Through the Valley of the Shadow of Failure

How one nonprofit pulled together to weather a major crisis successfully.

Exactly a year ago, I told my board that we were on a path to end the fiscal year with a loss of $137,115, or 11% of the budget. Cuts in our government contracts for services had been brutal; foundations were retrenching in response to their investment losses, and individual donors were bowled over by the recession. Not good news, but we had some reserves and we would somehow muddle through.

But two months later, when I returned from vacation, my accounting manager had some news for me. It turned out that she waited until the end of the year to book our investment losses, accrued mortgage interest expense, and accrued vacation liability. The deficit was likely to be more than twice what we had expected: $355,000. This meant we would completely run out of money — including all our reserves accumulated over a decade — in four months. Thud.

A year and a half into my first job as an executive director, it looked like I was going to be presiding over the funeral of an organization that thousands of supporters had entrusted with their time, treasure, and hope for 23 years. An organization that had helped thousands of families move beyond homelessness would close its doors at the height of the worst recession in 70 years. Twenty-five hard-working and committed staff would be out of work.

The board comes up with a plan I don’t believe in

As soon as I could pick my soul up off the floor, I notified my board of the situation. I told board members that, to avoid closure, our two choices were: a) to pursue a merger or b) to raise in four months three times as much as we ever had in a single effort. I asked them which path they wanted to choose.

They told me we needed to do both. I thought they were absolutely nuts.

How was I supposed to execute the biggest fundraising drive of the organization’s and my life (we don’t have any fundraising staff) while handling merger negotiations? What would be the ethical implications of urging our supporters to invest in FESCO while we were simultaneously discussing folding FESCO into some other organization?

My board told me — convinced me — that raising money to preserve services for homeless families was ethically consistent with merger inquiries towards the same end. Yup. So I contacted the director of a nearby, well-regarded homeless services provider and the two boards began meeting to discuss the possibility of a merger.

We decided that, to raise about $160,000 in four months, we would try doing a challenge fund. We would ask several of our major individual and foundation donors to put up a challenge fund of $80,000 and then send out a mail appeal to all of our recent, substantial donors stating that all gifts over $100 would be matched from this challenge fund.

Options get even grimmer

I knew I could not go to even FESCO’s best friends and ask for large amounts if my message were simply that we were going broke. We needed a plan. So I wrote a four-page Strategy to Stability showing how I believed we could return to good financial health within five years, even with the recession.

In late October, after our board delegations had met three times, the ED of our potential merger partner called me. Although our organizations were well-matched in values, historic roots, and programs, they just could not see a way to make it work financially. Our government and foundation funding sources overlapped too much; we would receive less income from these sources if we merged than we do as separate entities. They had limited experience with community support (85% of their income came from government contracts) and did not trust it as much as we did. There would be no merger.

There were still options, but they were grimmer than before: raise an unprecedented amount of money, eliminate programs, or close down the organization altogether. By this time, I was thankful that my antidepressant prescription was current. I took some comfort in knowing that there was little we could have done differently to prevent this financial calamity. If this was the end, at least it was an honorable one.

Working every angle

As the fall went on, our hopes were buoyed by the enormous success of the Challenge Fund Campaign. We raised $85,000 in challenge funds in less than a month. As soon as the mailing went out for matches, donations came pouring in. Some gave double the largest gift they had ever given before. By the end of December, the campaign had netted about $145,000 — more than double the amount we had ever raised in a single campaign.

At the same time, we reached out to every government partner that had an investment in FESCO. One city funder, familiar with our history and reputation in the community, reassured us that “FESCO is too beloved to fail.” But I can’t take that to the bank, I thought.

Another government funder found a way to be more flexible with its funds so that we could use the money for operating expenses rather than capital improvements. The head of that department arranged a meeting with another government agency to help secure a new long-term subsidy that could make our most under-funded project financially sustainable.

The constituency steps up to the plate but it’s still not enough

Most of our supporters are people and congregations of modest means. When they learned of our crisis, they all did what they could. Two congregations held benefit concerts for FESCO. Another produced a huge rummage sale that raised more than $5,000. Our clinical supervisor convinced her mothers’ group to turn its annual children’s clothing and toy sale into a benefit for FESCO.

The crisis deepened in October, when we learned that only one organization in all of Alameda County received a Federal Emergency Shelter Grant, and it was not us. These grants are the backbone of homeless shelter services in California and they were distributed irrationally (Napa County, which has 292 homeless people, received 13.6 times as much, or $2,390, per homeless person compared to Alameda County, which has 4,300 homeless people and received $175 per person). We and other shelters protested loudly and our protests drew press attention.

A concerned citizen — a retired consultant — saw the story, in which I was quoted, in his local newspaper. He called me; I gave him a tour of our facilities, he asked a lot of good questions, and then wrote us a check for the largest single contribution we have ever received from a living individual. I was joyfully stunned.

By spring, the tide had begun to turn. Our individual contributions were off the charts. Some new sources of government funding replaced those that had been lost. I started using a new metaphor to describe how we were doing: it was uphill climbing as far as the eye could see, but we weren’t rolling downhill anymore. By May, I was able to present the board finance committee with a conservative, balanced budget for the new fiscal year.

In retrospect, three things enabled us to weather this crisis successfully. The first was that we communicated frankly with everyone who cared about our organization. We did not try to hide the crisis. We told everyone where we stood, what we needed from them, and how we planned to return to stability. Telling everyone included taking our case to elected and appointed officials. In response, everyone did what they could to help and, collectively, it was enough.

Second, internally, I communicated copiously and candidly with staff, withheld nothing from the board, and as a result, all of us were able to pull together. Everyone on staff stayed, and the board’s leadership was crucial: even their “nutty” plan turned out to be right.

Third, we had a painstakingly-built reputation for excellent services, frugal stewardship, and scrupulous honesty. Thousands of people in the community have volunteered with us over the years and feel a real and important relationship with the organization and our work. We really are too beloved to fail.

Breathing again

For my part, I know that I have accomplished something difficult and important and that I have done it well. It has given me confidence and ambition to see to it that our organization will be there until we achieve our mission to end family homelessness. Yes!

See also:

• Thinking the Unthinkable: Maybe We Should Shut Down
• Raising Money in 30 Days
• A Board Leads an Organization Out of the Ashes

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• Innovative Leadership — Culture Doesn’t Have to Eat Strategy: Tending to Human Factors During Strategic Planning
• Treasurers of All-Volunteer Organizations: Eight Key Responsibilities
• Insider Newsletters: An Easy Way to Keep Your Board in the Loop and Engaged
• An Easy-to-Use Accounting Procedures Manual Template
• A Guide for Private Foundations: Tax Exemption and 990-PF Filing Requirements

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About the Author

Cate Steane

Family Emergency Shelter Coalition

In addition to her role as executive director of the Family Emergency Shelter Coalition in Hayward, California, Cate Steane previously served as director of operations at several Bay Area nonprofits. In her previous professional life, Cate was an attorney. Cate has appeared in public as a costumed superhero. More than once.

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