The sudden collapse of Eastside Community Investment in 1997, for example, was brought on by two very risky initiatives. The first initiative, Shelter Systems Inc., was a wood panel and wood truss-manufacturing firm that did not have significant contracts or relationships with the building industry and employed workers with limited education and skills. The second, the Opportunity Factory, was designed to link job training to business development by combining workforce development (education, training, placement, child care, and transportation) and economic development (job creation and real-estate development) initiatives. ECI should have spread the risk to other parties so that it would not assume all the losses, which totaled more than $2 million. This could have been done by having private-sector partners manage some of the initiatives, and having other nonprofit partners providing some of the support services and joint venturing or raising funds together. Spreading or sharing the risk with other partners is an excellent way to reduce the financially vulnerability that CDCs often face, especially with project delays.
Once the CDC has done a careful assessment of the market, competitors, and revenue projections and analyzed the economic and organizational risk, the next step is to determine the capacity and resources needed. One of the most common mistakes made by organizations is the failure to project accurately the time, staff resources, and finances required for an initiative.
After identifying the capacity and systems needed for expansion, the CDC should be strategic about the mix of financial resources needed for the initiative to succeed. Practitioners should diversify their funding base, determine how to generate revenue from the development and management of the project, assess what fees they can earn, and consider how to reduce the cost of debt service for the project.
Building Capacity to Increase Scale and Effectiveness
In speaking with CEOs of CDCs that have grown successfully, one over-arching lesson emerges: It is essential to build organizational capacity before launching major new initiatives and have professional staff in place when the project starts, not after the fact.
According to Mid-Peninsula Housing Coalition president Fran Wagstaff, who over the past 23 years has led her agency to develop more than 6,400 units of housing in the San Francisco and Monterey Bay area, “It is essential to bring systems along so that growth is not a crisis.” With growth comes more activity and responsibility, such as managing multiple real-estate development projects simultaneously, increasing your property-management responsibilities, and bringing on more staff to handle the work. All these changes cause pressure on the operational systems: accounting, technology, administration, asset management, and human resources.
Finding the resources to add the necessary infrastructure is a common dilemma for growing organizations. Frequently, the new staff or computer system is needed before the revenue have been generated to pay for it. One Economy Corporation, a leading national technology and community-development nonprofit based in Washington, D.C., encourages all CDCs to develop a technology plan for equipment, systems, and software upgrades to meet the evolving need of the CDC. The technology plan should be anchored in the organization’s culture and understand the multiple constituents that CDCs serve from residents to small businesses to local government to other nonprofits. The plan should view technology as an ongoing operational cost and, most important, have the full commitment and support of the board of directors.
Growth also entails changes in the requisite skill-set for employees. For example, if a CDC is going to expand its housing production and management, then it will probably need staff with considerable expertise in developing and managing multiple large-scale projects. Staff members who perform well when the organization has 500 units may not be effective when the organization has 2,500 or 5,000 units. The executive staff may need to balance “growing your own talent” with “buying the talent,” especially as projects become more sophisticated.
Hiring new staff with more professional experience usually requires a higher salary, which may trigger salary adjustments throughout the management team, producing major budget impacts. Also, it can be difficult to integrate new employees with technical or corporate backgrounds into the nonprofit culture alongside long-time employees who have a service or mission approach to their job. Sometimes it can take a few tries to get the right talent in place. CDC leaders need to communicate to major funders about the nature of this acculturation process, to help them to view their support of the organization as a long-term investment with important social and economic returns.
As the organization grows, it is important to widen the circle of accountability beyond the CEO to include the board of directors and the senior management team. Large CDCs need COOs, CFOs, development directors, property managers, and senior technology staff—a leadership team with shared decision-making and management responsibilities. According to Robin Hughes, executive director of the Los Angeles Community Design Center, “It is essential to attract the right team that can not only do their job day-to-day, but who can also contribute to the strategic thinking of the organization.”