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Another Way for the Private Sector to Boost Non-Profits (3Q16 Newsletter)

Updated: Oct 11, 2022

October 15, 2016

Let's put aside the election, Brexit, inflation and other divisive topics and consider something we can all agree on: leveraging existing resources for not-for-profits so staff focus can be directed almost entirely to mission is a win-win.

There are any number of challenging topics I could address this quarter: Brexit, the election, interest rates, inflation, recession, asset values in the domestic and foreign markets. Instead, I am going to turn from the challenges of the moment and say something about both the for-profit and the nonprofit worlds - something I think readers will find compatible with their worldviews, no matter where they may be on the economic/political/social spectrum. And what I have to say will result in a modest proposal.

It’s not “modest” in the Jonathan Swiftian sense (no children are to be sacrificed). Rather, it’s modest in the sense that, while I think it could have a big impact, it will take a ton of work to make it real. Many a big idea has died because the obstacles to realization (the obstacles to transforming mind to matter, so to speak) are many, as anyone who has ever tried this will attest. So, modesty is appropriate.

Some context.

From time to time, Christopher Weil & Company, Inc. has provided pro bono office space to nonprofit organizations. It’s been a low-cost and efficient way to support work that directly benefits our community. Recently, ideas surrounding this model began percolating in my mind. Why stop at office space? Why not offer our entire administrative/back office platform? And if CWC can do it, why can’t more for-profit businesses do it as well?

There are about 10,000 nonprofit organizations in the San Diego region. Of this number, about 84% have annual budgets of $1 million or less. Most of these small nonprofits have one or, at most, two senior staff members.

I will stipulate that, with few exceptions, these nonprofits do good work. But this is not to say that they are doing it with maximum efficiency. As a generality, productivity and efficiency are not usually hallmarks of the nonprofit sector. Nor, for that matter, are they necessarily hallmarks of the for-profit sector either.

In the nonprofit world, there are a number of well understood reasons for this. There is often, for instance, a significant reliance on volunteer labor. Everyone loves volunteers but they cannot be held to the same standards that apply to employees. There can be wild variations in revenue from year to year. Nonprofit staff, and particularly those of smaller nonprofits, are often overworked. And, most significantly for its bearing on my modest proposal, small nonprofit staff usually spend inordinate amounts of time on operational/back office matters, time which constitutes a material debit from focus on mission-related activities.

Every enterprise, for-profit and nonprofit, has common operational needs that must be met, whatever its mission or purpose may be. These include budgeting, accounting, technology and technology support, HR, insurance management, sales and marketing (“development” or “advancement” in the nonprofit world), space issues (maintenance, parking, configuration), retirement plan oversight and so on and on. It comes as no surprise, therefore, that one of the big debits to nonprofit productivity is simply the amount of time (to say nothing of the amount of money) that must be spent on operational/back office matters at the expense of mission-related work.

There is an obvious correlation between “time on mission” and productivity. The more time spent on mission-related activities the more productive the nonprofit. And, obviously, the less money spent on operations the more money available (all other things being equal) for mission.

To be specific, assume a typical small nonprofit with an annual budget of $400,000. (There are any number of nonprofit operating models so I will further assume that the mission of this “typical” nonprofit is as a provider of consulting/human resource/training services to its clients/beneficiaries). In this model, of which there are countless instances in the United States, budgeted income (grants, contributions, fees for services, etc.) is primarily allocated to salaries and benefits of senior staff/service providers and to the various back office costs associated with running the business.

Suppose back office tasks and costs could be largely eliminated. There would be two immediate and dramatic direct consequences.

First, most of whatever costs heretofore allocated to back office operations could be redirected to mission- related work. I have to take a stab at estimating what this amount might be (an amount which would include such items as rent, tech/tech support, bookkeeping/accounting, insurance and retirement plan administration, the amortized capital costs of furniture, fixtures and equipment purchases - in fact, most of what is identified as “routine” overhead). I think a defensible number would be somewhere in the neighborhood of $50,000 to $75,000 yearly, so say $50,000.

And, second, by far the bigger impact would be on senior staff productivity, whose focus could now be directed almost entirely to mission.

