Spinning Straw into Gold: Ferocious Resolve

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In the management book Built to Last: Successful Habits of Visionary Companies, authors James Collins and Jerry Porras suggest that organizations are more sustainable when they distinguish between what is sacred to them and what is not. Understanding that distinction allows organizations to more confidently negotiate their way through difficult, resource-scarce passages; to span transitions of top leadership; and to develop healthy partnerships and appropriate financing strategies. They know what needs to be protected and what can be negotiated. Although this very useful book is based on research in the corporate sector, we think the concept has strong application here in the nonprofit world. That sacred core—embodied in a shared conviction that something can and needs to be different, that the potential for something better can be realized—is in fact what gives birth to many nonprofit efforts, but this core is also what can feel most threatened during turbulent times. As the current recession was just beginning to show its depths, the Nonprofit Quarterly asked several organizations to tell us what steps they had taken or were considering in response to cuts already made and cuts they could then anticipate. This resulted in an article published in our Winter 2002 issue, entitled “Spinning Straw into Gold.”

We promised you then that we would revisit those organizations at a later date to report how their strategies had worked, and we would look for and add a few more examples. We are deeply indebted to the people who told us their stories and hope that their experiences will help inform your work during these difficult financial times. All of the cases, of course, are works in progress that we will continue to track.

In 2002, Power of Attorney (POA), led by Allen Bromberger, was still quite new when it got the word that its sole (and founding) funder, Atlantic Philanthropies, would not provide additional support for POA’s work. POA is a national intermediary, established to organize and support a national network of programs that match non- profits with volunteer lawyers. Its ultimate goal is to make sure that nonprofit groups have access to legal help when they need it and that every lawyer who wants to volunteer time is able to find a group that fits his or her interests, expe- rience and schedule. Although POA had more than a year left on its original $5 million, five- year grant, Bromberger reduced expenditures for staff and consultants and began an evaluation process. Like many new organizations, POA was just hitting its stride and was considering a number of new initiatives, all of which had to be immediately re-examined. “We had to put everything on the table—all the activities, how we were doing them, who we were reaching, who we were collaborating with—all of it. What we found was that some of our relationships with partner groups where we had made large investments had not been pro- ducing up to our expectations and we were just living with them, and there were other situa- tions with greater potential, where our time and resources would be better spent. It felt like we had been fooling ourselves, in some cases thinking we were doing one thing when we were doing another. The business planning process really helped us to understand our choices,” he said. But being at such an early point in its development, POA faced great challenges in making a clear case to institutional funders (founda- tions) for its unusual “value proposition,” that providing a cost-effective way for nonprofits in the top 30 cities in the U.S. to get free and low-cost legal help will result in huge savings of time, energy and money for the groups served. As Bromberger said, “Funders (and nonprofits) tend to think of lawyers as a necessary evil, not an asset or a smart investment. POA had to find a way to counter that perception before funders would listen to them.”
That the case had to be made in the context of reduced grant budgets did not help. Additionally, POA had decided early on that law firms, who would normally be the traditional funders of such work, had to be declared off-limits for fundraising to prevent competition for funds between POA and its local partners. Nonetheless, they developed a plan for POA that seemed promising and more focused on the activities where POA could show that it would make a measurable difference.
Bromberger is now in active conversation with a number of funders but he is cautious about taking on any new initiatives. Securing the funding that would be necessary for those initiatives takes time that Bromberger isn’t sure he has. “Our current grant expires in June and that’s the functional equivalent of a deadline for us. It has been very stressful to be so uncertain about our future, and that uncertainty has also taken a toll on our outside relationships because people don’t know whether we are going to be here or not. Even with a great plan to reconfig- ure the organization, the external environment may be the deciding factor.”

POA is not alone in this situation. Organizations all over the country have been started with a very large grant by a major funder only to be unceremoniously cut from the grant roster when the funder becomes distracted by other things or is disturbed by the organization’s per- formance during its infancy. In this case, we have a new organization, POA, launched in the teeth of a recession, unfortunate timing for the diversification of a funding base. Bromberger is cautiously optimistic about POA’s survival, however, and places great faith in the value of their work, made particularly clear in their new pared-down model.

