The Mistake:
Being too cautious with overhead spending.
Nonprofit leaders were often concerned in the past with overhead ratios and what they were spending on program versus administration and fundraising costs. That’s something that, up until a few years ago, was the primary measure of how efficiently an organization was running. I bought into that a little too much and it eliminated some of the entrepreneurial instincts to invest in what we were doing to build capacity.
Specifically, around 10 years ago, we decided if we were going to reach more nonprofits, e-commerce was a strategy we needed to explore. Before that, we had strictly been local. When we tried to add an e-commerce platform, it was a little tricky because we didn’t want to reach everybody the way most platforms do. We wanted to reach only nonprofits. So it was not something that could be done with shareware right out of the box. But I was reluctant to make a significant investment.
We tried to carve the costs out of the other pieces of the budget so we didn’t upset what we were spending on administration versus program. The result was we had a couple of websites that really didn’t perform well. They were buggy. They were prone to attract malware. We spent a lot of time battling those things and not getting results because we didn’t invest in the best technology available. We were thinking, “We’re just a little nonprofit. We shouldn’t have the best website around.”
For a nonprofit organization to fulfill its mission, dream big and achieve scale, its going to have to invest in capacity.
The Lesson:
Recently, there have been a lot of people in the sector who’ve addressed this. Specifically, in 2013, GuideStar and other agencies that provide information on nonprofits wrote a letter about what they referred to as “the overhead myth.” There a lot there’s a lot of conversation in the nonprofit community about how we evaluate ourselves and how overhead ratios are not the best way to measure effectiveness.
So our board and I have been much more open-minded about investing in capacity. We purchased our building in 2010. Since that time, we’ve seen about 150 percent growth because of the expanded capacity. In the past two or three years, we’ve invested a lot more in our technology. As an organization, we try to measure things like how many organizations we’re reaching and how our program is growing from within as a result of the capacity rather than just looking only at the money we’re spending on program versus administration.
If we’re dreaming big, we aspire to be the Amazon of charitable donation distribution. Obviously, Amazon makes tremendous investments in their technology. While we don’t have those kinds of resources at this time, we still have to get a mindset that, if we’re going to reach for this goal, we have to have goals on how many products we’re going to distribute, how many donation requests we’re going to process, how many organizations we’re going to serve. We’re also going to have to have the resources to get us from where we are to where we’d like to be.
I think what I’m trying to get across is that, for a nonprofit organization to fulfill its mission, dream big and achieve scale, it’s going to have to invest in capacity – whether it’s technology, human resources, or facilities. The ultimate goal is to fulfill your mission. In our case, that’s getting the products to the organizations changing the world.
This article originally appeared on Crain’s St. Louis, click here to read the original article