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When the Mission Meets the Bottom Line

Apr 1, 2017

Whether in the arts or service, in education or research, nonprofit organizations can have a profound effect on their communities. They can only live up to their lofty goals, however, if they can pay the bills and balance the books.

AMONG the restaurants and attractions on the bustling Navy Pier, a Windy City landmark along the shores of Lake Michigan, sits the Chicago Children's Museum.

A place of whimsy, fun, and learning, the museum lives up to its name. Children entering its doors can explore a replica of a dinosaur archaeological dig and a tyke-sized cityscape, and they can create in a tinkering lab and an art studio.

The museum is popular, and a core part of its mission is to ensure that all children, regardless of a family's ability to pay, can experience its playful and educational environment. The museum offers free admission for all on Thursday evenings, and children also are admitted free the first Sunday of the month. Any Illinois family that qualifies for state food assistance is eligible for reduced admission as well.

The end result is that of the more than 400,000 people who visited last fiscal year, 84,000 of them entered the museum for free. Another 44,000 paid a reduced admission. These are children who may not have come otherwise, says Jeffery Perry '87, chair of the museum's board of directors. "This is what we stand for. It's a museum for all," Perry says. "I am really proud we made that commitment publicly."

The museum may believe in access for all, but with roughly one-third of its visitors entering for free or reduced admission, it somehow has to cover the price tag. As such, the museum uses its commitment to access as a way to encourage donations. The strategy works. "Our commitment to access is a key part of our ability to raise funds," says Perry, who is also a Babson trustee and a global client service partner with EY. "It's a key element to our donors."
Perry knows what others sometimes forget. As much as nonprofits may want to focus on their mission, they can't forget about the bottom line. To create a deep and lasting impression on communities, they must find funding and balance the books. "You don't want to put the 'non' in nonprofit," Perry says.

Needed: Generous People

People with solid business skills are a must at nonprofits. Timothy Barrett, MBA'03, is the CFO at Boston's Pine Street Inn, New England's largest provider of homeless services. It offers 730 beds for overnight shelter and another 930 units of permanent housing, while also providing job training, addiction treatment, and outreach to homeless men and women who won't go to a shelter. Pine Street assists more than 1,900 individuals daily. "It's a complicated organization. We are a comprehensive provider of services," Barrett says. "Keeping the financials in order helps us to continue the impact we have had."

To fund its extensive operations, Pine Street relies on multiple sources of revenue for its operating budget, though the largest chunk, 60 percent, comes from government contracts. The organization works closely with Boston's Department of Neighborhood Development and on the state level with the Department of Housing and Community Development. "They respect us because we have a proven track record," Barrett says.

Another source of revenue is rental income. When homeless individuals come to Pine Street, the organization strives to place them into permanent housing in one of the 40 properties it owns or operates. "How do you end homelessness?" Barrett asks. "Well, you house them. We provide men and women with homes." The residents receive supportive services and become part of a community, but they are expected to pay rent (typically 30 percent of their annual income).

Pine Street also runs a social enterprise catering business, iCater, out of its large kitchen. The business provides bulk, family-style meals for other nonprofits, and it offers standard catering fare (salads, sandwich platters) to corporations. Formerly homeless individuals receive experience in the food industry through iCater, and profits from the venture support Pine Street's job-training programs.
One critical funding source is philanthropy, which accounts for 20 percent of Pine Street's revenue. "There are a lot of generous people out there," Barrett says. During the recession, Pine Street braced for a drop in funding, but the amount of philanthropy actually increased. Barrett believes people feel compassion for the homeless because they understand how tenuous life can be, that a bad break or two--the loss of a job or a major health issue--can buckle once stable finances. "None of us are as far away from homelessness as we think," Barrett says.

Having these multiple revenue sources is essential for Pine Street's operations. "There is always a balance between the mission and the money," Barrett says. "We can make great decisions in terms of the mission, but if they're not economically viable, that doesn't do anyone any good."

