Mission-Based Management
Leading Your Not-for-Profit In the 21st Century
By Peter C. Brinckerhoff
John Wiley & Sons
Copyright © 2010
John Wiley & Sons, Ltd
All right reserved.
ISBN: 978-0-470-43207-5
Chapter One
Introduction
Welcome. This book is intended for you, the leadership of our nation's
nonprofit charitable organizations. It is designed to give you a different
insight into how top-quality nonprofits
really run, what works, what does
not, and how to ensure that your organization is one of the ones that works,
both this year and throughout the twenty-first century. It is intended to help
you become a mission-based manager.
In this introductory chapter we'll review the core philosophies on which
I have based the book, examine the reasons that I feel the book is needed,
and then take the first look at what the book holds and the best ways for
you as a reader and a management practitioner to use it. By the end of
the chapter, you should have a better understanding of my philosophical
perspective and also be ready to get the most from the book as a whole.
Three Core Philosophies
Before you continue, you need to know that the material in this book is
based on three philosophies. These philosophies have been the core of my
consulting, training, and writing since 1982, and they express better than
anything I have seen my beliefs about what your organization is and what
it can become.
First: Nonprofits Are Businesses
Your organization is a
mission-based business, in the business of doing
mission. For-profits chase profits-nonprofits pursue their mission. But just
because you are not primarily motivated by profit does not give you a license
to be sloppy or to ignore a good idea simply because it was initially developed
for the for-profit sector. Let's take another minute to examine this
because it is really important to what you are going to read in the rest of
the book.
In the past decade many nonprofits made the decision to stop being
a charity and start being a mission-based business. What's the difference?
In both cases, the stewards of the organization (paid staff or governing
and nongoverning volunteers) are responsible for getting the most high-quality
mission they can out the door using all the resources available. The
difference lies in how a charity and how a mission-based business view their
resources.
A
charity views its resources as a combination of four things: people,
money, buildings, and equipment. If you think about it, your organization
has some combination of these four things, too. The charity uses these four
resources to provide mission, and when the resources are used up, mission
stops.
A
mission-based business also has the same combination of four
resources: people, money, buildings, and equipment. But it looks beyond
just those four and also considers business tools in performing mission.
Thus, it utilizes the techniques that business has spent literally billions of
dollars and thousands of person-years honing and it turns them to mission.
What is the result? Good marketing becomes good mission; good human
resources (HR) becomes good mission; good inventory management, good
cash flow management, good business planning, all of these become good
and better mission. More high-quality mission out the door. And, if this is
done right-and here is the key-the other four resources
last longer.
This philosophy is certainly not as shocking to most readers (or perhaps
even a new idea) as it was when I wrote the first edition of
Mission-Based
Management in 1992. Only eight years earlier, in 1984, I had told a national
audience that nonprofits needed to become more businesslike in their pursuit
of mission, and I was not only booed, people actually threw things at
the stage. We've come a long way since then.
But there are still people who are uncomfortable with the idea of using
business skills in nonprofits. They worry that if we act too much like a business,
we'll become a business and lose our mission focus. I agree-mission
is always first.
Always. But if we don't use these business tools, we won't
do as much mission as we could. It's a balancing act: Stay on the mission
track but use the best tools of business when they are appropriate.
A story may illustrate this issue best. In 2006, I was presenting for a
full day on
Mission-Based Management to a group of board members and
CEO/executive directors from about two hundred nonprofits in California. I
had given the content of this chapter and Chapter 3 in my first segment of
the morning and, at the break, a man approached me to tell me he was really
uncomfortable with the idea of using business tools in nonprofits. I learned
that he was the board president of a homeless shelter and, in his other life,
the president of a local bank. In fact, I found out later that he had an MBA
from Stanford as well as an undergraduate degree from Harvard-a smart,
highly educated businessman. But he was really hung up on the concept of,
in his words, "using business tools in nonprofits. We're better than that."
I told him that he should never do things in his nonprofit that made him
uncomfortable, but that I'd like him to answer three questions. He agreed.
First question: "Do you have and use telephones in your homeless shelter?"
He said they did, but looked confused. Second question: "Do you have
and use a copier at the shelter?" Again, his answer was a yes, combined
with a furrowed brow. Third question: "Do you have and use computers?"
A look of understanding came over his face. "Got it," he said. "Okay. Okay,
got it."
