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Wednesday, March 10, 2021

How Nonprofits Can use Charity Navigator for Benchmarking, Leading to Strategic Growth

My wife and I are very intentional with our philanthropy - we consider the research and subsequent monitoring and evaluation of our philanthropic investments a part-time job. Charity Navigator has played an important role in helping us find and support deserving nonprofits. I recently wrote two articles where I outlined our giving strategy as well as how we use benchmarking to decide which nonprofits to support.

In this blog, we explore the benchmarking we’ve done in concert with the leaders of nonprofits we support and how they used this information to either get started or take their organization to the next level. Charity Navigator's website was the starting point for both assessments. However, we had to dig more deeply in the financials from the IRS Form 990. We also analyzed information made available on their websites to develop deeper profiles.

Utilizing these resources for benchmarking provided us with meaningful information for two important case studies for causes close to our heart. The first case focused on issues in getting a pay-what-you-can restaurant off the ground. The primary objectives were to uncover best practices that we could learn from and to understand financial commitment and operational issues before investing funds. The second case aimed to help an established organization enhance their strategy in order to provide more impact. Their benchmarking focused on understanding more deeply how they could differentiate themselves from peer organizations, find strategic partners, and increase their impact helping communities and families.
 

A New Nonprofit: Pay-What-You-Can Cafe

We participated in a community-wide initiative to set up a pay-what-you-can cafe in a suburban town in North Carolina. Some patrons pay full price or more for their meals; others work in the restaurant to pay for the food.

Benchmarking was crucial in understanding what is involved in setting up a cafe before significant resources had to be committed. Restaurants are a tough business -- 30% fail in their first year and around 60% do not survive five years. Nonprofit cafes must remain sustainable when 20-40% of meals are given to those who work for them. Some community cafes have been spectacularly successful; others have been hanging on. Our project was suspended when COVID hit.

 The assessment was done before the Encompass ratings were operational on Charity Navigator. The 40 community cafes across the country were all too small to be eligible for Charity Navigator's comprehensive Star rating, but Charity Navigator’s website was invaluable in finding basic information on about 20 pay-what-you-can restaurants. In order to understand how best to establish a successful cafe, we had to go into more detail to assess the financials, the underlying business model, and other issues. We, therefore, used websites and Forms 990 to see the distribution of costs and the sources and efficacy of fundraising. We noticed that a cafe’s working capital was a recurring issue, which addresses the “rainy day fund” described in Charity Navigator’s recent blog, "How Working Capital Protects Nonprofits from Rainy Days." 

So what made the best of the community cafes stand out from the crowd?

  • Key personnel - Successful cafes have a Managing Director who is entrepreneurial and great at fundraising, yet very knowledgeable of the day-to-day operational issues.
  • A "hands on” board of directors - Some cafes had boards focused primarily on governance; others insisted that board members volunteer at the cafe as well as actively raise money.
  • Strong reputation across the community - Many of these cafes are in towns with less than 25,000 people; their success required building relationships with legions of potential donors as well as regular volunteers. It also included creating an environment where those in need felt welcomed. Several of the leading cafes were integral to the redevelopment of old downtown areas.
  • Creativity in fundraising - Some cafes are very innovative in their fundraising campaigns. Growth in revenues will continue to be critical for a sustainable cafe to survive economic downturns. Some of the most impactful cafes are even migrating into community centers, which allows for strong fundraising.


Strategic Growth: Disaster Planning and Recovery

For our second project, we worked with SBP, a rapidly growing nonprofit in disaster planning and recovery with an overall perfect score of 100 / 4-star rating on Charity Navigator. Their focus is to shrink the time between disaster and recovery. SBP has grown nearly 20% per year for the past decade and is developing a strategy to take them to the next level of impact and financial growth.

 As a well-established nonprofit, the benchmarking focus is different from that of a startup. Most of the charities that we benchmarked were large enough to receive a full evaluation by Charity Navigator. Benchmarking helped in particular with two things: determining best practices of similar organizations and identifying peer and non-peer organizations for partnerships.

Best practice themes:

  • A key goal was to better understand the role different types of nonprofits played in disaster planning and recovery, including their phases of disaster management and the strength of their capabilities both now and in the future.
  • Similarly, the assessment examined peer and non-peer organizations for their current and potential constituents, geographic footprint, and their disaster focus. 
  • The financial assessment centered on the seven criteria tracked by Charity Navigator, with particular focus on working capital management, sustainable growth in revenues and expenses, and effectiveness of fundraising.

Challenges:

  • We saw that most of the effort and funding is for relief and recovery, while less focus or funding is designated for advance planning. 
  • There is incomplete information regarding the linkages of relief and recovery to the underlying resilience and development of communities.
  • A recent survey by Charity Navigator indicated that donors identified impact as the most important factor in determining their giving. In our benchmarking with SBP, we noticed that the analyzed organizations emphasize activity metrics such as the number of volunteer hours and material supplied; only a few quantify the impact on communities and at the family level in a meaningful way.

These threads and others were helpful in understanding the best practices within disaster planning and response. These gaps create opportunities for SBP as well as other nonprofits.This enables SBP to understand specific areas for focus in their strategic plan.

Through benchmarking, we also identified and validated several dozen organizations that SBP can partner with in the future. Some are nonprofits that work in disaster planning and recovery; others are in finance, technology, and community development, where partnerships can enhance the impact of both organizations.

“The benchmarking process has been illuminating and is essential. Like other NGOs, SBP exists to drive impact. In order to honor our mission, SBP has to learn from other entities - NGOs and corporations alike - to understand what we can do better, what we can replicate, and who would be a good partner. Perhaps most illuminating from the benchmarking process is what we have learned from organizations outside of our sector. There is no doubt that SBP is better positioned to achieve our remit because of this benchmarking process.” -- Zack Rosenburg, SBP CEO & Co-Founder

Benchmarking leads to more thoughtful decisions for setting up a new nonprofit as well as developing future strategies for existing ones. This process was illuminating for us and those we worked with and has proven helpful for all involved. We hope detailing our approach and findings inspires both donors and nonprofit leaders to compare organizations and make optimizations within their respective approaches to making the world a better place.


About the author:

The author, who wishes to remain anonymous, is a long-time supporter of Charity Navigator at a leadership level. He and his wife do more than donate to the causes they care about--they invest in their future. They dedicate their free time to closely working with the organizations they support to foster growth and innovation.

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