Info You Can Use: Considerations Before Forming A Non-Profit

by:

Joe Patti

Last month, as many non-profits were faced with losing their status due to a change in the tax filing laws, Board Source President/CEO Linda Crompton suggested the situation might be good for the non-profit world by removing duplicative and ineffective/inactive non-profits. Because non-profits really aren’t required to generate a business plan or survey the need and competition before filing for status, she feels there may be too many non-profits in existence.

No for-profit company would start up without doing a thorough analysis of the competitive landscape; that analysis would be baked into the business plan and would inform all other decisions — one of which might be “not here, not now.” It’s incumbent upon our sector to school itself on this point: just because we have an idea, and a mission, and a great, good heart, does not mean that we need to start our own, brand-spanking new organization to fulfill that mission. The same truth applies to organizations in all stages of their lifecycle. Boards should be asking themselves: are we still relevant? Are we fulfilling our mission effectively and sustainably? Is there another organization across town doing the same thing, only better? Should we be discussing merger, or even dissolution?

I have mentioned a number of times over the years that I have often many arts organizations have been started that could have easily been part of an existing group or that could have merged with other groups when it was clear that their service area couldn’t support both groups very well. I will admit that I have seen many more groups in merger talks over the last few years since the economy has gotten worse than I had during previous economic down turns. It was good to see people considering this route. But I have also seen new groups peel off because of personality differences or a desire to perform a slightly different genre. Admittedly there is a difference between classical and modern realism, but Shakespeare festivals manage to produce both without compromising their souls.

To be honest though, I don’t know if the IRS would be in a position to evaluate whether there was or wasn’t a need for any type of non-profit, be it an arts organization or social service agency. Imagine the work involved in developing criteria to measure if there was a sufficient support base for the organization in a community. Imagine the bad press the IRS would get for denying someone non-profit status for a social service organization serving a very emotionally charged cause.

Which doesn’t mean due diligence shouldn’t be done. In a comment to Linda Crompton’s entry, Don Griesmann links to an entry on his blog in which he enumerates all the considerations that should be made before creating a non-profit. He also footnotes his arguments with the largest number of stories on the difficulties faced by non-profit organizations I have ever seen.

His entry came at the end of 2009 and he proposed that no new non-profits should be allowed to be created in 2010 unless a whole multitude of conditions were met. A brief sampling:

•Unless you understand the nonprofit will not be “your nonprofit” and you have enlisted an incorporating board that is interested in the concept and capable of performing the necessary tasks of incorporating and operating the organization and

•Unless you understand there is no “free money” from the federal or state governments. The federal government distributes funds through scholarships, fellowships, contracts, grants and loans. Each requires an application, meeting eligibility requirements, demonstration of a task to be undertaken, proof that the task was performed and the money used appropriately and in many instances a report evaluating the use of their funds…

….•Unless you have a concept of what it costs to develop and operate a nonprofit in terms of shared leadership, time, thought, study, serious planning, hard work, evaluation and annual reporting as well as money and
•Unless you have no intention of attempting to raise more than $5,000 a year for the next 5 years…

…•Unless you have performed due diligence and created a board of mixed talents, diversity, shared passion and vision concerning a truly unserved issue or need supported by some empirical evidence. If the need is an underserved need, why not join with the current providers and increase the service or product? And
•Unless you understand that there simply are not grants available to pay for the incorporation process. If you and others cannot raise the first $1,000 or so to incorporate, then where do you think you will get the money to run the organization? When someone asks, as many do, does anyone know where I can get a grant to start my nonprofit, we should either not respond or tell the truth – you are not ready to start a nonprofit. Go volunteer at a local nonprofit….

One of his next “unless” includes having a business plan that answer 19 different questions. One of his other conditions might be that you shouldn’t form a non-profit if you don’t have the patience to read his whole entry. While it is very long, it asks many pertinent questions and raises many points that ought to be considered. It is good to see people starting to advocate for this level of consideration prior to forming a non-profit.

Of course, non-profit status covers a lot of situations, including block associations and other purposes that wouldn’t necessarily be competing for grants from a shrinking pool of resources. These will certainly benefit from being well planned, but aren’t likely to struggle to stay in existence or become a drain on their community if they don’t meet every criteria.

Things To Ponder: Who Is Your CEO?

by:

Joe Patti

Gene Takagi at the always enlightening Nonprofit Law Blog links to a two part entry on why the title of the senior leader of a non-profit should transition from Executive Director to President/CEO. The argument made in the pieces is that the person in that position gains credibility within and without of the organization.