The Southern Regional Council (SRC) is an 83-year-old organization based in Atlanta, Georgia. With a staff of eight, its mission is to promote racial justice, protect democratic rights and broaden civic participation in the South. Since its founding in 1919 as the Commission on Interracial Cooperation, SRC has engaged Southern communities on issues of democracy and race: promoting an end to the all-white primary in the 1940s, establishing state human relations coun- cils to help desegregate Southern schools in the 1950s, and founding the Voter Education Project, which registered more than two million African American voters in the 1960s. It currently runs programs dealing with the critical issue of redis- tricting, with youth engagement and with the history of civil rights in the South.

While SRC’s history is impressive and its mission remains highly relevant (see the articles by Geri Mannion and Curtis Gans elsewhere in this issue), over the last few years SRC has lost some of its traction, slipping into a position of dependence on a limited number of national foundations for the bulk of its budget. When we talked with the organization’s former director last year, she reported that some long-standing programs had already been cut to focus on what was most important to the accomplishment of the organization’s mission. Even with these steps, at the point that Luz Borrero took over the position of executive director in April, the organization was in significant financial crisis. The national foundations were, at the very least, acting slowly to renew their support and little was lined up to replace the delayed and lost funds. From having two or three multi-year foundation commitments going at any particular time, SRC now had only one.

Borrero immediately moved to downsize the staff and then secured a line of credit from a local bank to address immediate cash flow difficulties. She engaged the board in a re-examination of SRC’s programs in light of the apparent disinterest of funders. She also began an effort to rebuild the organization’s individual donor base. SRC sponsored a series of fundraising events meant to acquaint people in each of its regions with the recent accomplish- ments and the future agenda of the organization. In addition, they implemented a direct mail solicitation. Although both strategies netted profits, the results were, on an immediate basis, more limited than SRC had hoped for. Simultaneously, the organization convened meetings with supporters and staff in order to refine its sense of strategy.

Borrero talked to us one month ago about the losses and gains in all of this: “You know, it’s been difficult to function with a downsized staff and still fulfill the commitments that have been made to donors and to the public. It’s also been difficult to keep the board of directors energized and engaged. After all this, its tendency is to adopt a more pessimistic approach.” At that time she said that the gains included “the streamlin- ing of our processes, the efficiencies that we’ve attained and our greater use of technology and online communication and that sort of thing. Although we are not fully out of the woods, I can feel that we are beginning to stabilize—just at a smaller size than we had hoped.”

As we go to press, however, and after less than a year with Borrero at the helm, SRC has just welcomed a new interim executive director in Toni Fannin. At 43, Fannin is undaunted by the recent history of the organization, seeing the social need for SRC as more critical than ever. She lauds the transitional role played by Borrero and the now more focused commitment the whole organization has to the “essence of our mission; that is, providing alternative research and an information source to strengthen partnerships for racial unity, fair representation and public education reform in the South.”

This has meant the shedding of programs that might have been more fundable but less on point. As to the challenges ahead, Fannin com- ments, “I feel that we have been passed a baton. Do I think what lies ahead of us is any more challenging than the work that as done at the founding—are the hardships any worse than when the people before us did this work under the threat of violent retaliation? Yet the need is as acute. It has always been a challenge to be an organization committed to social change. Here there is a sense of generational responsibility— the baton has been passed.”
Power of Attorney and Southern Regional Council are still working to find their way back to organizational health, which will entail marrying a more finely tuned sense of how their core missions might best be accomplished with the right, though for now reduced, resource mix. Their struggles show us just how complex a task this is, and the less margin the organization has to work with (the fewer the sources, the tighter the funds, the more quickly the turnaround has to be made), the more challenging it is to restore the organization to stability and well-being. In the following section we feature three organizations that appear to be further along in their path toward organizational health: Heart of America Family Services, La Raza Centro Legal and Shanti, Inc. We are especially taken with the cases of Heart of America Family Services and La Raza Centro Legal, which raised the concept of “internal philanthropy”—the idea that those inside the nonprofit that match or exceed the generosity that comes from external sources—but all of these organizations have something to teach us and make us think about.