The Last to Recover

A strong development team is crucial to a nonprofit, confirms Perry of the Chicago Children's Museum, adding that cultivating potential donors and establishing long-term relationships takes effort. "The last thing you want to do is to solicit a donor and get a donation and never interact with them again," he says.

When seeking potential corporate donors, nonprofits should research and understand what common values and interests they share, Perry advises. Some giving opportunities can make a perfect fit. At the Chicago Children's Museum, for instance, Allstate sponsors an exhibit on fire safety, while Clune Construction sponsors part of a skyscraper exhibit.
In the arts and cultural realms, donations keep the lights on, says Mary Deissler, MBA'82, president and CEO of the Charlotte Symphony, which has been entertaining audiences since 1932. "Arts organizations rarely make ends meet solely by selling their product, whatever that may be," she says. Made up of 62 professional musicians, the symphony plays 150 events a year on the concert stage and in the Charlotte community, but ticket sales cover just one-third of its annual operating expenses. "In general, the need for contributed revenue increases every year," Deissler says.

That need only grows stronger when the economy hits a downturn, a difficult time that deeply affects nonprofits like the symphony. "We are the last to recover because we are a discretionary buy," Deissler says. "We will recover later in the game." For that reason, Deissler wants the symphony to take advantage of the current economy before it turns south again. "This is the time when we should make money. We don't know how long the good times will last," she says. "We want to build surpluses up. That will be critical to solidify and grow the symphony."

Earning support starts with a great product. "It's hard to convince people to come to something they don't want to see," says Deissler. Ideally, a season should feature a mix of old favorites (Beethoven's Ninth Symphony) and new works (in May the symphony is performing music from Pixar films). Filling the seats matters, not just for ticket revenue, but because people who come to performances feel more loyalty to the symphony. "The more you come, the more likely you'll support in other ways," says Deissler. To help boost attendance, she has revamped the symphony's marketing efforts, pursuing a multichannel strategy of digital, radio, and direct mail, rather than the old approach, which emphasized print media.

The symphony also is involved in the community, performing for Alzheimer's patients and offering music training and mentoring in area schools. Last September, after a police shooting and protests left Charlotte shaken, the symphony put on a free concert called "One Charlotte: A Performance for Peace." "People who might not buy tickets to the Beethoven or Tchaikovsky concerts might still be affected by one of these programs," Deissler says. And people who don't normally donate to the symphony may change their minds because they see the value in these efforts. "We have to earn the support of the wider community," Deissler says. "The top key is how do we become so indispensable to the community that they can't imagine Charlotte without us."
Sharon Rowser '74Photo: Winni Wintermeyer
Sharon Rowser '74, vice president and deputy director for the policy research and evaluation department of MDRC. She is based in the organization's Oakland, California, office.

Don't Be Reactive

While capitalizing on the present, nonprofits also must try to anticipate what the future may bring. "It would be very dangerous to be completely reactive," says Barrett of the Pine Street Inn. "We operate just like every other business out there. We're constantly aware of what our environment is. We're figuring out what we need to do in the future."
Currently, Barrett is thinking about the changes in Washington, D.C., especially given how much government funding his organization receives. If money from the U.S. Department of Housing and Urban Development were reduced significantly, for instance, what would that mean for Pine Street's services? "That's what we're trying to figure out," Barrett says. "I don't have any specific answers for you. There are things we can control, and things we can't."
Sharon Rowser '74 understands these sentiments. She is the vice president and deputy director for the policy research and evaluation department of MDRC. A policy research organization founded in 1974, MDRC seeks effective strategies to help the poor and disadvantaged. As with the Pine Street Inn, the nonprofit receives significant government funding, which can fluctuate. In its early years, MDRC almost shut down when it lost a key government contract. When Rowser arrived in 1987, the office was small, and she thought it might close when another large contract with the state of California ran out. "I didn't come thinking I'd be here 30 years," she says.
Nowadays, the organization tries to diversify its sources of revenue so that it's not dependent on any one foundation, state government, or federal agency. Although MDRC does not have a large fundraising staff, it makes sure to spread the word about its work, issuing concise reports about its research and reaching out to legislative staff, foundations, and reporters. "There's only so much money out there for charitable causes, so there is a constant competition for that money," Rowser says.

