Measure and increase your nonprofit’s sustainability by examining the 12 segments of your business model.
It is impossible to directly measure an organization’s sustainability because sustainability is intangible. You can measure the various parts of sustainability but it is impossible for anyone to tell you whether one area or another is strong enough. Paradoxically, if one area is too strong, it creates an imbalance and reduces the overall sustainability of your nonprofit. Therefore, a nonprofit which is universally weak may actually have a higher level of sustainability than one with a few great strengths, a few disappointing areas, and everything else just okay.
In broad terms, the key parts of your nonprofit’s sustainability are the segments of your business model. At Mission Enablers, we divide the business model into 12 segments because we think those segments make the most sense when analyzing nonprofits. However, for many reasons the financial strength of one nonprofit must be measured differently than another. For example, think about how the funding strategy might affect the assessment of financial strength.
A nonprofit with 90% of its income from fees needs a smaller reserve because of the constant flow of funds from the fees than a nonprofit with 90% of its income from donations because a decline in the economy might cause the majority of donors to reduce the size of their gifts. In either case, when the reserve receives too much attention it can constrain the nonprofit’s ability to respond to opportunities just as much as a reserve that is too small can constrain the nonprofit’s ability to respond to a crisis. In short, sustainability is highest when everything is ‘Just Right’ relative to the nonprofit’s needs. Luckily, for most nonprofits the ‘Just Right’ range for each segment of the business model is broad.
Unless the current external environment is threatening your nonprofit’s survival, it is unlikely to play a role in your nonprofit’s sustainability. However, your nonprofit’s ability to thrive in the future depends heavily on the sustainability base you create today. Therefore, your board and executive need to create several future forecasts, select the most probable, and decided what ‘Just Right’ range is appropriate for each segment of your business model.
Next Step:
Determine which indicators in each of the segments of your business model have the greatest influence on your nonprofit’s sustainability
Determine the ‘Just Right’ range for each of the indicators
Create a plan, with yearly milestones, which will raise the indicators into the ‘Just Right’ range
Review the appropriateness of each indicator annually
Remember, you will choose the indicators based upon the current internal and external environments. The environments are constantly changing. Therefore, some of today’s indicators will be inappropriate or misleading in a few years.
It takes work to create sustainability goals, monitor progress, and adjust the goals to compensate for changes in plans, the external environment, and other factors. The return on the investment is a nonprofit that is easier to manage each year with constantly improving sustainability. The big dividend is consistently improving services for the clients and happier donors and other stakeholders.
A high level of sustainability depends on keeping each area within its ‘Just Right’ range. It also depends on using the right measures for each area depending on current needs and future plans.
Each decision you and your board make affects sustainability. Without a plan to raise sustainability, it is hard to know if your decisions will have the desired long-term effect.
Take It Further:
Ask your board to make the sustainability implications a part of every decision
Recruit board members who want to make the long-term sustainability of your nonprofit one of the legacies of their tenure