Betsy Vander Velde commented early in our discussions that one of her organizing concepts in repositioning the nonprofit she directs is “Where there’s no margin there’s no mission.” The concept of “margin” is all about the levels of discretion an agency can use in deploying the resources under its stewardship or control. This discretion allows for flexibility, innovation and responsiveness to constituents. Heart of America Family Services, which Vander Velde directs, is a complicated organization with an annual budget of approximately $8 million, providing services to families over the large Kansas City metro area. When budget cutting loomed large on the horizon, Vander Velde worried about maintaining the right mix of essential programs for the organization’s constituents. Multi-service organizations, even when they are very large, often have limited dis- cretionary margins in their budgets because they are programmatically tied into what their particular mix of contracts and grants will and won’t pay for. Every penny of discretionary money counts. In this case, Heart of America Family Services suffered, among other things, “a huge United Way loss that we had to absorb in the first quarter of our fiscal year.” The agency curtailed and lost programs even while it actively went about regrouping, and staff was eventually reduced—largely through attrition— from a high of 159 to the 142 reported in Winter 2002 to the current 129.
Vander Velde, however, is focused not on those losses but on the agency’s future, talking of engaging constituents, board members, staff, volunteers and funders in the task of “restoring and building our margin but in a way that is not about chasing every available dollar.” She described their recent spate of multi-faceted, multi-level planning as “highly creative and entrepreneurial, and at the same time more mission- and values-focused than ever”—and, finally, as fully informed by the communities the organization serves.

“I have never been involved in this kind of community planning. It’s comprehensive, it’s dynamic, and it’s regional! We are a metropolitan organization, serving seven counties or regions, and each one of those regions has a dif- ferent set of priorities that are important to them. Our board of directors has made itself responsible for convening a set of community round tables, and staff survey the community constantly—if we don’t do these things, we can’t be true to our mission and, by the way, I believe that if we didn’t engage in this way, the engine of those communities would eventually move along without us—we would become irrelevant. I’m no longer focused on our funding losses of the past year; what we are all focused on now is working with our community and our constituency around programmatic ideas that, frankly, in the long run will make a much bigger difference. “At the end of the day, Heart of America Family Services will be there exactly on the mark, helping deliver solutions to each of our region’s most pressing issues—the way constituents define them. Throughout the organiza- tion we are able to integrate new information from the community daily.”

But where will the financial margin come from to respond directly to the communities served? Pre-designed program-related grants don’t always hit the mark when you mean to be responsive. Vander Velde talked about the development of a “culture within the organization that is focused on bringing more people into our mission and into the relationship between our mission and the money we need to accomplish it.” She talked of re-investing in the agency’s relationships with individual donors and expanding the donor-base of support in order to increase unrestricted income; about mobilizing volunteers; and about the development of earned income strategies that complement mission work. In terms of institutional funders, she talked about forging closer and more collabora- tive relationships with them, “inviting our funders into our own planning processes and making sure we are partners in theirs as often as possible.”

On the other side of the ledger she talked of staff being completely familiar with the details of their budgets and oriented to finding more innovative and diversified ways to fund the work. All of this activity is backed by a board that she describes as “risk taking.” “This is not the norm,” in her opinion; “Most nonprofit boards respond to the kind of environment we are facing very conservatively but our board understands that to get on top of a situation like this you have to invest in strategies that will bear financial fruit three to five years down the road.” The board also appears to be very engaged and attentive. “In this environment,” Vander Velde says, “you have to integrate information much more quickly. I communicate and consult with every one of my board members regularly through e-mail as we stay in high strategic mode.” Generally, Vander Velde says, it is important to remain self-critical. “I guess we’ve felt the call stronger than ever to think strategically at all times and to continuously challenge ourselves. This provides us, as an agency, with a kind of shared creative tension that drives us forward as a whole while attending to the distinctions and differences in each of the regions we serve. That kind of energy can’t help but attract new funders.”

