Outcomes-Based Planning for Associations: Financial Sustainability and Income Strategy

1. Outcomes-Based Planning for Associations: Financial Sustainability and Income Strategy AIBS COUNCIL MEETING December 7 2011 Richard Brewster National Center on Nonprofit Enterprise

2. Financial Sustainability and Income Strategy • What makes for a sustainable organization? • Balance between Mission and Money • Characteristics of a sustainable nonprofit organization • Income Strategy: • Diversification • Identifying funding streams • Association Entrepreneurship

3. Association Sustainability Advocacy Publication Professional Development Meetings Common admissions process

4. Association Sustainability

5. Association Sustainability

6. Association Income: Forms of Support 6

7. Income Sources: Self-selected ASAE Associations FROM SURVEY OF ASAE MEMBERS:

8. Income Strategy Stages in developing an Income Strategy Define programs that are most likely to achieve mission Define their start-up and operating costs Identify most likely forms of support Screen these forms of support: prevalence and nonprofit’s values Do market research: $ value and direct costs Develop investment cases: “real” value and costs as well as $ value and costs Balance the portfolio: optimum overall value vs costs and protection against risk Make decisions: Invest….or quit. 8

9. Secure Funding Identifying the Nonprofit’s Likely Sources of Support Mission Services offered Nature of benefits Who will pay? Income Portfolio

10. Identifying the most likely sources of supportThe Roots of Association Income: the Nature of Benefits Private benefits Group benefits Public benefits Trade or exchange benefits Accrue to individual consumers willing and able to pay fees Accrue to specific constituencies associated with causes that donors wish to support with gifts and grants Accrue to the general public, supportable by public financing Accrue to organizational partners in a quid pro quo relationship 10

11. The Roots of Association Income: the Nature of Benefits Private benefits Service or activity generates direct benefit to individual Individual can be excluded from service Examples: Member services Health care Journal Career development advice Type of payment: fee/price in direct exchange for service 11

12. The Roots of Association Income: the Nature of Benefits Public benefits Activity or service generates benefit that, once produced, everyone gets. Clean air National Defense Association activity produces benefits that have political support and mandate: Education in public health Support for veterans Types of payment: Federal/State/Local grants and contracts 12

13. The Roots of Association Income: the Nature of Benefits Group Benefits Number of people or a community benefit, and difficult to exclude, but.. benefits not sufficiently widespread or popular to attract public funds Examples: Research into treatment of PTSD Support for victims of disasters Who pays?: people with affinity or interest, or brief/policy to support a given area. Types of payment: Donation Bequest Foundation Grant 13

14. The Roots of Association Income: the Nature of Benefits Trade benefits Activity generates economic or social benefit for third party (other organization or individual) Examples: Member society benefits: Advocacy support: exchange of one association’s resources for another’s staff Healthcare insurance Consulting Corporations that buy association’s reputation to increase their own sales: Crest and dental association scholarships Types of payment: Contract Membership/affiliation dues Barter Sponsorship 14

15. Benefit Combinations and Income Portfolios Private Benefits Trade Benefits Group Benefits Public Benefits 15

16. Identifying the most likely forms of support: AIBS BENEFIT ANALYSIS OF PROGRAM ACTIVITY: E.G. BioScience

17. Nonprofit Income Strategy Stages in developing an Income Strategy Define programs that are most likely to achieve mission Define their start-up and operating costs Identify most likely forms of support Screen these forms of support: prevalence and nonprofit’s values Do market research: $ value and direct costs Develop investment cases: “real” value and costs as well as $ value and costs Balance the portfolio: optimum overall value vs costs and protection against risk Make decisions: Invest….or quit. 17

18. Framework for Decision-Making: Value vs Cost For each potential new source, or each potential expansion in income generation from a source: Value: direct $ value, ‘crowd-in’ value, added mission value, minus ‘crowd-out’ versus Costs: direct operating expenses, start-up capital and working capital hidden transaction costs. 18

19. Framework for Decision-Making: Value vs Cost For the income of the nonprofit as a whole: Best overall combination of Value versus Costs…. Adjusted for: Protection against risk Overall viability 19

20. Protection against risk Current thinking on income strategy risk mitigation • Diversified revenues: • More than one type of financing (e.g. Govt. contracts, private foundation grants) • Several payers in each type (e.g. members, different govt. streams) • One dominant source, buttressed by 2 – 3 ‘supporting streams’ • Unrestricted/unconstrained as part of the mix 20

21. Secure Funding Identifying the Nonprofit’s Likely Sources of Support: Association Entrepreneurship Mission Services offered Nature of benefits Who will pay? Income Portfolio

22. Association Entrepreneurship Entrepreneur: An innovator who implements change within markets through the carrying out of new combinations: • The introduction of a new good or standard of quality • The introduction of a novel method of production • The opening of a new market • The acquisition of a new source of supply • The carrying out of new organization in any industry.

23. Association Sustainability

24. Association Entrepreneurship • Clarity about mission and desired outcomes • Clarity about who constitutes the association’s important stakeholders • Laser-like focus on what they really need, including what they don’t yet know they need: benefits • Understanding of ability and willingness to pay. i.e. become customers

25. Association Entrepreneurship If able and willing to pay: • Laser-like focus on creating value and justifying prices that make services viable over time. • Align all association’s resources to the interests of these stakeholders

26. Association Entrepreneurship If this market doesn’t exist, revenue from customers insufficient, • Combine different revenue streams to produce services • Innovate activities tangentially related to mission • Shift mission……

27. Association Entrepreneurship Change in Association’s culture: • Time and encouragement to think about new ways of combining resources • In programs • In generating income • Across the nonprofit • With other agencies • Rewards and encouragement for considered risk-taking • Delegated authority to make decisions and act

28. Association Entrepreneurship: Change in Association’s culture: • Optimistic—feeling that the business will work • Visionary—imaginative, creative • Passionate—to make a difference in the world; able to turn passion into practice; transform dreams to reality • Purposeful, Driven, determined • Calculated risk-takers • Knowledge seeking—learn by doing • Principled, reliable • Able to institute change by disrupting the status quo or bringing something new to market • Able to bring resources together; create value

29. Outcomes-Based Planning for Associations: Financial Sustainability and Income Strategy AIBS COUNCIL MEETING December 7 2011 Richard Brewster National Center on Nonprofit Enterprise richard@nationalcne.org