Takagi only touches upon this very briefly because his greater concern is who is legally the CEO of the organization, the executive director or board chair. I voraciously consumed the post because I have dealt with organizations where the dynamics were such that one was clearly in a dominant position. I often wondered to whom people would look for leadership in a crisis–versus who was ultimately responsible for the decisions that were made during that time.

Takagi’s advice is-

“However, if the organization has a paid executive director who is tasked with operational leadership and the board chair is a volunteer who is not active in management of the organization’s operations, the CEO designation should be given to the executive director. Nonprofit boards should (1) review their bylaws to understand how their management structures have been established, and (2) amend them, as necessary.”

Acknowledging that the board chair may not want to give up the CEO title in this case, especially if said person is the organization’s founder or the board is very active, Takagi suggests the board seriously think about what is in the best interests of the organization. There are legal repercussions the nominal CEO may face.

It must not be overlooked that whoever has the CEO title may face increased exposure to liability for failure to meet his or her duties. Any CEO should be very familiar with the organization’s current financial position, programs, legal compliance issues, and overall strengths and weaknesses. Imagine a judge’s or jury’s reaction to a CEO who claims not to have reviewed the financials for several months or failed to take any steps to help ensure that the operations of the organization were compliant. Such reaction may be very different if it were the volunteer board chair’s liability that was being considered and the organization had a separate executive director designated as the CEO.

I did a quick read of other sources to see if Directors and Officers Insurance and Errors and Omissions Insurance would cover this sort of negligence and my results were inconclusive. Different insurance companies offer different coverages which contain different exclusions. Some seemed to imply this was the sort of thing you buy the insurance to guard against. Others said the insurance companies will look for any blatant omissions to use as a pretext to deny a claim.

Lies, Damn Lies and Are We Ever Going To Use These Survey Results?

by:

Joe Patti

My Google Alerts informed me that the phrase butts in the seats was used recently in what turned out to be a reprint of a 2008 article on MinnesotaPlaylist. The topic of the December 2008 issue was “Know Your Audience.” In addition to the original piece that brought me there, a couple others caught my attention as well.

The first article, Joseph Scrimshaw’s “Humans With Pulses,” addresses the idea that everyone will enjoy a quality artistic product if only they are aware of it.

“I’m beginning to think that failing to be specific about who you want in the audience presents a risk to both the profit and enjoyment of theater. There is a tendency for artists to believe that any cross section of people will enjoy their work. After all, theater is good. Theater reaches out to people. It’s easy to reason, “This piece of theater I have created is good, so why shouldn’t any human with a pulse enjoy it?” Music is good, too. When I was fifteen years old my two favorite musical acts were Frank Sinatra and Guns N’ Roses. I chatted with my Grandma about one and with my friends about the other. Unfortunately, there was no chance in hell of any crossover.”

Scrimshaw talks about being aware of the specific segments of the community who might be interested in a performance and why. Granted, the venues he seems to work in sound like they are at the smaller end of the spectrum and thus can serve very narrow segments of the population–like knitters. His description of the audience at his knitting-based, murder mystery comedy sounds like the diverse group everyone yearns for-

“We had knitters from 18 to 82, multiple ethnicities, sexual orientations, and genders. The knitting demographic trumped all because they had an investment in the show: They wanted to see if this Scrimshaw guy (who’s supposed to be funny) had anything interesting to say about this craft that is their hobby and their passion.”

Using the topic of demographics as a segue, John Middleton provides an amusing look at the whole idea of scrutinizing demographics in “They, the People”

She and her husband—let’s call him David—went to Mexico last year and have been thinking about a trip to Europe. However, they’ve both lost a lot of money from their 401(k) accounts and what with Nancy’s allergies and recent weight gain and David’s high cholesterol and occasional erectile dysfunction, that romantic trip to the moors of England might have to wait.

“Whoa!” you’re saying. “This is creepy. Does he really know this stuff or is he just making it up?”

I know this stuff. Visit the raw data (PDF) and draw your own conclusions. Remember, demographers don’t lie.

I actually checked out the raw data, and believe it or not the survey actually asked about all these aspects of the participants’ lives. Here is the real stuff to remember:

It’s true demographers don’t lie. But remember, these numbers are simply a tool. They are descriptive. They do not tell us what plays to do or how to do them. They simply allow us to think about Nancy and her life. They remind us that we’re not just asking Nancy to plunk down twenty bucks to see a show; we’re asking for an investment of her time. She has to find out about our production, decide to go, come up with a night she and David are both free, leave work in time to dress, figure out where our theater is, find parking, and so on. Are we making this process as easy for Nancy as possible?

