How many nonprofits face elements of “struggle” or crisis?
While there is no concrete data on this subject, the vast majority of nonprofit leaders interviewed in 2008 felt the number was greater than 25%, and quite a few felt that over half of the entire nonprofit sector is in such condition …. And that was prior to the Great Recession!
Are there certain characteristics of the sector that make it hard in which to operate?
The nonprofit sector is a difficult operating environment, for example:
- Most nonprofits are small, 50% with < $1M in revenues, and 90% with < $5M
- Nonprofits are constantly being asked by funders to do more with less
- Nonprofits face regulatory constraints that for-profit businesses often do not face
- There is a chronic underinvestment in capacity building and training, with the average nonprofit able to devote < 1% of their budget to professional development and infrastructure development
- Executive compensation is very low compared to the private sector
- Extreme changes in the financial environment such as the Great Recession have made more tenuous the trickle-down from the larger economy to the nonprofit sector
In short, how can nonprofit leaders move from struggle to success?
Despite the nonprofit sector’s complexities, most nonprofit declines and crises are caused by factors within management’s control. Yet it takes courage for the board to recognize the depth of the problems and initiate a turnaround.
For example, our research shows that financial problems are often caused by problems with internal culture and communications that prevent leaders from understanding the underlying problems and their causes, and most importantly, that prevent implementation of effective solutions.
What is the top priority when facing a crisis situation?
When faced with a turnaround situation, after summoning the courage to act, the board’s top priority task is to establish the leadership team to guide the turnaround effort. At the center of this requirement is the staff leader, typically an Executive Director, with relevant turnaround experience. Interim Executive Directors and consultants are the most common leaders with turnaround experience. Sometimes, permanent Executive Directors can be found who have such experience.
Regardless of what type of leader is selected, the situation must be described in the search process. For example, if you are hesitant to fully publicly disclose the situation, or that you are seeking someone with turnaround experience, a job announcement can say:
“Seeking someone who has led significant organizational change processes, including one or more of: organizational restructuring, cost-cutting, and overhaul of internal systems.”
Learn More: For a more complete description of nonprofit turnarounds, download Jan’s comprehensive presentation on what to expect in a turnaround