Can nonprofits survive?

Matthew Netto, state director of the nonprofit Best Buddies Rhode Island, has an unwieldy job description.

To lead the charitable organization, part of a national group dedicated to support for people with intellectual and developmental disabilities, he manages fundraising, a one-person staff and interns, marketing, and community outreach, while working with a 24-member board of directors.

“That’s what the role of state and executive directors has evolved to,” Netto said. “You have to wear many hats.”

It’s a situation more and more organizations find themselves in, says Jim Ryczek, executive director of the Rhode Island Coalition for the Homeless, who also does the work of a human resources manager, chief operating officer, chief financial officer and CEO. “Something has got to give.”

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This strain on nonprofit senior staff is just one more burden contributing to a looming leadership vacuum predicted in Rhode Island, based on a recent study of data by Third Sector New England, a Boston-based resource center for nonprofit organizations and foundations.

And that, coupled with cuts or level state and federal funding, a slow economic emergence from the Great Recession and a lag in volunteering compared to the rest of the country, presents Rhode Island’s nonprofit sector with challenges that can make it difficult to remain viable long-term, nonprofit leaders say.

Asked to articulate how best to tackle these challenges to leadership, mission and finances, former and current board and staff members as well as key funders offered a survival guide of insights and advice that nonprofits can use to stay in the game.

For all but the biggest nonprofits, they say, surviving in the increasingly competitive fundraising landscape will require adopting some major changes.

NONPROFIT GROWTH

The number of Rhode Island nonprofits has grown steadily, from 6,400 in 2003 to 7,730 today, according to data from Secretary of State Nellie M. Gorbea. The Great Recession forced nearly 300 nonprofits to close between 2007 and 2008, but there has been strong growth since then among tax-exempt charitable organizations.

Rhode Island defines nonprofits as break-even enterprises registering with the secretary of state’s office, but doesn’t distinguish between the charitable organizations that have to file for tax-exempt status with the Internal Revenue Service from 32 other types that range from individuals to condo associations to church groups.

Of the nonprofits represented in Gorbea’s data, the Rhode Island Foundation lists 3,749 tax-exempt charitable organizations, known as 501(c)3s, in existence as of mid-July. (The foundation relies on Guidestar.org, which gathers data about every nonprofit registered with the IRS.) That is an increase of more than 1,500 since 2010.

“This growth reflects some entrepreneurial spirit among Rhode Islanders, since during the recession there was increased need, particularly in human services,” said Jill Pfitzenmayer, vice president for the Rhode Island Foundation’s Initiative for Nonprofit Excellence, a division of the foundation that provides research and training initiatives. “As private- and public-sector jobs became more and more competitive, people may have been trying to start their own thing.”

Hez Norton, director of leadership and partnership initiatives for Third Sector New England, confirmed that across New England, compared with seven years ago, the number of nonprofits has increased dramatically. As of late 2014 there were 73,410 reporting nonprofits in New England, compared with 44,688 in 2008.

Norton had no comparable national data, and could only speculate as to the reasons. Besides the explosion in entrepreneurship, Norton said, “Funding themes change cyclically and it might be a response to that. And as state and federal funding changes with different administrations, there’s a huge need that nonprofits try to meet – that the government or private sector is not set up to meet.”

Norton also cited the impact of the recession, and said today, “we know there are many more nonprofits doing more with less.”

LEADERSHIP VACUUM

Even as more charitable organizations come online in Rhode Island, the state’s nonprofit leadership ranks are thinning. In fact, it could reach a crisis point for the sector in the next few years. According to the Third Sector New England regional study released in June, 83 percent, or 47, of 57 nonprofit leaders surveyed intend to leave their organizations in Rhode Island within the next five years. Of that number, 23 percent, or 13, plan to leave in the next two years.

Rhode Island data show 63 percent of leaders and 61 percent of board members surveyed have no succession plans in place.

“We’re already starting to think about succession-planning [programming] in the fall, because we think this is important for nonprofits to think about and be aware of, and we want to provide tools and resources to help them,” said Pfitzenmayer.

