THE BLOG
01/13/2014 12:55 pm ET Updated Mar 15, 2014

A Nonprofit Board's Best Friend: A Robust Business Plan

Last September, the proverbial alarm bell sounded for many nonprofits. After a 70-year run, the New York City Opera declared bankruptcy. Crowd funding sources were tapped without success, and even New York City Mayor Bloomberg refused to step in with city funds or with a donation from his powerful foundation. He reasoned that the organization's "business model doesn't seem to work." Bloomberg's remarks, as interpreted by noted music critic Anthony Tommasini in the New York Times, were, "In short, artistic excellence is not enough."

The demise of the opera company should cause every nonprofit to do deep-dive reviews of their business plans every three to five years. Following are some alternatives that can be developed if changes are needed.

Less Is Often Better

This is a very difficult concept since we live in a growth society. Volunteers want to be associated with an organization growing positively; it is more fun volunteering with a nonprofit on the upswing, but this requires still another type of business plan. However there can be additional organizational pressures because under-served clients are always available which the organization can't afford to assist, and any staff cutbacks needed create internal morale problems.

Tommasini notes that leaner organizations can strategically support a viable business plan. Riverside Symphony in New York, for example, has focused on community outreach, education and a few recordings -- not very exciting but needed professional activities, considering all the cutbacks in arts education. To add a few sparkles to its programming, the orchestra does three Alice Tully Hall concerts at New York's Lincoln Center each season. Its business model has remained stable since 1981 because it has known from the beginning how to stay close to its client markets and not to try to compete with larger orchestras. Small can be better, but, unlike Riverside, it is often hard to maintain, implement and to execute.

Profit Subsidiary

An approach to better serve a client grouping is to establish profit making subsidiaries to develop new client services that are consistent with the nonprofit's mission group. Some examples: Banking trust departments often have to be responsible for the physical wellbeing of some of their elderly clients. Nonprofit social service agencies can assume this responsibility as part of their missions with business plans to serve the elderly, a potential for profitable income. One organization, with which I had contact as a volunteer, employed a full-time attorney to act as a conservator for some elderly clients. To maintain transparency and mission integrity, the subsidiary needs to be carefully established. An association for the blind, in its sheltered workshop environment, offers businesses call center services. The service is reasonably profitable and helps employ its clients.

Merger or Acquisition

A "nuclear" approach to building a new business plan would be to merge with another nonprofit or acquire an operating one as a full partner or subsidiary. I have been principally involved with such a major merger with Family Service America (FSA) & The National Association of Homes & Services for Children (NAHSC) to form the Alliance for Children & Families. Such a merger can require a year or more to complete negotiations. But as in the case of the Alliance, the merged organization can prosper after a "honeymoon," and interpersonal adjustments with the directors on the merged board. Both organizations had the distinct advantage to merge with the same types of mission, visions and values.

What About Innovation?

When in the process of changing a business plan, the drive for innovation may suffer, depending on the financial parameters involved. As a result, it is the board's job to try to encourage the management and staff to develop small-scale innovations that, when tied together, keep the organization's collective thinking alive.

Summary

I don't know anybody who would suggest that there is only one business plan approach for a nonprofit field of endeavor. Tommasini observes, "Each institution has site-specific issues and imperatives." The key to long-term success is to seriously evaluate business plans on a regular schedule, even if a status quo plan is desired.