Donations are challenging for MDRC, in large part because it doesn't provide direct services, which often are what foundations and individuals seek to fund. MDRC focuses on policy, evaluating the effectiveness of both existing social programs and new projects that address such important issues as education, employment, health care, and family relationships. "But we can't show you cute pictures of puppies and kittens," Rowser says, referring to animal shelters and other service providers. "We just have to always show our worth. We have to find the funders that care about these things."
The government, not to mention the press, certainly is interested, given that MDRC's research can discover whether tax dollars are well spent. Several other organizations actually do similar work, but they are for-profit agencies. "Their goal is growth," Rowser says. "Our goal is to bring rigor to important social questions." With offices in New York City, Washington, D.C., Los Angeles, and Oakland, California, where Rowser is based, MDRC employs 320 people and is smaller than those for-profit policy organizations. Rowser, however, says that growing MDRC further would pose a dilemma for the institution's leadership. "Being larger can be burdensome," she says. "That would increase the amount of money we would need to raise."

Two Essential Goals

Taking a different approach from many nonprofits, Minnesota Diversified Industries is a manufacturer that earns 95 percent of its revenue from selling goods and services. Known as MDI, the successful nonprofit employs people with disabilities. But as a manufacturer, it also confronts challenges that more typical nonprofits don't have to face.
Peter McDermott '76, P'10Photo: Ackerman Gruber
Peter McDermott '76, P'10, president and CEO of MDI, which is headquartered in Minneapolis
"We're in the jobs business," says Peter McDermott '76, P'10, MDI's president and CEO. "That's our social purpose." Started in 1964 and headquartered in Minneapolis, MDI has four locations across Minnesota and employs 347 people, of whom 191 have physical, emotional, or intellectual disabilities. "They are great employees," McDermott says. "They work hard. They appreciate their jobs. They respect their co-workers. And they work to their capabilities." McDermott is quick to point out that employees with disabilities perform real labor like any other worker at MDI, and when orders slow, they deal with the same consequences as well. "If we don't have work, they go home," McDermott says. "They can be laid off."

A corrugated plastic manufacturer, MDI is largely dependent on one major customer: the U.S. Postal Service. Since 1993, MDI has made more than 90 million totes for the agency, though those orders can be inconsistent. In 2016, for instance, 75 percent of the $38 million MDI made in revenues came from the post office. In 2017, however, the post office's orders are expected to fall. MDI is projected to bring in $20 million, with half coming from the post office. "That drop-off is all from the postal service," McDermott says. "Its purchases are volatile. We've had to roll with it. It is what it is." Because of that volatility, MDI hires a fair number of temporary workers, who are let go when work slows down. Of its current workforce, 44 are temporary employees.

McDermott has strived to diversify MDI's business. In 2009, a year after his arrival, its non-postal business was just $2 million; it'll be $10 million in 2017. MDI has picked up more corporate customers and sells products through Uline, a distributor of packaging and industrial materials. MDI also offers recycling, assembly, and shrink-wrapping services. McDermott says that companies don't work with MDI just because they believe in the manufacturer's mission. "They've got businesses to run," he says. "Our commercial customers buy from us because we provide a good product at a competitive price, and it's on time."

As MDI's leader, McDermott also has worked to keep fixed costs low, and he has tried to increase fundraising. That can be difficult, considering some of the foundations he has contacted don't understand how a manufacturer can have a social mission. "That doesn't sound like a nonprofit," they tell him.

But MDI is like all other nonprofits in important ways. When McDermott talks about his two essential goals, maintaining a positive cash flow and providing jobs for people with disabilities, he is, in short, describing the core nonprofit balancing act, the push and pull between the money and the mission. Without the former, there cannot be the latter.

By John Crawford, Babson magazine, Spring 2017
Original story here.