You know how to brand a nonprofit. In today’s economy, protecting that brand is equally important. Protecting it while competing for revenue in a tough fundraising climate. While managing staff. While delivering your mission and trying to control expense. While praying for prosperity to return.
When times are tough, with more uncertainty and less control, your job is like juggling snakes & apples. Mission depends on revenue. Revenue depends on brand. So, you juggle away.
This post may help you handle the challenge. It’s the last of a three-post series on protecting the brand while fighting the economy. Today we focus on the judicious way to cut your budget. First, I’ll tell you about how one of the nation’s most beloved nonprofits was screwed up by a former colleague who handled the budget knife like a six-year-old.
One of the nation’s great institutions was going broke. The Executive VP knew our experience in managing periodic budget misfires in colleges and universities. So, over lunch, he asked Janice and me to advise on his plan to reduce expenses by over a million dollars.
Back in his office he proudly pulled out his private version of the organizational chart. Top secret stuff here. We were about to engage in a secret consultation. We would soon discover this leader of one of the nation’s great nonprofit institutions was an authoritarian Bozo!
Forgoing analysis and ignoring consequence, our management wizard was taking the simple-minded approach to an institutional crisis. Employee names had been handwritten in some of the boxes. Those names were his cost-cutting targets.
Decision: identify a couple dozen people to fire.
Result: those employees would go down the tubes. He would balance the budget on their backs.
Impact: OOPS! Some of the targets we knew to be highly competent professionals who were performing tasks that were essential to the organization. In our minds being competent and being essential was a winning combination. This fact had escaped him. I already said he was a BOZO!
Without exactly asserting his head was stuck in the sand, we tried to illustrate a different approach by asking about a function we knew was totally expendable. Janice and I knew about a 2-person department that annually received about $250,000 in outside funding. It spent those grants to produce K-12 classroom materials.
Irony: the organization was not in the education business; this activity was marginal.
Worse Than Irony: few schools ordered the stuff. Most of each year’s production run went into storage and eventually, to the landfill. The landfill option was chosen so room would be available to store the next annual cycle of unnecessary educational products.
The wasteful charade went on for years. So, in a budget pruning exercise caused by economic crisis, THAT was one department to consider eliminating. Instead, it was being saved. The reason? According to the vice president, the woman who ran the department was “a team player.” Don’t ask! We had the same hunch….
Janice and I tried to coach this guy on the basic principles discussed below. He could not follow them. You can. So, let’s get started.
FOCUS: Tighten up the organization. Shut your door, pull the files and honestly examine the cost and benefit of each function. Look only at functions – not at people. Rank those functions and activities from the most essential to least essential.
POLITICS: Some functions will be favorites of certain directors, colleagues and volunteers. In good times they might object. These are not good times. This is the period when you actually can herd sacred cows into a small corral, examine the relative health of each – and not worry about pushback.
RESULTS: You will find some activities, offices or departments can be eliminated without damaging the brand. And others that can be downsized.
TEAMWORK: The Executive Director of a small shop can make these decisions himself or herself. A larger organization might involve more people in a collaborative cost/benefit analysis. No matter the size, this process should move crisply to minimize the uncertainty it creates within the organization.
GOVERNANCE: The board MUST BE informed. The issue is whether it is directly involved in the cost-cutting process. My personal preference is to present your analysis to one or two astute directors before final decisions are made. Including the full board in the process could transform your administrative responsibility into a governance nightmare — one that might be seen by staff and outsiders as an organizational crisis. That hurts the brand.
CONTINUATION: Install an ongoing process. Keep examining – perhaps every six months – cost/benefit relationships of the activities that survived your first cuts. This will lead to better management of your limited resources. AND, if another round of cuts becomes necessary, you will have the data to guide those future decisions.
BENEFITS: This process should help you identify cuts that will not erode mission or damage the brand – or, if you are in desperate financial condition, identify cuts that will do minimal damage. It will help you shore up more critical activities. Or help cover an impending deficit. Or help build an emergency fund.
REINVESTMENT: Things can get worse. So let’s go back to the story about the clown who mishandled budget cuts. He followed none of our advice – the same advice we gave you above. He felt our approach was too complicated. Another suggestion he ignored: during a budget-trimming exercise, always cut expenses about 5% to 10% more than you need to. The extra money is your reinvestment fund. It can be applied to new needs that arise after the budget cuts. Or be saved to prevent another round of cost-cutting.
THAT’S OUR ADVICE ON JUGGLING YOUR OWN SNAKES & APPLES!
And here is a postscript about The Budget Bozo: after mishandling that round of cost-cutting, the revenue stream of this mighty nonprofit continued to falter. The newly emerging deficit was well within the range that would have been covered by the reinvestment fund we proposed. But there was no such fund. So the organization careened into a second round of budget cuts. This time they also had to cut some aspects of mission. The effect on morale and productivity was disastrous – and lasted for years. But he was a BOZO. You can do better.
COMING NEXT: Next week I will begin a two-part series about the most compelling imprinted branding product – the one thing you want in your toolbox for use as a contributor incentive, a marketing freebie or a thank you for work well done.