If you want to understand the nonprofit world’s approach to spending money, take a look at their easels.
Every small nonprofit owns metal easels. They use these easels a dozen times a year to hold big newsprint pads for strategic planning retreats, staff meetings, and board presentations, and to hold up posters at public events. Virtually every organization has a metal easel or two stuck in closets and car trunks and basements. Even in an era of PowerPoint presentations and digital projectors (not to mention white boards), nonprofits continue to own and use easels. For some reason, easels are a tough habit to break.
And those nonprofit easels are uniformly lousy.
During my thirty-year nonprofit career I constantly found myself dealing with rickety and malfunctioning easels. Whenever there was a meeting where we needed an easel, we had to cope with missing parts, broken legs, and malfunctioning clips. For decades, as I searched through car trunks for missing parts, or as I tried to make the bent, spindly legs stay in a locked position (thank you, duct tape!), I thought how strange it was that nobody had figured out how to build a decent, sturdy, functioning easel.
Then I started my own consulting business. I went to the nearby Staples to pick up office supplies: a few reams of copy paper, clips, pens, writing pads, and, yes, an easel.
There on a back shelf I saw my nemesis – the kind of flimsy number that had been torturing me for decades. It cost $35. And next to it was a vastly better stand, a kind I had never seen before, made of thicker and sturdier aluminum – for all of $59. I bought the better stand, and it’s never given me a moment’s worry since. In fact, I have every expectation that the stand I bought will outlive me. (It’s already vastly sturdier than I. Ask my knee surgeon.) But every nonprofit I know continues to buy the rickety easels. The default in the nonprofit world is to go cheap.
Some people worry about nonprofit waste, and there is some of that. But more often nonprofits are frugal to a fault, with flimsy easels, yes, but, far worse, antiquated technology, cramped and unproductive office space, and underpaid and undertrained staff members. It is the rare nonprofit that recognizes how economically counterproductive its frugality can be. Buying the cheap easels means, first of all, that its productivity and morale drop as staff members have to spend extra time dealing with substandard and inefficient equipment. Second, by having to buy two or three easels over the years, the nonprofit spends more than if it had simply bought a good easel to begin with. It’s hard to imagine companies in the for-profit world consciously choosing to buy equipment that is so patently defective unless they had absolutely no other choice.
And yet nonprofits continue to be cheap to a fault. I think that’s partly because they don’t want to be seen as spendthrift, partly because they have developed a culture of frugality, but mostly because every nonprofit is obsessed with and held captive by its annual operating budget. And that’s because in the nonprofit world, nothing is considered more important than a balanced operating budget.
I understand why this focus came about: In a sector where impact is hard to measure, and where there are no profits and losses or shareholder dividends or pie charts reporting trends in market share, the simplest and most obvious measure of good management is balancing the budget. Funders and the public at large can forgive many sins, so long as the annual budget is in the black.
And so whereas a for-profit entity would be inclined to invest in high-quality supplies (and staff, and training, and offices) for the long-term benefit of the company, and whereas a start-up venture would budget for short-term losses as a prerequisite to eventual profitability, the nonprofit veers toward perpetual, annual, short-sighted frugality. Nonprofits inevitably opt for the cheap, and they are reluctant to spend freely until budgetary balance is assured in the final weeks of the fiscal year.
This is unfortunate, but understandable. The penalties for not balancing the budget, even under extenuating circumstances, are significant. Whispers about mismanagement rise up. Funders pull out. And with the withdrawal of support, what might have been a one-year financial blip can become a structural deficit.
In other words, a year in the red prompts donor flight, which almost ensures more future deficits. And so nonprofits do all they can to stay in the black, each and every year, even if this frequently leads to decisions that are not in the nonprofit’s best long-term interests.
It’s time for funders and ratings agencies to recognize that an occasional deficit – if caused by a one-time event, or even as part of a planned strategy for investing in infrastructure – is not necessarily a sign of poor management. It may even be an indication that the organization is looking beyond the end of the year. It’s my hope that funders take a more nuanced and enlightened view of the annual budget. And if there’s an organization that should be run out of business, it’s not the nonprofit that occasionally runs a deficit, but rather the office supply company that makes those god-awful easels.
Copyright Alan Cantor 2014. All rights reserved.