A CEO Survival Guide for the Recovery

The recession is lifting — slowly, unevenly, but lifting. As the economy strengthens, the opportunities presented by the recession will be amplified. Sadly, they will more often be squandered. Too many nonprofit leaders will succumb to pressure to “return to normal” by reflexively restoring prior programs and positions to the status quo ante.

The evidence of an economic recovery is growing. The stock market has recovered, erratically, half of its lost value. The U.S. Commerce Department reports higher growth than expected in the third quarter (a 3.5-percent annual rate). Even industrial production grew in that quarter. Unemployment will almost certainly climb further but, in spite of that sad fact, consumer confidence is showing signs of strengthening.

The acute pain the recession has inflicted on nonprofit organizations and those we serve has not yet abated, but my own best guess is that organizations closest to the hearts of their donors — places of worship, educational institutions, etc. — will begin to feel some effect of recovery in their year-end campaigns.

The adjustments nonprofit organizations have made in recent months should generate vital new data and major new opportunities, both to serve their missions more efficiently and to focus resources on creativity and experimentation. If your organization has taken a systematic approach these will be readily apparent. If not, you may have to look a bit harder, but your exertions are likely to be rewarded.

In April, I offered in these pages a survival guide to help nonprofit leaders (“A CEO Survival Guide for Tough Times,” April 23). Now it is time to revisit those ideas and discuss how they apply at a time of revival.

Build cash-flow projections. If your organization, or groups you support, has survived the recession so far without good cash-flow projections, count yourself more lucky than clever and build them now.

It is an ugly and painful process. The first cut will be crude. Staff members in the accounting department may resist it. Being trained as financial reporters, and being drawn to their craft by a need for exactitude, they will often paralyze the process by seeking impossible precision. Still, if you assemble something this month, refine it, then refine it further in 90 days’ time, you will be well on your way to developing an invaluable tool.

As your organization recovers, this tool will allow you to project when you will begin to generate surplus cash. You will be able to make strategic decisions in advance. Surpluses generated inadvertently will creep out of your checking account in drips and drabs and the strategic opportunity will be dissipated.

Establish roles and processes. As with the survival process you will find it easier to build and maintain a consensus about difficult decisions if you lay out a detailed process for assessing how to adjust to the new economy. Look hard at changes made in recent months and what you can learn from them — good and bad. Invite comment and critiques from everyone and make ample, systematic communications.

Unlike the process that was required when the recession first hit, this one need not be compressed in time. The recovery will unfold slowly so your decision making can be more deliberate and incremental. It cannot, however, be less rigorous.

Even more than before, you will need to seek out tough challenges and provoke new ideas. And, though decisions can be made more deliberately, they must be made. Set timelines for key decisions and make them on schedule. Don’t resist complacency; defy it.

Look outward first. Revise the scenarios you created as you thought about the threats your organization would face as the economy declined, or create new ones to describe the challenges you face as the economy turns up. Create or update an information package, with new articles on the economy and others that identify long-term and recent trends that affect your organization’s constituents. Update the key program reports and trends, and key financial and operating trends. Now, though, make this sharing of information a model for how you share information and invite ideas from now on.

Work toward a one-page description of what is likely to happen in the economy and elsewhere in your environment (anticipated changes, for example, in service models, competition, and funding mechanisms).

As you did when you were preparing for hard times, be explicit about how much confidence you have in key assumptions or conclusions, and make sure the assessments lean toward pessimism. This time, though, create a living document that will be continuously revised — incrementally whenever new ideas and lessons occur to you and more significantly as you conduct annual and strategic planning.

Examine how your organization’s mission will be affected by your projections. Have the recession, or simultaneous events, changed your understanding as to what services or activities are most central to your mission and the major forces affecting it? Ask how the upturn will affect those forces — accelerating them or suppressing them as personal savings increase and popular expectations shift. Look at what would happen to key services or goals if you did nothing different.

Assess assets and liabilities. The recession probably reduced the organization’s financial assets. The strains may well have strengthened informal or intangible assets like key relationships or the commitments of key donors. Sit down and review balance-sheet assets and liabilities and the “soft” ones as well. Ask people to be self-conscious about how to build on the surviving or emerging assets and how to mitigate the liabilities. Again, look for ways to make this a way of doing business from now on.

Now set your income statement and your cash-flow projections side by side. This is where one of your greatest opportunities lies. If you were clever enough or lucky enough to have cut deeper than necessary, you may have already been able to identify some surplus cash. Even if not, as revenues build and you hold the line on costs, you should be able to project some future surpluses.

Don’t simply restore budgets evenly or pro rata. If you promised to do this, here’s some tough counsel: Sit down with the people to whom you made that promise and ask them to release you from your commitment, in the interest of the mission. Remember that serving the mission is your first obligation. It is sometimes not compatible with making everyone in the organization happy.

You will probably need to allocate some portion of surpluses to restoring reserves. Consider using the balance for program experimentation or for investments in capacity. Be very cautious, though, about using them for things that represent long-term commitments or recurring costs (new salaries or taking on debt service, for instance). You’ll want considerable confidence that the gains are sustainable before incurring expenses of that sort.

Communicate and keep communicating. Institutionalizing this approach to decision making will take care of much of that for you. However, the recovery represents a great opportunity to have a new and more honest dialogue with all of your constituents. Because honest conversations are most difficult and most rare with donors, let me use them as an example.

What if you were to go to your major donors and say, “You know this has been a difficult time. We think we see things turning now. However, we know there are setbacks and challenges to come. We have learned a lesson as, I suspect, you have and are determined to be more resilient the next time we face an economic challenge. For instance, let me explain how skimping on financing our operations has affected our ability to perform on your grant (or program)…

“Also, let me explain how our shortage of unrestricted funding is impeding our ability to maneuver and to innovate, seeding or studying new ideas.

“So, we need to apply X% of your grant to operations and Y% to building reserves (or unrestricted uses).”

One of the organizations I led held precisely this conversation with all of its significant supporters. We were working with them to gradually move 20 percent of their support into operating costs related to the programs they financed and 15 percent into unrestricted categories.

None of the ideas I have suggested are easy to follow. They require a huge commitment to putting the mission at the center of all decision making.

However, if the recession held considerable opportunity for organizations with courageous leadership focused on the mission, that opportunity will be amplified, or dissipated, in the recovery.

Perhaps the core of this counsel is as follows: Emerging from the recession should be a time of revival, not of reversion, of leading your organization — leaner, harder, sharper, more rigorous — into a new era. Don’t try to return to normal. Your organization, like the macroeconomy, is entering a new normal.

We owe it to our missions and those we serve to sustain the attributes we have honed during the recession. We must capture and institutionalize them, figuring out how to apply them to new or expanded services.

As an organization demonstrates increased effectiveness it will be able to build revenues, hire new people to new roles and serve its mission better than would have been possible without the crucible it has endured.

A good crisis is, in fact, a terrible thing to waste.

Pat Nichols is president of Transition Leadership International, in Washington. He serves as interim chief executive at organizations that face strategic crises.