Last week, R. Andrew Sweeny, President of The Philadelphia Foundation, published an editorial in the The Philadelphia Inquirer that includes some tough-love but sound advice for nonprofit managers. The editorial, although targeted at nonprofits operating in the Philadelphia area, rings true north of the Canada-U.S. border.

For this reason, we have decided to republish some excerpts from Mr. Sweeny's editorial, which draws on the findings of a white paper by the Foundation entitled, Nonprofit Health and Sustainability.

Too many nonprofits make operational decisions based on insufficient financial data, fueled by a disproportionate focus on their missions, rather than their long-term market viability. It's the responsibility of nonprofits' funders, board members, and communities to correct this imbalance if the nonprofits that they care about most - and that serve us all - are to survive.

The root of the problem is that the market forces that provide feedback in the business world generally don't do so for nonprofits.

In economic downturns, businesses adjust production, pricing, marketing, and staffing based on demand for their products. They also use research and development to improve their efficiency, product quality, and competitiveness. Their shareholders have a financial interest in ensuring that necessary adjustments are made.

By contrast, a nonprofit's revenue comes mainly from the voluntary contributions of individuals, foundations, and government. During economic downturns, demand for the "products" of nonprofits - especially in the case of social-service organizations serving the most vulnerable - tends to increase even as funding diminishes.

Nonprofits' decisions about programs, staffing, and sustainability generally are not based on research about their comparative effectiveness or the viable alternatives. Given their tight budgets, nonprofits are unlikely to pay for research and development even in a good economy.

Moreover, the "shareholders" of nonprofits - those who serve on their boards, as well as the community at large - are not necessarily direct investors and therefore may lack a direct financial stake in ensuring that necessary adjustments are made. And in a weak economy, nonprofits' survival becomes even more dependent on their ability to appeal to a cadre of supporters who are committed to carrying out the mission.

There is a better way. As counterintuitive as it may seem, nonprofits must focus now - in the short term - on their long-term fiscal health. They need to have frank discussions with donors about the crucial value of capitalization, and about avoiding slow starvation by investment in infrastructure and overhead.

...

The way to ensure the fiscal health of nonprofits is not to lie down and hope that the current economic crisis passes, but to develop healthy habits that strengthen nonprofits' resilience and ensure they have long, fulfilling lives.

Read the full version of R. Andrew Sweeny's editorial >>

Do you agree? Are too many organizations focusing disproportionately on their mission instead of their finances?

Looking at this issue through a social finance lens, I would argue that an organization's mission (in many but certainly not all cases) can be fulfilled by revenue-generating and mission-aligned activities. Non-profit leaders shouldn't have to choose between focusing on their mission or their financing. For the truly enterprising nonprofits, mission and financing are one and the same.

Photo credit: http://www.flickr.com/photos/zooboing/4404695769/

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