Where will the money come from?

Speaking at the Nonprofit Resource Center annual conference on Wednesday, Jan Matsaoka of the California Association of Nonprofits (formerly with Blue Avocado) put things in plain terms: “You can’t talk about what you’re going to do… without talking about where the money will come from.”

For that conversation, she advocates using a “Matrix map” (a version of the BCG corporate portfolio analysis for you MBA types) to evaluate nonprofit activities according to their impact on mission and money. In Matsaoka’s tool, every major activity is a line of business — not just programs, but any activities that require significant management time or money. Fundraising events, holiday appeals, direct mail campaigns, etc., are just as much a line of business as a career closet.

What’s the point of putting your major activities in a fancy-schmancy 2×2 grid? Ultimately it’s about understanding and decision making.

Understanding comes first. You might discover that some things you’ve always done aren’t really valued, and they take resources that might be used in better ways. Her examples included a little-used resource library and a program that used to have funding. Matsaoka says these are “stop sign” activities (BCG called them “dogs”). You might discover other activities that are profitable but don’t have a lot of impact (“money trees”). The trick here is to see if there is a way to make them reach more people or achieve greater results. “Hearts” (or “question marks” in the original nomenclature) are activities that have high impact, but low profitability. Many close-to-the-mission activities fall here, but identifying them as money-losing (or at least not money-making) helps bring into relief the need for revenue that subsidizes these activities. And “stars,” of course, are activities that have high impact and high profitability. Highly effective fundraising strategies that do something to foster awareness of the nonprofit or cause AND support the general fund would fall in this quadrant of the matrix.

A completed example of a matrix map

Key to the Matrix Map: the strategic imperatives associated with each quadrant

The mechanics: a portfolio analysis like this one uses three variables. Matsaoka uses profitability and impact to plot a program’s position on the X and Y axes. A program’s profitability is defined as the revenue tied specifically to the program (fees, contract, restricted grants) minus “all in” expenses (including some allocation of administrative and overhead costs). Obviously, “impact” is a subjective indicator. You’re going to have to do some thinking about the criteria to determine how much impact a program has (see the next paragraph). The size of the program circle is determined by the cost of the program. (As an alternative, I imagine the number or volume of clients or encounters could be used instead of program cost/budget.) Creating such a chart in Excel is easy; once you have the three variables in their appropriate columns, select “bubble chart.”

If you lack reliable numbers, you can create a scale for any of the variables. For example, you could use a 5 point scale with 1 being low profitability and 5 being high profitability. For impact, you will have to create a scale since it’s subjective. Matsaoka suggests using no more than four factors when figuring impact. Examples: alignment with core mission, excellence in execution, scale/volume/reach, depth/comprehensiveness, fills important gap or need, community building. To that list I would add effectiveness/outcome. For example, you might rate a program 5 in terms of alignment with core mission, and 2 in terms of filling important gap if there are many similar programs in the community.

You may be wondering why a nonprofit’s fund development and marketing programs would be evaluated in the same tool with client- or market-serving programs. I admit that was my first reaction. But I do think it may be helpful to look at the array. If most of a nonprofit’s programs don’t generate revenue (as is the case with many aid-oriented programs), it is important to see that there are enough offsetting money-making programs.

Which brings us to decision-making. This tool isn’t just for understanding the situation facing a nonprofit. It’s intended to foster decision making. Considering a new program? Put it in the portfolio and consider how you’re going to get it to perform in a way that supports both mission and financial sustainability. The portfolio analysis can also be used to cull. By letting go of some programs that may be draining the organization, what will you be able to do, or do better?

Jan, with two co-authors, has a book out – Nonprofit Sustainability. Based on my quick scan as it made its way around the room, it looks like it has lots of examples of Matrix Maps. I’ve ordered a copy and will let you know what I think! Here’s a link to a pdf of a very similar presentation Jan gave a couple of years ago, with all of the slides.

Jan told the sell-out crowd for NPR Center, “The most previous and scarcest resource is the time and attention of its senior leaders.”

“Be ruthless,” she added, about making sure that your resources are invested where they will make the greatest difference.

P.S. If you get the chance to hear Jan speak, do it. Fastest, funniest presentation of this type you’ll ever see.

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