If you ask anyone familiar with small nonprofit operations, they will tell you that the amount of senior staff time that must be spent just to keep the doors open (that is, on operational/back office stuff) will generally take up between 35-40% of their working lives.

Imagine a situation in which the senior staff of, say, 200 small consultative/human resources/training oriented nonprofits (to pick an easy number which also happens to be about 2% of nonprofits in the San Diego area) are relieved of most of their operational preoccupations and so move to spending, say, 90% of their time on mission-related activities. Assume further that this amounts to an increase of 30% of time allocated away from operations and to mission (which I think is probably conservative). There are a number of metrics we could use to measure impact, all imperfect. One way is to convert hours to dollars and posit a reasonable relationship between hours “on mission” and the dollar impact thereof. To put this in our context, if each of our 200 nonprofits have an average budget of $400,000, of which $250,000 is payroll and benefits, and each experiences a “focus shift” of 30% of staff time from operations to mission, then converting hours (30% of staff compensation) to dollars (a payroll/benefits reallocation of 30% away from operations to mission) suggests that the 200 nonprofits have increased, on average, productivity “impact” by $75,000 each, yearly, from this source - $15,000,000 overall.

Add the $50,000 back office savings per nonprofit and our hypothetical 200 nonprofits have an annual productivity “boost” of $25,000,000.

And how is this highly desirable outcome to be achieved? As with so much which is important in our lives, it starts with a vibrant for-profit sector.

There are countless businesses in the United States that are well run, profitable and whose owners and employees are dedicated to, among other things, the well-being of their communities. In San Diego, because we have fewer big firms than many other U.S. cities, most such businesses are small to medium sized, which may make what I am proposing easier to execute.

Many businesses routinely contribute to good causes, encourage employee volunteerism and otherwise participate, directly or indirectly, in nonprofit activities. But it is a rare business (particularly among those that are small and medium sized) that can contribute $125,000 yearly to the local nonprofit community.

At the core of my modest proposal is the suggestion that many companies can (in theory) do this, and at a cost materially less than $125,000 per company.

Recall the numerous items that comprise operational overhead. These items are a routine component of business operations. How big a deal would it be for a for-profit company that is in good shape operationally, has staff with some capacity on the margin, has space available and is “culturally sympatico,” to invite one small nonprofit onto its platform and take on its operational/back office functions? (Actually, it would be a big deal for any company that did not satisfy these conditions.)

I envision a company hiring the senior staff of the “adopted” nonprofit and then dedicating them to its management. I envision the company integrating nonprofit operational/back office tasks and associated costs into its own operations, except for payroll and benefits of the newly hired senior staff, whose payroll and benefits would be an expense of the nonprofit and reimbursed to the company.

There would be start-up costs associated with any “invitation” to come onto a business platform. There would be some marginal additional operating costs as well. But costs would be dwarfed by the $125,000 (or whatever the amount turns out to be) in business contribution/impact on the community. Costs may well be dwarfed, as well, by the marketing-related benefits that could accompany “adoption,” but this is a subject for another day.

Imagine the consequences to all constituents, but particularly to nonprofit clients/beneficiaries, of some thousands of smaller nonprofits moving their operations onto business platforms. Hint: according to the National Center for Charitable Statistics, at last count there were about 1.5 million tax exempt organizations in this country. Of this number, about 1.2 million are public charities and private foundations. Imagine that 2% of these make the move to business platforms. Using my assumptions and math the consequences would be a staggering +/- $3 billion positive impact on nonprofit constituencies.

By any standard, all this adds up to what Jim Collins would describe as a BHAG (Big Hairy Audacious Goal). And we at CWC, while not discounting the complexities and yet to be discovered pitfalls of our BHAG, believe that the ends (potential for massive productivity increases across the nonprofit sector) most certainly justify the means (our continuing commitment to determine the feasibility of this modest proposal).

I will leave it to you to consider whether my modest proposal is feasible. I mean “leave it to you” literally. Normally, I write these commentaries without any expectation of response from readers. But this quarter I am writing with the explicit hope that readers will come back to me with comments and criticisms.

Your thoughts?

Chris Weil

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