You see, telephones and copiers and computers were invented first for
business, not for nonprofits. They were business tools first. And telephones,
copiers, and computers can be used for bad things, but we choose to use
them in ways that pursue our mission. Likewise, marketing and cash flow
management and HR are business tools that can all be used for bad things,
but if we do not use them and use them as
tools for good, we won't be
getting as much mission out the door as we could be. We'll be failing as
stewards.
Using good business skills as a mission-based manager does not, I
repeat,
not mean dropping services simply because they lose money, nor
does it mean turning people away because they cannot pay. But it does
mean paying attention to the bottom line, having a strategic vision, and
negotiating in good faith and from a position of strength-in short, being
businesslike in pursuit of your mission.
Your organization is a business, and the more businesslike you are, the
better it will be for the people you serve.
Second: No One Gives You a Dime
This may come as a surprise, but your organization does not get gifts ...
Really. No one gives you anything, not government, foundations, United
Way, corporations, or individual donors. If you are confused, that is okay.
This idea goes against all your training to this point. Try looking at it this
way and see if you feel different about yourself and your organization. Let's
assume that you come to me for a donation and you convince me that you
really need the money for a service or a building. I write you a check for
$100. Am I making the donation to you personally? Of course not. Am I
giving a gift to your organization? You're getting closer. But what I'm really
doing, and what really happens in all of these transactions, is that I am
purchasing services for someone or some family I will never meet. I am willing
to give you money because you gave me what the business community
calls an
expectation of outcome. When I send money to an airline to pay
for a plane ticket, I have an
expectation of transportation in a few days or
weeks. When I send money to a concert venue to purchase tickets, I have an
expectation of entertainment the night of the concert. When I send money
to a nonprofit, I have an
expectation of service.
In other words, and here is the key: You
earn all the money you get.
Don't let anyone tell you that you are a subsidized organization. Subsidies
are things that people get without doing anything. I lived in the farm belt in
Illinois for thirty years. We had many farmers who were paid by the federal
government for not growing crops. That's a subsidy. What you get is earned
income,
all of it.
The problem with thinking of your income as gifts is that the organization
then acts like a charity. You become stuck in the mentality that you
are so poor that the only way you can survive is by the beneficence of people
or organizations richer than you. You continue to believe you are not
earning your way when, in actuality, you are. It is essential that you and
your staff and board understand this and believe it if you are to adopt the
characteristics of success that are presented in this book. Why? Because if
you keep thinking of yourselves as a poor charity, you will continue to be
treated that way and not like the mission-based business that you are.
Third: Nonprofit Does Not Mean No Profit
Let's cut to the chase. Whether you call yourself a not-for-profit or a nonprofit,
you should not ever feel bad if you end the year with more money
in than out. In short, making money is good for mission. Only by making a
profit (yes, a profit) can you grow, serve more people, and try new services.
Only by making money can you pay down any debts you have. Profit is not
a bad thing in your organization; it's a good thing. It's also not always a
possible thing, but we'll get to that in later chapters.
Let's look at this idea in three ways: the legal point of view, the ethical
perspective, and from the vantage point of good management.
First, making money in a nonprofit is legal. Nowhere in any state or
federal law, and nowhere in any state or federal regulation dealing with
taxation or corporate structures, does it say that a nonprofit cannot make
money, cannot make a profit. In fact, the Internal Revenue Service (IRS) code
dealing with 501(c)(3) organizations says "... the
profits of the corporation
shall not inure to the benefit of ..." This clause precludes staff or board from
inappropriately benefiting from the organization's profits, but the key to the
phrase is that the IRS anticipates and accepts profits. Profits in a nonprofit
are
legal.
If you or anyone in your organization thinks that I am wrong about
profits being legal, consider this: Your organization is considered tax-exempt
(by reason of your 501(c)(3) status), but from what kind of
federal taxes? I
know you may not pay sales or property taxes, but those are state or local
exemptions. At the federal level, you are exempt from what the IRS terms
income tax. Now, for you and me, income tax means that every April we
add up all of our income from the prior year and pay the IRS a portion of
that. But the tax your nonprofit organization is subject to is a business tax,
and guess what? Businesses do not pay tax on what you and I would term
income; they pay taxes on
profits. They add up all their revenue, subtract
all their expenses, and pay, in taxes, a portion of their profits.
Income to the
IRS means profits to you and me. Thus, your organization has an exemption
against paying taxes on its profits. Here is the question:
If you cannot make
a profit, why do you need a tax exemption?