Changing the traditional organizational model from board and CEO or executive director to a board and senior staffing team may be necessary for some, said Norton. That kind of structure would require more commitment from volunteer boards of directors, but it may be the only way to make sure an organization has the diverse skill sets among its leadership team than is required today.

Third Sector has prepared analysis of Rhode Island’s findings for the foundation, which Pfitzenmayer said would likely be made public once the foundation has seen it. While Norton couldn’t comment last week on its contents, he said other New England states are going through the same churn in leadership transitions.

Boards anticipating departures need to rethink the finances and organizational structure of their nonprofits, Norton said, particularly for those functioning on less than $2.5 million operating budgets.

Anne Nolan, former president and CEO of Crossroads Rhode Island, the state’s largest homeless services organization, said holding annual conversations internally about possible promotions in case of emergencies or known transitions has worked at Crossroads. For example, the naming of Nolan’s successor, Karen A. Santilli, grew out of ongoing discussions when Santilli was still the organization’s chief marketing and strategy officer.

At the Pawtucket Central Falls Development Corp., Linda Weisinger replaced Nancy Whit as executive director after Whit was at the helm for 15 years. Succession planning helped, and Whit made herself available on both a paid and volunteer basis to help Weisinger in her new role, they said.

Pfitzenmayer believes that for many nonprofits more formal succession planning – including an actual plan – is key.

Oftentimes, just identifying the next generation of leadership can be a challenge, especially when there don’t seem to be enough people with the correct experience or job skills to navigate an often difficult management challenge. Pfitzenmayer and Netto, who is also president of the Rhode Island chapter of the Association of Fund Raising Professionals, say that management certificates and degrees at the state’s colleges and universities today help train incoming leaders.

Netto cited Rhode Island College’s certificate of nonprofit excellence as an example, noting that this sort of training is a relatively recent development.

THE ROLE OF THE BOARD

Even with better planning, there is no question that board members need to be better versed in the finances of an organization and how they drive its mission. That then helps them ask the right questions so senior staff can manage a mix of philanthropic support and earned income, said Owen Heleen, chief strategy officer at the Providence Center.

He has sat on five boards in the past three years, including Bannister House, the Audubon Society of Rhode Island and Program of All-inclusive Care for the Elderly, or PACE.

“The board member’s job is fundamentally about asking questions and finding the most important questions to ask,” he said. “Board members aren’t driving the car: they’re really in charge of making sure the car can make the trip and has enough fuel to get there. It’s the executive director and staff that’s driving.”

Sometimes the role of the board is also to keep the management focused. Nolan recalled her own tendency to be outspoken, which got her into hot water on the subject of pension reform in 2012, when her support of then-General Treasurer Gina M. Raimondo’s approach did not sit well with some of Crossroads’ supporters.

“The board was very direct with me,” she said, suggesting her posture had the potential to put Crossroads at risk. “They offered very good advice and counsel during a particularly touchy period for Crossroads and for me,” she added.

Still, board members are stewards, not shareholders, and must recognize that fact while guiding an organization, Heleen notes.

“The people they serve believe the organization belongs to them, and in many ways it does,” he said. “[Board members] represent the community.”

Staying “engaged” can make it “hard to become businesslike, make those hard decisions and make them in a way that advances the mission,” he added.

FUNDING CHALLENGES

Dealing with unchanging federal and state funding over time as the costs of doing business rise has challenged many nonprofits, forcing them to develop more diverse revenue streams.

Patti Macreading, executive director of the Rhode Island Family Shelter, said her nonprofit’s financial struggles led to closing the shelter in early July, although it is still operating apartments for clients.

The nonprofit saw its overall funding drop from $500,000 to about $400,000 over a four-year period, which led to the laying off of the shelter’s entire 11-person staff and having seven residents relocated to other facilities.

Board President Christina D. Johnk did not immediately return calls seeking comment.

