware of our weaknesses and act to mitigate them, our organization will run up against that lid sooner rather than later.

This is critical whether you are a project leader, department manager, or the CEO. So, how do we mitigate our tendency to micromanage, our inability to lead an effective meeting, or any other personal shortcoming?

  1. At the very least, acknowledge the deficit. Don't pretend it doesn't exist.
  2. Build your team purposefully to fill in your gaps. Don't clone yourself or you will simply magnify your own flaws.
  3. Focus on applying your strengths first, then work to improve your weaknesses where appropriate.

Opposites attract in marriage for a reason. I am great with managing the little details. My spouse is great at keeping perspective. This naturally creates conflict, but it also creates balance.

This is how a fine tuned leadership team works. Diverse strengths lift the lid a little higher, allowing the organization to reach greater heights.

This is also why filling in the gaps with natural talent is #2 on the list. It's faster, more efficient, and more reliable to bring established assets to the table than to try to course-correct your shortcomings.

You may never be the best meeting facilitator, but you should observe your empowered replacement to continuously grow and adapt because you also never know when the recruited talent could call in sick or walk away.

Bottom Line: Don't be vacuum-packed tupperware. With awareness, purposeful team development, and personal development, you should continuously push the lid for your organization.

How have you mitigated your leadership weaknesses?

4 Type-A Networking Mistakes

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My perspective on networking when I was working a salaried 9-to-5 was likely similar to most folks:

  • I don't have time.
  • I am doing just fine on my own.
  • What's the benefit to me?

When my career took a sudden and unexpected turn and I left said job, I realized my mistake with heavy regret. The understanding of what genuine networking consists of and where I had failed came in waves.

1. I quietly shined in the background.

I missed hundreds of relationship opportunities where I shined, but didn't connect. I rarely introduced myself to the key players in my industry or shared what I was working on. I sat at the table, listened, and performed quietly within my organization. I invested in my boss's approval and the relationships contained within a single company because I didn't plan on leaving and immaturely believed I could get things done best on my own. When I did network, I did so on behalf of my company, never connecting as an individual.

2. I saw networking as rubbing shoulders at events.

I held a naive view of networking as scheduled events where I could introduce myself to new people. This created so many barriers to genuine relationships. First, I didn't "have time" to attend events like this. Second, when I did prioritize an event, I didn't know how to take advantage of introductions. I told them what I did, they told me what they did, we swapped business cards. Once in awhile a relationship would form because the stars aligned at the right time with their needs and mine, but it was always a short-lived surface connection that died off when our mutual interests went in different directions.

3. I was self-centered and opportunities looked like work.

I was genuinely very busy at my job (due to hoarding the work in exchange for control). So, when I came across opportunities to volunteer, advise, or otherwise share space with other professionals, I saw them as tasks that simply added to my overwhelming to-do list. Why should I share my expertise with others? Why should I volunteer my time when my time is in such short supply? I certainly never went looking for this additional "work", let alone responded appropriately when it came looking for me. I stubbornly figured challenges out on my own to the extent that when I reached out to an organization with a successful model for a project I was leading, I was motivated to do so because it would look good on funding requests.

4. I thought well-connected people were born that way. 

To me, the popular saying, "it's all who you know" was said sarcastically under your breath after congratulating a snob on their unearned promotion. Their wealthy, well-connected parents obviously pulled strings with their golf buddies to get little Johnny that CEO title at 22. While this may be true at times, nepotism is totally separate from networking. I failed to realize that I too could "know people" and move to the top of the list for exciting opportunities, even after discovering that if I hired someone I knew, I always got better results. Hello, McFly?

I was fortunate that after I dumped a ridiculous amount of career nesting crap into the back of my car, an unsolicited introduction resulted in a wake-up call to the importance of relationships. One connection introduced me to another, who introduced me to another, resulting in the privilege of learning from a strategic relationship master.

This one relationship has led to at least a dozen high-powered connections and already several opportunities that have rounded out my skills and increased my value in the marketplace. Much beyond that, I got to reverse my past mistakes and begin investing in relationships the right way, which will lead to immeasurable benefits going forward.

I look back and wish I had found a way to benefit that original link who made the first unsolicited introduction, because the series of connections that she kicked off have added exponential value to my life and career.

Relationships are a little magical. You never, absolutely never, know where one will lead.

So, shine openly and beyond the walls of your office, invest in everyone you come in contact with all the time (even if it's just a quick compliment), appreciate opportunities to volunteer yourself as gifts, and remember that anyone can grow their network into an all access pass by generously listening and competently adding value.

The Keys to Superconnecting

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Nothing happens without people and unbelievable feats occur when a tribe pools their resources. Successfully building and navigating relationships is key to achieving extraordinary goals, both personally and in business. If you missed Judy Robinett's webinar on building relationships to build business on Thursday, you missed out on some gems. Robinett has spent years breaking down what she does naturally into a proven formula that anyone can use to build valuable relationships.

The steps are deceptively simple, but just like adding yeast to a few basic ingredients transforms them into a much greater result, Robinett's recipe for relationships will multiply your outcomes.

Confront your Fears

What's holding you back from starting those critical first conversations? Your assumptions are almost guaranteed to be wrong.

  • Shy? You don't need to be a gregarious extrovert, you simply need to engage. Focus on the other person.
  • Stranger Danger: The distance between a stranger and a friend or a mentor can be crossed with genuine conversation.
  • Lacking a Harvard degree in a room of brilliant people? No pedigree or silver spoon is required. Your experiences give you unique knowledge.

Four Prerequisites

You don't need a pedigree or a huge personality, but you must develop these areas in order to develop strong relationships:

  1. Become an amazing listener. Remember the details. Ask thoughtful questions. Start with a goal of learning about them, rather than trying to find commonality. This will come naturally.
  2. Be genuine. Like bloodhounds, there is a sensation that creates distance when you encounter someone who is  hiding something. Be you, regardless of whether you feel insecure.
  3. Don't rush it. Robinett compares networking to dating. You need to work up to the ask and then court for a period of time. The first conversation is not the time to ask for more than advice.
  4. Be value-driven. Be passionate about these cornerstones that guide your life. Integrity, accountability, and empathy will attract the right people to you.

Three Golden Questions

Don't try to make them yours right off. Try them out just as they are and experience the magic:

  1. How can I help you?
  2. What other ideas do you have for me?
  3. Who else do  you know that I should talk to?

Nurturing relationships is a marathon, not a series of sprints or hurdles. Your focus needs to be on quality, not quantity. Target the right groups and focus in on a few key people rather than trying to get your business card into the hands of every person present.

Attempting success alone places a very real ceiling on your potential. The people that are available to you hold the keys to connections, information, money, and opportunity. What do you have to lose?

Learn more about Judy here: www.judyrobinett.com

Follow her on Twitter: @judyrobinett