Shanti, Inc., is a 28-year-old organization providing resources for people with HIV/AIDS, breast cancer and other life-threatening ill- nesses, as well as offering training for others working with the same populations. Founded in San Francisco, Shanti now provides programs across the United States. After five years of steady growth, Shanti faced the need to restructure when it undershot its projected budget last fiscal year by $300,000. Making a bad situation worse in some ways, much of the loss was in categories of funds that were unrestricted—much was in the individual donor cat- egory. Further complicating the situation, the director, Hywel Sims, had only been in the exec- utive director role for six months. Sims relates that he moved quickly to ensure that the organization had a set of crystal clear principles to guide the restructuring process that followed. Among those principles: that the clients should not experience any reduction of services and that the organization would make continued progress in reducing its line of credit, which had been fully deployed. Sims says, “First, we focused on the question—what is our heart? The essence of what we do? This helped us to stay away from quickie solutions like thinking that the least supported positions and programs should be the first to go. We could pretty much have destroyed the organization that way. Although finance is a critical element of restructuring, it should never drive it.
“The process could have been much more destabilizing than it ended up being, but we tried to be as transparent as possible with staff about some of our more difficult decisions as we moved forward. Reports that we got from persons whose positions were eliminated and those who remained were that many of the people in the organization felt heard and included in decisions as we had to make them. “We were also careful as we were restruc- turing, and after the board had approved the plan, to communicate what we were doing and why to key funders. I checked with them and our individual donors to make sure that the idea of Shanti getting smaller wouldn’t get in the way of their continuing support. Because many other organizations in this area were engaging in re-planning at the same time, I don’t think there were a lot of surprises for them the way it was handled.

“We used to plan more long-term but are now doing a lot of shorter-term but more constant planning—what should the rest of the fiscal year look like strategically? This will lead into a longer-term strategic planning process, but even that will only be a two- or possibly three-year plan. The old ten-year time frame just doesn’t make sense right now in the field we’re in. “We do predict further reductions in HIV funding in the next 12 months. So we are actively looking at things like our workflow and, in the larger community, who is doing what and where might there be an opportunity for greater collaboration? Where we may previously have been somewhat isolated, we are participating in a more informed way in a community-wide conversation.
“Actually, I think that there may have been a belief internally that Shanti was so special that it was immune to the challenges being faced by other organizations. Getting over that belief was a gain for us because it brought us back into the real world which we exist to serve.”

“This whole situation has focused us on the question of how can we create the justice inter- nally that we fight for externally,” says Anamaria Loya of La Raza Centro Legal in San Francisco. La Raza Centro Legal is a 30-year-old organiza- tion with a budget of a little more than $1 million. With a staff of 26 and approximately 100 volunteers who conduct legal clinics, co-counsel on large cases, conduct community education and community outreach and assist with daily oper- ations, it mixes direct services with advocacy on behalf of low-wage workers and immigrants. It was faced earlier this year with a $160,000 cut from the office of the mayor. Loya reports, “I and the board of directors assumed that there was no way we could reduce staff salaries. We figured that we would have to do layoffs. We took the step of throwing out that idea to staff, who had several meetings. Now, I am absolutely sure that they were demoralizing meetings but they came back to us saying that the layoff solution was not acceptable to them.

They said that if the bottom line of payroll must be this amount it would be better to cut pay than cut staff members. So we were able to work col- lectively in reaching these decisions. Part of it was in being very transparent—everyone knows how much I make, how much money the board raised last year, which foundations aren’t funding us anymore—this allowed people to trust the process and to be helpful in making the whole work as well as possible.

“I think one big advance for us has been to understand that the organization, while it has always operated democratically, has not always paid enough attention to quality access to information throughout.

“We’ve actually taken it even one step further, in that we have a couple of areas in which we have organized constituency groups. We’ve begun to translate summaries of our financial statements into Spanish, reporting monthly to the client group so that they understand the financial position of the agency—why a staff person’s hours were cut or why we can’t hire someone for a particular position.

“What’s great about this is that they become advocates of the agency—our client group—they go to City Hall and demand that they support our work. It’s powerful when the community is standing up for us.”

La Raza looked for other ways of working more powerfully with fewer resources. “We called a meeting of all the local immigration providers and talked to each other about who’s doing what and how we can maybe each take a chunk of the pie. Not everyone needs to be generalists on everything. For example, we traded some of our caseload to another agency who had an attorney who was willing to focus on a certain area of law and they, in turn, referred people to us for citi- zenship cases, and we balanced each other’s workload that way. That led to us talking about doing fundraising collectively to foundations. “At the same time, internally we did some- thing we had been talking about for a while—for six years, actually—we began to consolidate work into teams to simplify the way we are organized around direct services, while keeping aside the time and energy for work to produce longer-term change.

