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Call Them Entrepreneurs

Nonprofits Need to Grow Like Businesses Do

Published Monday, May 22, 2017

Although its the 4th largest industry in California, generates $208 billion in annual revenue and employs nearly one million people, California nonprofits can’t get no respect.  The sector is applauded for low overhead rather than accomplishments, as staff compensation is often a significant consideration when donors deliberate a give.

But that is changing, especially in the Sacramento region, thanks to the solid leadership of Linda Cutler, CEO of the Sacramento Region Community Foundation (Class X), her colleagues at surrounding foundations and Kim Tucker (Class XX), executive director of the Impact Foundry. The Impact Foundry’s mission is to enhance the resources and improve the management of nonprofit organizations.

 “Nonprofits need not apologize for their overhead, but justify it,” Cutler told the Carbiner.  “To drive investment by the community, nonprofits need to understand resources verses impact.  The talent pool has to be more sophisticated.”

 Tucker agrees there is too much emphasis on misleading metrics such as overhead ratios when analyzing impact.

 “At the Impact Foundry, we don’t accept apologies for being small or underfunded, and we don’t have time for whining,” she says. “Our work involves elevating the success of our nonprofits by teaching and encouraging time-tested management skills, clear marketing and fundraising tactics, well-tuned operations, and rigorously developed strategic plans.”

 The same trend is happening at the foundation level.

 “We are going more and more into impact giving rather than giving grants for programs, so we can elevate the nonprofits’ level of excellence,” says Bill Roby, director, El Dorado Community Foundation.  “And excellence costs money. With our investments, we can help ensure their sustainability.”

 Cutler says nonprofits are growing exponentially because the need is so great, but to scale up and be efficient in their delivery of programs and services, they need to grow in influence and hire professional people.

 “I would say efficiency is the area where nonprofits need to concentrate. Efficiency is attractive to funders. They want impact in exchange for their support.”

 And, according to Tucker and the foundations’ leadership, nonprofits must recognize that they are more powerful together than alone, and that large-scale social change requires collaborative, collective action.

Tucker, when urging nonprofits to advocate for their sectors, likes to say, “You either have a seat at the table or you are on the menu.”

All agree advocating for more long-term solutions to the societal ills that are impeding robust economic growth takes clout, and that clout is in the numbers.

According to recent data, as of November 2016 there were 16,296 nonprofit organizations operating in the Sacramento Region Community Foundation’s four-county service area (El Dorado, Placer, Sacramento and Yolo counties). Those organizations represent more than $34 billion in assets and generate $1.5 billion in annual revenue.

And that does not include the not-so-obvious beneficial spillover effect the presence of nonprofits have on additional local economic activity, including the service sector boutique industry sprouting up to work with them. Consulting, accounting, best practices, are all new entrepreneurial options for many talented current and former business executives ready for their next act.

Already, our own ALF Encore Fellows Program has placed more than 75 retired professionals with nonprofits just this year, with 10 of the nonprofits being ALF Fellows’ organizations.

“I am amazed by how many retired business executives are interested in taking their expertise and starting a business directed toward nonprofits,” Cutler added.

In the spirit of entrepreneurialism and the quest for opportunity for all, let’s hope the new businesses—and the nonprofits they are serving— thrive together.

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