Mario Morino on the fiscal crisis facing nonprofits and the need to rethink and reinvent

 More than 15 years ago Mario Morino was the first investor in Community Wealth Ventures and has long been a keen and candid observer of the challenges facing nonprofits and efforts to create social change. He’s among the best I know at imagining what can be, but without that comprising his ability to see things as they are. His new book, LEAP OF REASON, is a powerful summation of much of what he’s learned.

Mario’s summary of two reports below, from Bridgespan and the Alliance for Children and Families concludes that “the fiscal crisis facing nonprofits is anything but a passing phenomenon” and that “every nonprofit will need to rethink, redesign, and reinvent for this era of scarcity”.

In many ways this has been our mantra at Community Wealth Ventures well before the current fiscal crisis, since it has long been clear that there simply aren’t sufficient charitable dollars, even for organizations that excel at getting more than their fair share, to solve many of our social problems on the scale that they exist. And so we have been a proponent of creating community wealth by leveraging assets into revenue generating opportunities; investing in capacities that support scale and sustainability, and more recently focusing on collaborative and systemic efforts, including intersecting with public policy, to create transformative change. As we’ve taken lessons from, and contributed to, Share Our Strength’s success scaling the No Kid Hungry campaign, we’ve seen the indispensible need to focus on measurable outcomes as Mario prescribes.

Mario’s message is an important reminder that many good and important organizations will be fighting simply to survive and maintain current levels of services. It points to the need for us to be helping them with the fundamentals of strategy and sustainability at the same time we help them aspire to transformation.

Excerpts from Mario’s recent letter follow below.

Billy

Mario Morino: First off, I want to commend two outstanding—and sobering—accounts from Daniel Stid and colleagues at Bridgespan: the report The View from the Cliff and the article “Five Ways to Navigate the Fiscal Crisis.” Stid et al. have done a much better job than I to assemble facts to back up one of Leap’s core premises—that the fiscal crisis is anything but a passing phenomenon, and it will force nonprofits and their boards to be more rigorous in how they pursue and assess performance. Here are just a few of the many valuable insights from the Bridgespan works:

• “The long-term outlook for human services funding is bleak. The federal government is facing record budget deficits and interest payments to service its rapidly accumulating debt, the rising cost of health care, and the demographic challenge of paying for entitlement benefits for retiring baby boomers.”

• “Given that roughly one quarter of state government funding and one third of local government funding come from Washington, D.C., the federal budget squeeze in turn will impinge on human services budgets at these levels.”

• “Moreover, state and local governments have their own demographic time bomb to address, in the form of an estimated $1 trillion to $3 trillion in unfunded pension and retirement liabilities for current employees and retirees.”

• “As one former state government [CFO] told us, echoing a common view among the … officials we have talked with, ‘All levels of government are facing steeper costs on health care and pensions, where the relentless demographics are just grinding down on all other items in the budget.’”

• The Hillside Family of Agencies CEO Dennis Richardson: “We started focusing more on measuring our outcomes as a result of our organizational curiosity—What are we doing that actually works? We also have come to believe—looking ahead to the future—that if we couldn’t answer that question, our funding would go to someone who could.”

I was equally impressed with the Alliance for Children and Families’ recent report Disruptive Forces: Driving a Human Services Revolution, inspired by the forward-looking IBM Global CEO Study and intended “to push [leaders] to think outside of their comfort zone.” Here are a few of the many good insights in that report:

• “Funders and communities will expect greater impact at a lower cost. The Hyundai-style approach of providing functional attributes in design and quality at a low cost has taken hold; competition will be cost based.”

• “The number of individuals with the same social ills we face today will increase…. Government will significantly reduce its funding of the sector. Foundations will hone their focus to the few proven, impact-generating organizations.”

• “Successful, high-performing networks of human services organizations will embrace technology, employing sophisticated and integrated systems to manage clients, operations, and advocacy … form innovative partnerships that deliver via multiple sectors … view the sector as a system, where all parts are interconnected and impacts are collectively measured … be comfortable with increased complexity.”

The bottom line is clear: With tight money and growing needs, every nonprofit will need to rethink, redesign, and reinvent for this era of scarcity. Even if you’re not the direct beneficiary of public funding, please don’t assume that you don’t need to think about these cuts. The competition for foundation grants, major gifts, and fee-based contracts will skyrocket as those whose public monies are cut look to other funding sources—like yours. Performance is the best way to protect your organization and meet the growing demands that are coming your way.

Back in the 1980s, an authority in the field of change management shared his view that dramatic personal change doesn’t happen until what you had stops or is taken away. Our fiscal realities—coupled with seismic demographic and social shifts—are likely to be this kind of turning point for the nonprofit sector, and possibly for the public sector as well.

My fervent hope is that this moment produces a true movement—a movement of public, private, and nonprofit leaders committed to tap the potential of, encourage, and support those leaders who have the courage to leap high in pursuit of performance for those they serve.

– Mario Morino