Biz Journal: The crisis facing Philadelphia nonprofits – and how to turn it around

This story was originally published in the Philadelphia Business Journal

Many people are unaware of the significant role our region has played in building the foundation of the national nonprofit infrastructure.

Of course the University of Pennsylvania, the Philadelphia Free Library, the Philadelphia Zoo, Pennsylvania Hospital and the Philadelphia Museum of Art are well known – not only as among the oldest in their field, but as world-class institutions. In addition, the region has produced pioneering, outstanding organizations that work with individuals with physical disabilities (Inglis House, founded in 1877), work with individuals with intellectual and developmental disabilities (Devereux, 1912, and others), music education (Curtis Institute of Music, 1924 and the Academy of Vocal Arts, 1934), health insurance (Independence Blue Cross, 1939) and life care communities for older adults (Kendall, 1971).

Today, the country’s almost one million public charities provide $1.6 trillion of annual services in the U.S. economy, filling gaps in social services and elevating our culture, in addition to driving our economy. These organizations are the backbone of every great city in America and we all share a responsibility to keep them healthy and strong.

A recent study completed by Charity Navigator, an independent nonprofit evaluator, shows that Philadelphia ranks 13th on the list of top metro locations for nonprofit growth and performance. Up from 16th on the list, we’re headed in the right direction, but we can and must do better.

As discretionary public budgets continue to shrink in real terms, the pressure on nonprofits will only increase. Fortunately, there are some straightforward steps nonprofit organizations can take to improve their own performance, thereby boosting our city’s economic position and overall social and emotional health.

Tip #1: The Best Defense is a Good Offense

In today’s nonprofit landscape, which is evolving and expanding faster than at any time in our country’s history, a purely defensive strategy is headed for failure. After five years of reacting to market disruptions resulting primarily from the Great Recession, it’s time for nonprofits to get back on offense. Look to strengthen fiduciary and advisory boards and donor bases with new and different blood, increase focus on profitable core areas, and begin planting seeds in new revenue channels and relationships. Despite our collegiality, the nonprofit world today is hyper-competitive. Every day, larger, slow-moving, established charities are being pressured by smaller, tech-savvy nonprofit and for-profit startups. Another strategic plan based on the status quo won’t move the ball forward. It’s time to climb out from our recession bunkers and face our new economic and social landscape head-on and find the new opportunities.

Tip #2: Be Realistic About Your Value Proposition

With a dramatic increase in non-profit sophistication, and more competition than ever before for limited resources, we must take a close look at the real value proposition of our nonprofit’s services. It is no longer possible to be all things to all constituents. In order to carve out a strong place in the market and grow successfully, each charity must understand what is most valuable to its customers about the service it provides – and be open to the possibility that what has long been established internally may not be what constituents most value – or even believe they are receiving.

Consumers of services are more savvy and value-oriented than ever. Gone are the times of a paternal approach to providing services. Nonprofits must engage in real dialogue with customers, understand their needs and wants intimately, and orient their services, and messaging, accordingly.

Tip #3: No Margin, No Mission

Delivering on our mission defines us and is our top priority, but without a stable business model able to consistently drive a positive bottom line, we will not be around for the long run. At Devereux we are realistically able to cover 2 to 3 percent of our expenses from investment earnings from our endowment and 2 to 3 percent from charitable support. Therefore, if we cover 97 percent from service revenues, we should have a bottom line of 1-3% each year. By carefully managing to this business model over the last twenty years, Devereux has been able to steadily build its balance sheet and keep focused on the long run.

The most effective business model for each nonprofit depends on its unique resources. Identifying that effective business model is the key to long-term success. In fact, if your organization is unable to articulate an achievable business model with a positive bottom line, you need to consider whether the increasing benefits of scale in areas such as information systems, regulatory compliance and risk management suggest a need to find partners to achieve necessary economics of scale.

Working on the board or in management of a nonprofit is very rewarding but includes facing increasing challenges. If we aggressively find the opportunities in a fast-changing market, are realistic about our value proposition and develop a clear business model, we can continue to positively impact not only the people we serve, our donors, employees and partners, but the entire region – something that would make our forefathers and foremothers proud.

 Robert Kreider is president and CEO of Devereux, one of the oldest and largest nonprofit providers of behavioral healthcare in the country.

Photo via the Philadelphia Business Journal, Featured Image via Generocity.org