efficiency

When to Hire a Consultant

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In my experience, most organizations are fairly wary of consultants. We don't have the best reputation. My own personal experiences with consultants as an executive weren't all that impressive either.

Here's how it generally goes: 

1. We have a problem/opportunity, but we lack the expertise and manpower to act on it.

2. We can't stand consultants on the whole, so we either:

(A) do absolutely nothing beyond talking about the problem/opportunity; or

(B) we hire an "affordable" and inexperienced employee to tackle it.

More often than not the situation is a problem, not an opportunity: compliance issues, lack of funding, poor sales, a fried server, etc.

In the nonprofit industry where I focus my attention, executives often recognize the problem, talk about it a great deal, and then succumb to option A: do nothing.

Within the larger organizations I've spent time with, the route starts the same, but leads to authorizing a new part-time or full-time employee as the fix.

Why the fear of consultants? 

Consultants are a dime a dozen. Anyone can flunk out of their career and change their title to consultant.

Many consultants make the mistake of taking any work that comes their way rather than exclusively offering services where they have genuine expertise, which leads to poor results for the client.

Plus, most consultants work in the arena of "soft skills" (ie. leadership development, retreats, communication skills, sales, etc). It's next to impossible to measure the immediate and long-term impact of these types of investments, so executives will often dismiss them outright.

When should you hire a consultant despite all this? 

A great consultant will provide value that is 10x their expense. These are specialists with substantial talent within a specific niche. They have the ability to quickly observe your situation and efficiently implement action based on diverse experiences with a variety of organizations like your own.

Doing nothing is not a viable option. I recently watched a small organization lose nearly everything because they refused to invest in an "expensive" IT professional to set-up a secure internal network or at least a cloud-based back-up. All it took was for one laptop to get stolen.

Conversely, I've also seen a small nonprofit triple their budget by investing in an experienced fundraiser to craft a strategy and develop grant templates to serve as the model for all future proposals. They raised more than $150,000 in the next 6 months and the consultant charged a measly $3,000 (a scary price tag at first).

Hiring an employee to fill the gap can be smart for ongoing needs, but for temporary challenges or opportunities that are outside of your expertise, a new employee will likely cost much more than a consultant while taking much longer to respond to the issue successfully, if they succeed at all.

The bottom line is that the resources that will be consumed by new hire activities, socializing with colleagues, supervision, lunch breaks, research, and failed attempts will rack up to an expensive missed opportunity and increased overhead.

Rather than reinventing the wheel each time you're confronted with a sticky problem or an opportunity, at least consider bringing a consultant into the mix. Their expertise can pay for itself right out of the gate while keeping your organization agile.

Not sure how to find a great consultant?

Get in touch with your industry hub for referrals.

For businesses, this is often your local chamber of commerce or small business development center. For nonprofits, you're local community foundation or United Way probably have a short list of experts they would be happy to share.

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.

The Laws of Subtraction

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The Laws of Subtraction by Matthew E. May was selected in a book club I recently joined. It's a compelling concept and I would have picked up the book otherwise, but I might not have finished it. The six laws of subtraction that May proposes are designed to help us remove the superfluous because success in the "age of excess everything" demands the skill of subtraction. That piqued my interest, as we really do have unlimited options and distractions and the key is the ability to prioritize and tune out the rest.

May compiles more than 50 different stories and perspectives on the topic, resulting in a book more than 200 pages long. I am an easy reader - I love nonfiction and I love new ideas that I can put to use. Unfortunately, I fell asleep twice while attempting to read The Laws of Subtraction.

May failed to apply his own methodology to his writing. The stories and metaphors designed to illustrate his laws went well beyond the point. I would have expected a book on the laws of subtraction to be short, concise, and laced with thought-provoking "Aha!" moments. Unfortunately, the gems were buried in lengthy explanations and I truly don't recall any of the specific laws themselves - they weren't catchy and actionable.

That being said, I respect May's obvious expertise and passion for the topic and took away a few pearls that certainly made the read worthwhile:

Pulsing

Pulsing is the concept of working in 90 minute stints with recharging breaks in between, such as a walk, meditation, doodling, or reading. Studies of brain activity show that we move from higher to lower "alertness" every 90 minutes. May points out that the symptoms of pushing the boundaries include restlessness, hunger, drowsiness and loss of focus, which explains why I find myself staring out the window and eating M&Ms.