The shelter’s plight is not uncommon, however, said David Caprio, president and CEO of Children’s Friend, which has a $25 million operating budget – about one-quarter of which is covered by funding from state agencies.

Often state contracts with nonprofits are funded at the same levels today that they were funded with when they started years earlier, Caprio said.

“That creates a big stress on the organization,” he said. “Donations can make that up, but I don’t believe that funding mechanism actually leads to the best quality of programming.”

Caprio would like to see performance-based contracts, in which measuring outcomes could help the state determine how to get the best investment for its money. But he admitted it is not clear who would lead such an effort. And under that scenario, some organizations would thrive while others who were not rewarded with funding would struggle. And only those organizations that measure outcomes would be able survive in this environment.

The United Way of Rhode Island knows what kind of pressure to perform that funding scarcity creates. In its most recent three-year cycle, the UWRI got requests totaling $13 million each year, while $5.2 million a year was available to be given, said Adam Greenman, executive vice president of community investment.

The Champlin Foundations, which averages 400 awards between March 1 and April 30 totaling, on average, $19 million a year, advises nonprofits looking to get grants to “do their research,” Executive Director Keith H. Lang said. Champlin funds capital projects, but wouldn’t pay for a feasibility study of a capital project, for instance, he said.

Other nonprofit leaders noted that creating diverse revenue streams is an important way to remain fiscally sound. For example, The Steel Yard generates income from training programs to add to its private fundraising and corporate donations that support its mission to offer arts and technical training programs.

Amos House opened the Friendship Café in 2010. The neighborhood eating establishment and event space not only provides on-the-job training for clients, it generates real revenue to help offset program expense. More recently, the nonprofit started Amos House Works, a catering business based at the café.

MINING THE BASE

For Douglas J. Rubenstein, board president of Animal Rescue Rhode Island in South Kingstown, developing a marketing plan helped strengthen the organization.

“Our mission is to rescue animals and find them good homes, but [we were] losing money on that,” he said. “You’re competing against two competitors: like organizations and also local organizations.”

As a South County-based organization, the nonprofit has about 3,000 donors, only 1,500 of whom are active. But a database search of pet owners and supporters of animal causes in that region revealed some 15,000 to 30,000 people.

That led the nonprofit to develop a plan to market itself not only within South County, but outside it, since a majority of people adopting animals are from outside South County.

As part of coming to that decision, Rubenstein recognized that the nonprofit had to “tell our story [and] create a brand.” One key step was to take South County out of its name to reflect its now broader geographic reach.

After looking at the revenue stream of $350,000 for 2013 and implementing the marketing plan, in 2014 revenue grew 10 percent to $385,000 for the year, Rubenstein said.

PARTNERSHIPS MATTER

Partnering with nonprofits with similar missions also enhances the chances of survival and can reduce duplication of services and be less taxing on staff and supporters, said AIDS Care Ocean State Executive Director Paul Fitzgerald. His nonprofit has partnered with AIDS Project Rhode Island on two late-summer fundraisers.

“Funders recognize that when two organizations are trying to raise the same dollars, they believe their dollars go farther [if they partner with each other],” he said.

Farm Fresh Rhode Island collaborates with Thundermist Health Centers, hosting farmers markets at Thundermist facilities, an effort that helps fulfill both missions, said Sheri Griffin, co-director for community assets at Farm Fresh. Farm Fresh benefits by gaining a new market of shoppers that might not ordinarily use a farmers market, while Thundermist benefits by exposing its primary care patients to healthy food options, Griffin said.

“Collaboration is key,” said Greenman of the United Way. “[A nonprofit] may have a program that does one thing really well, but we do want them to think about how they can help clients they’re serving and connect them with other services and nonprofits that are doing those [other] things well.”

IT TAKES A COMMUNITY

Volunteers are also critical to many nonprofit operations, but volunteerism in this state is low compared to other states, said Bernie Beaudreau, executive director of Providence-based Serve Rhode Island.

