By Heather Ferguson
Donors with the discipline to ask these five strategic questions and non-profit leaders with the discipline to answer them will find a common framework that will bring added clarity to their discussions.
I was flipping through Fortune Magazine online the other day when I ran across five key strategic questions for private equity investors. (Dan Primack, July 9, 2012)
Reading through, I realized these five questions could apply to major gift philanthropy and could be equally helpful to anyone wanting to understand the potential of a non-profit to achieve its goals. Even the non-profit leaders trying to secure those gifts would benefit.
So here are the five questions and below, my own commentary. I like these questions because each one speaks to an important part of an organization that donors should understand, but the questions relate to each other to form a whole.
- What is the company’s core strategic plan?
- Are we the right owners to execute on the strategic plan?
- Does the company have the right CEO to execute on the strategic plan?
- Is the company earning an appropriate return on invested capital?
- Is the company gaining market share?
1. What is the company’s (read: Organization’s) core strategic plan?
This is about vision, programming, revenue streams and culture. The core strategic plan is about the big, big picture. In my charitable work, both management and governing boards see their strategic plan as their bible and put much time and effort into creating it. Donors don’t need to see the whole plan (boring bedtime reading for them – I can attest). If it really guides the organization, its contents will come across in spades during meetings, and in whatever presentations and proposals are required.
What donors want to know is your overall direction as an organization, what goals you consider important and how you plan to execute them. This is about your programming and your impact on society and it is heartening to know that this is the first question a prospective donor should ask – whether you are dealing with the arts, with a social issue or anything else that demands a non-profit solution. Donors who feel they can trust your vision and direction as well as your plans to execute will feel ready to ask the next, more incisive, questions below.
2. Are we the right owners (read: donors) to execute (read: understand and support)… the strategic plan?
This question raises a challenge for philanthropists just as much as Fortune intended it for private equity investors. All of us, no matter our net worth, want to make the world a better place and each of us should have a personal policy in place that governs our giving. For most, if not all, existing non-profits and charities offer vehicles that allow us to change the world in meaningful ways. Not surprisingly, the more money you give away, the more complex the act of giving becomes.
Savvy donors have a vision for their philanthropy. They know what they want to achieve today but they also know, as their giving gains a track record, what they want it to achieve in the future. Thinking of philanthropy as a living growing program means that philanthropists have to determine the fit with their program. I used to know a philanthropist who gave and volunteered widely. He took a personal interest in our mid-sized charity because he wanted to see it grow and he knew he had the means to support that. As a result, he earmarked his substantial annual gift for whatever we needed at that time, after discussion with him. That allowed the charity to allocate funds from less flexible donors and also make a fit with his philanthropic program. The charity functions as their vehicle for making the world a better place – each to his/her means and talents
3. Does the company have the right CEO to execute on the strategic plan?
In the first two questions, the philanthropist/investor is looking for fit – the right cause to fit with their philanthropic goals. In this question, they start to drill down on the organization and I find it telling that it starts with leadership and, by extension, culture.
I would expand this question to include the leadership team as a whole. The right CEO at the right time is crucial but the ability of the management team to execute on the strategic goals, the depth of talent within the team (eg: who can take over if the CEO gets hit by a bus, or a board of directors), their collaborative skills and emotional intelligence all make or break a great organization. If the CEO is not supported by a great leadership team, or is “tone deaf” when recruiting the right leadership team all is truly lost.
4. Is the company earning an appropriate return on invested capital?
The key concept in this question has to do with “invested capital” and whether or not that investment is generating the societal impact the organization anticipates or desires. Understanding the relationship between the staff one hires, the promotional materials generated or the research and development incurred against the impact of that investment on creating the non-profit solution is crucial to determining the value a non-profit generates for society. A prospective donor might determine it using this simple example.
If a non-profit creates a school program for instance, and the curricula presented at each school cost, say, $10,000, it may be difficult, or in some cases even impossible to find a donor willing to fund that program. The donor may feel that the cost of $10,000 per school against the number of students benefitting from that program does not justify the expense. In that case, the cost (for each school) and the impact (number of students exposed to the program) do not create a strong enough value proposition for funders.
Let’s say the non-profit is able to reallocate its capital investment so the program runs in two schools or even four schools for the same price. In that case, funders may feel the number of students exposed to the program may be more in line with the cost and be willing to fund it. Securing donations to the program now works because the “unit economics” now works.
5. Is the company (organization) gaining market share?
Anyone who thinks non-profits are above anything as crass as market-share should think again. The sheer proliferation of non-profits in Canada speaks to a healthy marketplace of ideas about the best ways to improve our world. In such an environment, competition for scarce resources leads inevitably to a discussion of market share.
The beauty of this question is that it pulls the lens back to the bigger picture and looks at your overall track record with other donors. Your individual programs may be good, bad or indifferent but what is your organizational track record like, relative to your size and historical goals? Do you do something different from everyone else – or do you do something better than everyone else? What is that thing that brings others flocking to your side – choosing your organization over others? A strong track record of success can obliterate a couple of misfires on the program side and this question makes sure your successes and also your challenges are accounted for.
Donors with the discipline to ask these five strategic questions and non-profit leaders with the discipline to answer them will find a common framework that speaks to different goals and outcomes for non-profit organizations, but remains realistic in an assessment of their value. A donation, whether large or small, is the grease that supports societal impact and allows non-profits to serve. A focus on the information donors need to assess an organization serves everyone.
Heather Ferguson, MCM, ABC, CFRE (2003-12) is a consultant living in Victoria BC. Her expertise lies in managing key accounts as well as non-profit management, major gift fundraising and content marketing communications. She is passionate about the non-profit world and is convinced we are on the verge of a golden age of doing good. Heather can be contacted at email@example.com