You see, demographers are not soulless, art-killing philistines. We’re here to help.

However, if you still have doubts about the usefulness of demography, let me tell you something: You are not alone. There is a tiny checkbox labeled “terror” in the heart of every demographer. The system of gathering respondent data is filled with imperfections from start to finish. One flawed remembrance here, one inflated self-aggrandizement there—each insignificant on its own, but they start to add up. Then as we extrapolate the data, every imperfection becomes multiplied many times over until we have nothing left but a spider’s web of half-truths and sweat-soaked guesses. We crush this seething mess into solid-seeming charts, tables and graphs in order to give it the look of Truth, but we know: Demographers lie! And if you think this is only true of demographics, you’re kidding yourself.

Filling out the theme of surveying and data is Sara Stevenson Scrimshaw piece, “Doing Data.” What was immediately interesting to me was her story about studying in London and wanting to do her Master’s thesis on whether theatre and dance organizations used the data they collected. Her advisor couldn’t understand why.

“His response was of course all organizations use data, that wasn’t interesting, I should focus on what they were doing with the data or whether they were satisfied instead. He had worked for years with Theatrical Management Association, a service organization for theaters in the UK, and he had started an audience data collection and dissemination program in 1990—fifteen years before I was coming to him with this topic. So he thought my concerns were old news.”

But Sara knew this wasn’t how it was in the US where data was collected, but rarely acted upon. Part of the reason she felt was because people don’t know how to effectively use the information that passes through their hands. This is what she found in the course of her research:

“I was also surprised that less than 50 percent of organizations collected demographic information, as that is frequently needed for grant reporting. The results also showed that over 50 percent of organizations did not consistently have access to their own box office data—meaning that they had to rely on other methods to collect data about their audiences.

Do I have any recommendations? I think using data is simple and complex at once. The most important things are fairly easy: looking at the data, analyzing it for trends, inspecting to see if there are any obvious gaps. However, the key is really using the data to understand your audience—asking who they are, where they are, why they come to you, then using that data to help inform your future decisions. Do you want to compare yourself to other organizations? Do you want to reach people you currently aren’t reaching? Is your audience who you thought they were? Audience data can help to answer all of these questions more honestly.

[…]

…I don’t believe that there is a magic formula or a correct answer. Instead, I think it’s a process of using little pieces of information to help create an overall picture.”

I have to agree that it is both simple and complex to use data. For me it is as much about the suspected dearth of information from certain segments of our audience as trying to accurately process the information I do have. I know our audience surveys aren’t being filled out by a representative portion of our audience because we barely get any completed by people in the 20s and 30s, but we see a lot of them passing through the doors.

Likewise, so many people purchase tickets at the door where we don’t have the time to collect information not directly related to the ticket purchase that the only data I have is from the lesser percentage that plan ahead. I could send reminder postcards to people who make their decisions last minute and perhaps improve my relationship with them. My software tells me exactly what time they made their purchase–if only I knew where they live or who they are!

I don’t want to be making decisions about how to serve all of my audience based on what I know about 20% of them. I figure that is a formula for retaining slightly more than that 20% but that is all I have to work with at the moment. Though that isn’t to say we can’t ask audience members to help us serve them by making note of their account numbers so we can better track simple things like attendance preferences. We may still miss a large segment of the audience, but we will narrow the gap a little and let people know their presence is important to us.

Learn The Secret Powers of Time

by:

Joe Patti

Kotte.org posted an fun video of an animated talk by Philip Zimbardo about time perception. Geography, weather, religion and technology all have a part to play in how even people of the same country and culture approach time. The brief talk is fun to watch and listen to because an artist quickly illustrates what Zimbardo is talking about with little cartoons. (Well, actually a sped up movie of illustrator’s efforts.) If you would rather watch a fun video than read about people’s changing views on how their time should be used, (perhaps you feel you don’t have the time to read about the subject, for example), this may be just what you are looking for.

I had long suspected geography and weather resulted in the approach to time Zimbardo says it does so I was happy to receive that confirmation. His talk might provide insights for you as to why people are late to make decisions (including attending your performances!) in comparison to other parts of the country you may have lived. Though technology seems to be a great leveler. Zimbardo says young people don’t wear wrist watches because it is a single use device. While reasonable sounding, I am not sure how much credence I give the causality in that claim. He also touches upon that hot topic of audience relations — the need for to provide an interactive rather than passive experience, especially among males.

Take a look-