In fact, the entire issue of nonprofits not being able to make money is
just so much smoke, and it runs right in the face of the intention of Congress
in giving you the charitable status you have. In the early 1950s, when the last
substantive work was done on federal nonprofit statutes, Congress decided
we needed more nonprofits, so it allowed your organization to keep what
it earns and reinvest it in the community. They wanted to encourage our
sector and did not think that we should be taxed for doing good things
related to our mission. What's happened since? All of us have screwed it all
up by not allowing nonprofits to keep what they earn. When I say all of
us, I mean funders, the press, the public, and those of us in nonprofits. We
all bought into the idea that nonprofits should be poor, and it has deeply
damaged the sector and our ability to do good mission. By keeping nonprofits
poor, always scraping by from year to year or from payroll to payroll,
we've sapped much of the ability to innovate, experiment, and come out
with better services for people in need.
Profits in your nonprofit are also
essential, a key element in financial
empowerment, a subject that we will cover at length. As I said earlier, without
profits, you cannot grow, you cannot innovate and try new ways to
serve your communities, you cannot recruit and retain excellent staff, and
you cannot take prudent risks on behalf of your clientele. You will see in
later chapters that I contend that you need to make money as an organization
at least seven out of ten years. To do less is not good mission-based
management.
But what about the ethical perspective? This is
hard. By not spending
every dime you have every year on service, you necessarily will wind up
saying no to someone who needs or wants your services, perhaps someone
who is hungry, undereducated, or in need of spiritual help. And I doubt
that anyone reading this book came to the nonprofit sector to say, "No,
we won't help you." But if you say yes to everyone now, you won't have
any funds for next year. I am just as sure that your organization is not in
business to solve a
short-term problem as I am that you do not want to turn
people away. Nearly all nonprofits are struggling to solve
long-term issues:
hunger, homelessness, drug addiction, the need for more education, arts,
environmental quality, and on and on. Long-term problems require your
organization to be around for the long term. Keep your organization poor
and it won't be. Again, this is a balancing act, one of many you have to do.
Focus too much on mission and not enough on money and you are out of
business. Focus too much on money and not enough on mission and you
become just a business.
One more point here: I am not contending that you need to have every
single service you provide be profitable every year. You do not, and you
probably should not. There will be services that are so mission-rich that they
can be money-poor. Services that only you provide in your community that
do not pay for themselves or that are mission-critical. But if all you provide
are mission-rich/money-poor services, you will soon be out of business and
no good to anyone. Again you need a balance, and you need to use the
business skill of return-on-investment (ROI) to maintain the right balance.
For-profit businesses are concerned about their financial ROI, and rightly
so. If they invest funds in a building or a piece of equipment or staff expansion,
they want to know how quickly they get their investment back and at
what rate.
Nonprofit businesses need to also be concerned about ROI as well, but
unlike for-profits, we have two returns: the
financial return and the
mission
return. Thus, if you invest money in Service X, you should be asking, "Does
this service make money or lose money AND does it do a lot of mission or
only a little?"
HANDS ON: Always consider the expenses in your income and
expense form as investments in mission. If you do that, you will
need to think about the return on that investment, both in financial
and mission forms. The financial return is pretty easy to calculate,
but the mission return is much more difficult. We will talk about
ways to do this calculation later.
I'm sure you have services that are mission-rich and money-poor, and if
you are like 90 percent of nonprofits, you invest resources in a service that
does NO mission. For example, if you run a soup kitchen, you provide a
very, very mission-rich service. But it doesn't pay for itself because you are
giving food away. But this is fine because on the two-ROI scale it balances
out: mission-rich, money-poor.
So what's the service that does no mission? It's variously called development,
or fund-raising, which by itself does no mission. Only if the service
makes money can it spin off funds to help other mission-rich/money-poor
services, like the soup kitchen. Thus, you need to make sure your
fund-raising is not haphazard, or done poorly. It needs to make money!
This underscores another theme that we'll return to a lot in the book: You
have to do whatever you do
well. Really well.
These three philosophies, that you are a mission-based business, that
you earn all your money, and that making money is a good mission thing,
form the foundation for everything that follows in this book. They are the
core of mission-based management. If you agree with them, if you find
yourself nodding and saying, "That's great!" you are going to enjoy the book
and get a great deal out of it. If you are uncomfortable with the philosophies,
I hope that the remainder of this chapter and the issues raised in Chapters
2 and 3 will convince you of the validity of these philosophies. If that does
not work, then I think that the remainder of the book will convince you that
there are many, many business applications that can improve your ability to
do better mission more efficiently and effectively.
(Continues...)
Excerpted from Mission-Based Management
by Peter C. Brinckerhoff
Copyright © 2010 by John Wiley & Sons, Ltd.
Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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