Rhode Island’s rate of volunteering ranks 42nd in the nation; teen volunteering is 36th, and adults 65 and older are ranked 48th, according to the Corporation for National and Community Service’s annual volunteerism report, “Volunteering and Civic Life in America.”

If Rhode Island’s overall volunteer rate were as high as the rest of the New England states, an additional 49,299 volunteers would contribute 2.3 million hours of service per year.

Serve Rhode Island itself has a database of about 10,000 volunteers, but about 3,000 are active, compared with 5,000 about 10 years ago, he said. He blames the economy, which has made more people financially insecure and less able to contribute.

“Nonprofits have not had staffing to be able to manage volunteers,” Beaudreau added. “So, it’s kind of a Catch 22. If you don’t have someone available to design the work for volunteers, it’s not attractive to volunteers and not a sustainable situation.”

His organization is working with the R.I. Division of Elderly Affairs and the Senior Agenda Coalition to launch a four-month senior-volunteerism planning project this September, funded in part with money from Blue Cross & Blue Shield of Rhode Island.

The goal is to create a strategy and action plan for expanding volunteer service opportunities for the elderly here, he said.

Netto advises nurturing volunteer relationships in person wherever possible.

“The strongest part of a nonprofit is mission-based volunteers, because they believe 100 percent in the mission and they’re attached to [it],” he said. “I can get 10 people to give me checks, and that’s great. But I want people fully invested in the mission, fully engaged in the programs, actively spreading the mission. It’s a very strong bond, and those are the people you’re going to rely on.” n

2015 Nonprofit Survival Guide

1. Funding

Generate revenue

Fundraisers, grants, donations. It can get challenging to tend to it all.

“One of the things I think nonprofits don’t spend enough head space on is the revenue side of the equation,” Animal Rescue Rhode Island board President Douglas J. Rubenstein said.

Targeting potential pet owners and supporters of animal causes further from the organization’s South County roots helped it connect with new potential donors. n

2. Leadership

Shifting roles

The board of directors’ role is to ask questions but not to go around the executive director, said Owen Heleen, a member of several nonprofit boards, including PACE and the Audubon Society of Rhode Island.

“You have to have the kind of relationship where you can ask tough questions and the executive director can expect support and encouragement in return,” he said.

Yet nonprofits in transition with leadership are having to re-examine the board-executive director structure, with more broad-based staffing teams taking on management duties. n

3. Focus

Telling your story

Funders and audiences generally want to understand the human side of a nonprofit’s mission.

“[Nonprofits should] take advantage of opportunities that are out there: workshops and ways to tell their story, and how to use data effectively to tell their story,” said Adam Greenman, executive vice president of community investment for the United Way of Rhode Island. n

4. Staffing

A deeper bench

Having regular conversations about leadership is an important way to ensure that transitions are well managed and the organization is strong, said Anne Nolan, former president and CEO of Crossroads Rhode Island. Jill Pfitzenmayer, vice president of Rhode Island Foundation’s Initiative for Nonprofit Excellence, says concrete and conscious succession planning for both board and staff members is key to long-term survival. n

5. Community

Don’t go it alone

Partnering with other nonprofits, particularly those with similar missions, can reduce duplication of services and be less taxing on donors and volunteers, as well as boards and staff. “Funders recognize that when two organizations are trying to raise the same dollars, they believe their dollars go farther” if they collaborate, said AIDS Care Ocean State Executive Director Paul Fitzgerald. n

6. Volunteers

Not just ‘an ask’

It’s the age-old question of philanthropy, says Matthew Netto, president of the Rhode Island chapter of the Association of Fund Raising Professionals and state director of the nonprofit Best Buddies Rhode Island. Which is more important, money or mission? Nonprofits need both, but short- and long-term relationships with volunteers can go just as far in ensuring the health of an organization as the almighty dollar, Netto says.

“I want people fully invested in the mission, fully engaged in the programs, actively spreading the mission,” he said. n

To view the nonprofit survival guide as a graphic, click HERE.

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