BY FC Expert Blogger Alice KorngoldToday
For most nonprofit organizations, financial success depends on building a board of directors that is generous in helping to contribute and raise the “venture capital” to launch the enterprise, and strategic in working with the CEO to help establish and achieve a financially sustainable revenue model. It’s nearly impossible for a CEO to maximize an organization’s financial potential without a highly effective board. And where there’s no money, there’s no mission.
Worst story ever: no venture capital from the board
A client of mine accompanied his board chair in recruiting high-level business leaders for a new social enterprise for which my client was the founding CEO. Since the organization was starting from scratch, the CEO expected the chair and board to be engaged in developing some of the “venture capital.” To the CEO’s great surprise, the board chair told each and every one of the new board recruits that they’d never have to give or raise a dime.
In the meantime, the CEO was raising start-up capital by himself from foundations, and developing a longer-term sustainable revenue model through a fees-for-services approach. The CEO soon learned that his board chair’s commitment to new board members was only one of many misunderstandings on her part that made her counter-productive as the CEO’s partner. Not only did the organization struggle to find the necessary capital to launch the enterprise, but the board chair also created a highly contentious board environment that distracted the board from any productive discussion or activity.
Best story ever: saved by the “deus ex machina”
That very chairman vanished from town 18 months after the nonprofit’s start when her company relocated her. She simply disappeared one day without a word. True story. What makes this the “best story” is that the chairman’s disappearance gave the CEO, the board, and the organization a chance for a fresh start.
There were no suitable board chair candidates within the board, however, and not one single board member attending to the leadership vacuum. So the CEO went outside of the board to recruit an outstanding corporate leader to serve as chair. As the new chair, he partnered with the CEO to rebuild and develop the board, raise the necessary capital for the initial three years, build a long-term sustainable revenue model, and lead the organization to tremendous success.
The situation reminded me of the theatrical device known as “deus ex machina” (literally “god out of the machine”), whereby an intractable problem is solved by the sudden appearance or disappearance of a key character. I’ve actually seen the deus ex machina save two boards in the past two decades by vanishing their respective board leaders; don’t count on it happening much more often than that.
Ten lessons for raising capital
Here are ten lessons for raising initial capital and maximizing longer-term revenue opportunities for a nonprofit enterprise:
- Make sure your organization has a generous and strategic board chair and a high functioning board–in addition to an outstanding CEO–in order to maximize the potential in raising “venture capital” and building a longer term sustainable financial model.
- Conduct a thorough needs assessment of the community you seek to serve including studying existing organizations, to determine how your enterprise will provide unique and compelling value and achieve high-impact results. Update this process on an iterative basis, partially via #5 below.
- Establish a clear mission (the compelling value your nonprofit will provide), the vision (your organization’s greater potential), and the strategy–otherwise known as a business plan (including the revenue model to achieve success).
- Recruit board members from diverse backgrounds and perspectives, including people with experience and expertise in the organization’s field of work. The richness in your board’s composition will amplify the board discussions of mission, vision, strategy, and the revenue model, and the enterprise’s credibility and reputation among funders, investors, and the community.
- Establish metrics to measure and track your progress and impact from Day One; use the information for iterative planning in addition to engaging your board in ongoing planning and financial support.
- Ensure excellence at all levels in the organization; strive for every client and constituent to have a positive and fruitful experience with the people on your team.
- Begin building a cash reserve from the very first year, accumulating it to at least six months of annual operating expenses within a few years. This will give you a margin of comfort as well as funds to make strategic shifts as needed.
- Develop in-kind contributions (such as donated space, equipment, and furniture) and pro-bono services (in areas of expertise such as pricing strategy, legal, audit, IT, web design, public relations, and social media).
- Remember that your organization’s mission is meaningful to various funders (individuals and institutions) for very different reasons. Research ahead, and most importantly, listen carefully to each donor prospect to understand what will be personally compelling to each; that is the key to raising capital from each potential source for the purpose and in the manner in which that person or institution wants to provide support.
- Build a culture and spirit of generosity and appreciation in the boardroom; this is where board leaders can have a great deal of influence and where board composition is a key factor.
There are individual and institutional donors who seek to invest in a better world. You want to reach and engage with the ones who will find meaning in the work your organization does.
If your board members are personally and enthusiastically engaged in generating support from friends, employers, and institutions where they have relationships, and if your board members are demonstrating their own generosity to the organization, your organization will maximize its revenue potential and achieve its greater vision.
Alice Korngold is the author of Leveraging Good Will: Strengthening Nonprofits by Engaging Businesses. She has been consulting to global corporations on CSR, and training and placing business executives on nonprofit boards for 20 years.