Three Takeaways for Strategic Planning while in Financial Crisis
For organizations facing a financial crisis, strategic planning can seem like an impossible luxury. However, nonprofits that routinely find themselves maxing out a line of credit or scrambling to make payroll need to ask themselves some hard questions – and the process of answering those questions is what strategy is all about.
With the recent release of the second edition of David La Piana’s The Nonprofit Strategy Revolution: Real-Time Strategic Planning in a Rapid-Response World, I decided to apply our Real-Time Strategic Planning (RTSP) methodology to nonprofits experiencing financial challenges. I spoke with David on this topic, and want to share my top three takeaways from our conversation.
#1 Don’t Fall Into Paralysis
Nonprofits are often reluctant to engage in strategic planning when they face financial challenges. Do we wait until the challenge has “passed,” or should we engage in strategic planning now because we know there are threats we must address? If you are facing a pending crisis around making payroll, strategic planning can seem like an impossible luxury.
However, nonprofits that routinely find themselves maxing out a line of credit or scrambling to make payroll need to ask themselves some hard questions – and the process of answering those questions is what strategy is all about. A strategic planning process that takes six months and dozens of meetings may not make sense in this case (or ever), but the value of strategic planning is not defined by the length of the process. RTSP is specifically adaptable to whatever time frame is available. Gather the best thinkers from your staff and board and follow the RTSP steps: examine your business model, determine strategy screen criteria, identify a big question, and then test the options. This is achievable in a basic way in only a few hours, if you gather the right people and engage in a frank discussion.
#2 Beware the Super-Sized Grant that (Always) Ends
There once was a nonprofit that developed a brilliant, new idea. A foundation recognized the brilliant, new idea and awarded the nonprofit a very large multi-year grant. This finally allowed the nonprofit to “scale,” hiring additional staff and expanding infrastructure. While the nonprofit was busy implementing the big grant, it didn’t notice the new context it found itself in when the grant ended. The nonprofit couldn’t adapt quickly enough and went out of business.
As David pointed out in our conversation, “the fact that a nonprofit gets a grant is not a change to the business model.” Not recognizing the looming threat when the grant ends is a failure of strategy. According to David, “All foundation money ends at some point. If not, we wouldn’t need program officers, they could just hire clerks to send direct-deposit funds.”
How to avoid this pitfall? From the very beginning of the multi-year grant, contemplate how the organization managed before the big grant and imagine how it will operate when it ends. What is the competitive advantage that attracted the big grant in the first place? How can the organization adapt to its new reality by building upon the strengths it developed with the big grant? How can it use the grant to build sustainable new strengths and capacities?
The loss of a major funding stream necessitates worst-case scenario planning. What are you going to cut if you lose 30% of your revenues? As the end of a big grant approaches, many nonprofits assume the funder will renew or another funder will fill in the gap. But what if the Hail Mary doesn’t work? Nonprofits need to develop a back-up plan. The board especially should be mindful of the organization’s ability to fulfill its mission when a major grant is ending and push management to come up with alternatives. Hopefully the back-up plan won’t be needed, but if it is, you will be glad you spent the time before the crisis arrived.
#3 Not Every Financial Problem has a Financial Solution
Many nonprofits face chronic underfunding, such as contracts that don’t fully cover costs, or government sources that are constantly being ratcheted down. Organizations become numb to this threat because it is ever-present. They hold fundraisers to subsidize government contracts or dip into reserves to cover shortfalls and hope that things will turn around. To mix a metaphor, often a long-time, well-respected CEO or board pulls rabbits from hats but may not be able to see the forest for the trees.
But not every financial problem has a financial solution. If an organization is hoping that the new development director will finally get fundraising on track, it may be disappointed. Chronic financial problems may result from a broken business model, and that needs a strategic solution.
Ideally, the time to address a financial problem with a strategic solution is before the chronic crisis becomes acute. This is not always possible, as some crises arrive unannounced. But don’t engage in magical thinking. Data don’t lie and it’s never too late for Real-Time Strategic Planning.