Year: 2010

Financial reward can be a powerful motivator. The potential for personal profit can provide intense focus and efficiency to almost anyone. Indeed, incentives drive entrepreneurs in their relentless search for success, overcoming obstacles along the way. Money might not be their only motivator, but dollars (the kind they get to keep) are always their favorite measure of success.

That’s mostly missing for most nonprofit social enterprisers. Why? Many folks in the nonprofit sector believe that incentives are not permitted by the IRS. In fact, if structured properly, incentives will not put your tax exempt status at risk. Sales people can receive part of their compensation through commissions; and managers can be incentivized as well — as long as it’s “reasonable.” (Caveat: I am not a lawyer; be sure to discuss with counsel.) Secondly, many nonprofits believe that making a difference in the world is all the motivation that’s needed to get the most from people.

Fair enough, but the fact of the matter is that incentives work. In public radio, where I worked for many years as an executive and now as a consultant, an important source of revenue comes from underwriting. Underwriting is a kinder and gentler form of on-air advertising that public radio stations are allowed to “sell” to companies that want listeners to hear their messages. Some stations incentivize their underwriting staff, others do not. Guess which stations tend to do a better (in fact much better) job of generating revenue to support the station?

I’m confident that many social enterprises would be more successful if they structured incentives that line up with their priorities. Don’t miss out on an important tool that firms in the for-profit sector never ignore.

Consider making greed part of your social enterprise creed. It works.

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Copyright © 2010 Rolfe Larson Associates – Fifteenth Anniversary, 1995 – 2010
Author of Venture Forth! Endorsed by the late Paul Newman of Newman’s Own
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[Jonathan Bernstein is president of Bernstein Crisis Management, Inc. and author of Keeping the Wolves at Bay – Media Training.]

Finances Are Just a Symptom, Not a Solution

When people think of financial sustainability, they usually think of getting enough money to pay bills for the long-term. Then they focus on strategies to keep getting enough money. That’s the wrong approach.

1. Strategy for Sustainability — Be Realistic

If an organization is trying to do far too much, it will likely not have enough resources, including not enough money to do what it wants to do. The solution is not to keep trying to get more money, the solution is to do less. Yeah, that’s right, do less. Cut back on the number of goals and priorities to address OR extend deadlines in which to address them.

2. Strategy for Sustainability — Ensure High-Quality Programs

If your organization does not have high-quality programs and services, then clients’ participation will eventually decline as will funding. That’s why it’s so important to do a few things very well, rather than a lot of things not so well. The solution is not to keep trying to get more money to offset deficits. The solution is to pick which programs you can do very well, do them — and keep proving your strong results.

3. Strategy for Sustainability — Financial Planning

Two of the best practices are achieving a financial reserve and doing contingency planning. Many leaders even laugh when they hear suggestions to establish a reserve. Too often, that’s from a mindset that all money must soon be spent because that will accomplish even more positive results for the community. The irony is that that approach too often hurts the community because the nonprofit remains in financial crises, which can hurt programs and services.

4. Strategy for Sustainability — Think “Organizational Sustainability”

When Board members and other nonprofit leaders talk about sustainability, they’re ultimately worried about having enough money to continue to support the organization. So remind them that financial sustainability is really just part of organizational sustainability. Help them talk about being realistic, ensuring strong programs, and doing financial planning for reserves and contingencies.

What do you think?

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For more resources, see our Library topic Nonprofit Capacity Building.

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.