I would add emphasis on the first 90 minutes of the day. What would happen if you invested the best of yourself each day into your highest priorities, with a targeted deadline less than 90 minutes away followed by an enjoyable activity? Sprints result in quick wins that build momentum.

Design...In Everything

FedEx LogoWe often only think of design when it comes to logos and advertisements, like this FedEx logo. (Do you see the white arrow?) But simplicity and clarity truly are desirable in all our interactions, so why not consider how simple and clear our lives and businesses are designed?

I often explain too much, burying my focus in a muddle of words. I also save way too many documents in a pile on my desk, just in case I might one day want to review one. What areas of your organization are cluttered or absorb an inordinate amount of your energy? Do you have white space where a person can relax, create, and work effectively?

Intentional Limits

In the past two years, I have often found myself paralyzed by the sheer number of directions I could go in. We all have a variety of passions, interests, and strengths...which to pursue? May observes that intelligent limitations provide the necessary frame to contain our efforts. Without those purposeful guideposts, we stare at a blank page.

Derek Sivers, author of Anything You Want, notes, "Give yourself some intentional restrictions in life and you'll finally get inspired to act. Restrictions will set you free." In what ways can you set better boundaries on your work, your time, and your relationships so that the next step is obvious and builds on the steps that came before?

The Principles of Skunk Works

Skunk Works is the top secret Advanced Development Program for Lockheed Martin. Their legendary chief engineer, Clarence "Kelly" Johnson, developed a strict set of principles for leading this shoestring rapid innovation team to repeated success, and they hold true for leading any team:

  1. It's more important to listen than to talk.
  2. Even a timely wrong decision is better than no decision.
  3. Don't halfheartedly wound problems - kill them dead.

The implications of the lessons contained in The Laws of Subtraction are open for application to large organizations, small groups, and individuals. Fewer distractions, clear direction, and clean space benefit everyone involved.

Purpose over Perfection

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As we reviewed in the last leadership post, many early leaders and even entrenched leaders struggle to transition from performance to leadership. But we can spot a good idea when presented with one and most will accept the fact that we need to get out of the office and build influence if we're ever going to succeed at this whole organizational change business. This is about the time we are blindsided with terrible results despite following through on all that soft, squishy advice, which of course reinforces our original beliefs that we need to control the world from our ivory tower office in order to get things done.

Why does this happen?

Early leaders are frequently promoted because we are so productive. We are efficiency maniacs. It's all about tasks, quantity, and accuracy.

Leadership Fail: The Better, Quicker Mission Statement

When I was promoted into a leadership position, our entire senior leadership had turned over, leaving some pretty early leaders in charge of the hen house. We turned to the vision and mission statements for direction only to find that they were 30 years old and were pretty terrible to begin with. I believe our original missions statement was around 43 words with nearly half being adjectives.

As I mentioned, early leaders are excited people and we do spot good ideas. I was gung-ho about developing the best mission statement on the planet and immediately researched best practices. When we finally tackled the beast at an executive retreat, I was so relieved that we were taking this critical step forward.

I logically understood that the mission statement can and should be a powerful tool for creating unity, guiding critical strategic decisions, and acting as a rudder for the organization. I genuinely accepted that buy-in to the new mission statement was as or more critical than the words chosen.

So how did I behave in the retreat? Like a micro-manager.

I had already spent weeks researching and honing the perfect mission statement. It was beautiful, concise, and memorable. Then all my peers had to start sticking their crazy opinions in there, mucking up the water. Luckily our retreat facilitator was inclusive and had managed a few over-eager red personalities in his time.

Leaders must tame their overriding need for perfection in exchange for the greater purpose. 

The perfect mission statement, developed by mission experts (I'm sure they must exist), will never be internalized as well as the cruddy version with seven commas created by the people who carry out your mission.

One of those extra adjectives was suggested by Jim from accounting and he takes ownership of the mission with pride.

Another word was revised slightly by Alice from customer service who has the statement pinned up in her cubicle and can recite it from memory.

Perfect will always be less effective in producing change than the flawed version created by the people who must act on that change.

There's a time and a place for well-researched accuracy. Unfortunately for most leaders, those opportunities to design perfect products are few and far between once you're in charge. Successful leadership is measured by positive teams, positive customers, and positive balance sheets, not the sometimes ugly methods or vehicles that lead to those outcomes.

How could you better appropriate your efforts to produce better leadership outcomes rather than solo perfection?