Sometimes organizations get stuck.
I had the privilege of serving on the board of a local nonprofit. The nonprofit had been very successful and had an excellent reputation. However, we were also stuck. We had one staff member who was overworked and barely able to keep up with everything. While we wanted to do more for the community, we didn’t have the revenue to hire additional staff. To get more revenue, we needed to do more things which required more staff, but we could hire more staff without more revenue.
We were stuck in a cycle and needed to take a leap.
We hired three full time staff members knowing that we would have to dip into our cash reserves to pay them until we could implement additional services to make up for the revenue. If we were unsuccessful at building revenue quickly, we risked not being able to pay staff and burning through our cash reserve. Furthermore, the program was very needed and respected in our community. Many within our board and within the community thought we were being irresponsible or even reckless. Why risk losing what we do successfully today for the chance of doing more in the future?
This is not an uncommon scenario. Many organizations and leaders run out of “safe” pathways to their desired future. Some choose not to take the risk and stay where they are. The problem is staying where you are is not always as safe as it seems. The world is always changing and there are lots of former organizations that no longer exist because they failed to take a leap.
Others choose to take the leap. However, the leap doesn’t have to be blind or reckless. You don’t have to put all your money on red and hope that the roulette wheel is kind to you. Here are some tips for those about to take a leap.
1) Leap on Paper First – Create a Plan
The first thing we did at the nonprofit was to create a “pro forma” profit and loss statement for the organization. A pro forma is a projection of financials for the next few years. We started with our expenses. We thought about what we needed in terms of staffing to accomplish the expansion of services we desired. We decided that we would need three additional staff members. We built out all the expenses related to the expansion (payroll, technology, office space, etc). Then we made a revenue forecast showing what the new programs would bring to the organization. At first, the revenues did not cover the expenses, so we had to think about ways to increase revenue until our plan showed a profit. After several weeks of work, we had what we thought was a reasonable plan for growth. Finally, we assessed our cash flow to see how far we would dip into cash reserves and determined that we had enough cash to survive the leap.
2) Think about Contingencies
As we created our plan, we recognized that we were making a lot of assumptions. It became obvious that things would not go according to plan, even with our best efforts. To prepare for the unknown, we created a list of contingencies. We thought about alternative services or sources of revenue that we could implement if our original plan didn’t work. We even thought about what we would on the expense side to survive longer in case the plan took longer than expected. As we executed our plan, we did have to implement a few contingencies which helped us to be successful.
3) Build Reserves
Taking a leap does not mean you have to be reckless. Our nonprofit had built up significant cash reserves which allowed us to make more mistakes and gave us time to adjust. I can think of many organizations who didn’t survive their leap because they didn’t have sufficient cash reserves. One restaurant I know opened and closed within just 4 weeks because they had no cash when they started. This leap was doomed to fail.
4) Think About When to Pull Back
It’s hard to turn back from a leap, but sometimes it is prudent. You might plan well and an outside factor may force you to turn around. The key is to establish clear benchmarks that tell you when it might be time to turn around. Our nonprofit set a cash reserve minimum. If we fell below the minimum, we would cut expenses significantly to stay above the minimum. Fortunately, we never reached our benchmark and were successful.
When my time on the nonprofit board ended, we knew that the leap was successful. We were able to expand our services significantly leading to expanded revenues that more than paid for our growing staff. The nonprofit went from being respected in our region to being nationally recognized as a top performer.
If you are stuck, it might be time to take a leap, but it takes more than a moment of courage. It takes careful planning. By following these recommendations, you might find that the leap is not as risky as you thought, but it will be even more rewarding!