“These changes in our structures of work inter- nally and externally allowed us to participate as the co-chair of the campaign to raise the minimum wage in San Francisco. This campaign was successful, raising the wages of all restaurant workers in San Francisco from $6.75 to $8.50/hour. The way we were working before, we were so con- sumed with representing individual low-wage workers, we weren’t really getting anywhere near to solving the problem at a broader level. “In this new way of working we got to see actual tangible gain that will affect thousands of customers, more than how many we could have served in one year.”

La Raza has, like Heart of America Family Services and Shanti, Inc., brought funders more tightly into the loop as well. “We’ve had to keep them apprised more continuously, kind of similar to the kind of transparency that’s hap- pening internally. The funding world is small— they all know each other. If one funder finds out you are not replacing an immigration attorney, in a few weeks you will hear a rumor from another that we are not providing immigration services anymore. We’ve had to do the same thing with other community agencies. “My staff and I joke about this situation being an odd blessing,” says Loya. “We love our restructure but the staff genuinely suffered the financial sacrifices they made to this agency— the philanthropy they’ve done for this agency to keep services going took a toll on people’s lives. Three staff members actually lost their housing because they couldn’t pay the rent. This is a tremendous philanthropy, bigger than any foundation could give.”

In a sequel to Built to Last, entitled Good to Great, Jim Collins talks about what he calls the “Stockdale Paradox”: “You must maintain unwa- vering faith that you can and will prevail in the end, regardless of the difficulties, andat the same time have the discipline to confront the most brutal facts of your current reality, what- ever they might be.”
Confronting brutal facts is, however, a dicey business—facts are open to interpretation. Those of us who are deep believers in the work we do are capable of thinking we hear promise in our last conversation with a funder that leads us to open a line of unsupported credit—or we think that we can pay staff using the money set aside for a payroll tax payment by doubling up and paying a small penalty next time because our special event is looking fabulous and should cover us…

On the other hand, those who work in non- profits are often capable of taking a resource-scarce situation and turning it into a highly attractive proposition, largely through strength of collective commitment and a good strategy. In that commitment is generally a measure of self- sacrifice and risk-taking. In the strategy are mul- tiple streams of possibility—we keep many options and conversations open—we depend on many contacts held by many people to carry us through, but those many all have a common vision of what we want to have happen. So how is a nonprofit leader to know that the organization is or is not in such a position? Certainly in some of the examples featured here, we can see that the commitment to work exists in and around the organization, embodied in staff, volunteers and constituents. This gives the organization multiple nerve endings capable of sensing possibilities and gauging situations on behalf of the organization. It also gives it a criti- cal mass of people dedicated to showing up where the organization needs to show up in order to rebuild its resource base. This becomes more unusual as the organization gets older— many lose steam over the years, either veering towards institutionalization and professional- ization or losing the ability to maintain faith with staff and constituents.

In such organizations as La Raza, the sense of energy is palpable. Heart of America Family Services, which is largely a professional organi- zation, on the other hand, has made a strong effort to engage constituents by engaging its board to an unusual extent in consultation and day-to-day direction setting. Recently, this would certainly have been considered risky in many mature organizations where the executive may feel that the board needs to be kept strictly out of the constant vetting of decisions.

But we appear to be moving into a different realm of understanding about what makes any organization work well in a turbulent environ- ment and, in particular, what makes a nonprofit work to mission and purpose even during tough times. La Raza Centro Legal described it as “internal philanthropy.” Elsewhere in this issue, an article by Carl Sussman discusses “adaptive capacity.” This capacity is quite simply the organization’s ability to deal competently with complexity and change while maintaining its core intention or purpose. Probably central to this capacity is a diversity of perspectives among various members of the organization, curiosity and the expectation that—despite differences which will naturally exist (see the article by Kenneth Bailey in this issue)—all will engage in active learning and the conversation that charts a forward path. Our sense is that the engagement itself, if managed honestly and well, often pro- duces and reproduces energy and commitment in members—or that sense of internal philanthropy that attracts others to the cause. As always, the process of pulling these stories together has taught us a lot about what makes nonprofits effective. La Raza Centro Legal, which is a new story we are tracking, came to us in response to a request we made to our readers for their stories. So we ask you once again—share your stories with us!