According to the National Center for Charitable Statistics, as reported by the “Washington Post,” about one-third of nonprofits founded in 2005 eventually failed by 2015. More telling was that less than 30 percent of those remaining reported financial activity to the IRS.
There are a number of reasons why nonprofits fail or struggle. According to Valcort Group, a national business consultancy, nonprofits are “frequently insular and blind to the external changes and ‘market’ forces…There is no ability to adjust programs to match changing situations.”
Valcort goes on to cite a lack of innovation as a limiting factor in nonprofits’ success, something for-profit businesses embrace. Look at 3M, which mandates that 30 percent of each division’s revenue come from products introduced in the last four years.
Community Access Unlimited is a thriving nonprofit headquartered in Elizabeth, New Jersey, serving for than 6,000 people throughout the state. CAU supports people with disabilities as well as youth served under the Department of Children and Families to enable them to live independently in the community, providing support programs and services in areas including housing, vocational skills and life-skills training, education, advocacy and recreation.
CAU has $111 million in assets, a 170 percent increase in the last seven years. We also maintain seven lines of credit valued at $35.5 million. CAU owns 233 units of housing with 509 bedrooms in 12 Union County, New Jersey, communities.
How does CAU succeed and thrive when so many other nonprofits struggle or fail?
Simply stated, we operate the agency using a business mentality. Our business plan more closely resembles that of a for-profit enterprise than a typical nonprofit.
First and foremost, at CAU we understand finances and balance sheets. Nonprofits typically look to generate income to fund programs and shy away from asset accumulation, fearing looking too rich. The typical business model entails building assets and investing in infrastructure, something we do.
Regarding Valcort’s observation that nonprofits tend to be blind to market forces, CAU more than doubled the number of people we support largely because – much like a business would do – we saw a developing need among our consumers and adapted to fill it.
Over the last two years New Jersey has moved to a fee-for-service model where, rather than people with disabilities and their families being assigned support services by the state, they are given budgets and allowed the freedom to shop for service providers on their own. While other nonprofits resisted this change and were slow to adapt, CAU moved to significantly expand our in-home services and went from serving 3,000 people to 6,000.
Like 3M, CAU has always embraced innovation. Our Creative Property Management (CPM) system enables us to make property decisions based on market trends rather than government funding. This allowed us to purchase property at low prices during the 2008-2009 housing drop. In addition, by renting to both people with disabilities at below-market rates and people without disabilities at market rates, and by building mixed-use properties, we create properties that appreciate in value. This in turn allows us to use that equity to develop more housing.
While most nonprofits tend to adhere to a pyramid approach, with all activity being driven by only the mission, CAU employs an organizational approach that more closely matches that of a business. Each of our assistant executive directors lead individual business units and use financial metrics and periodic service reviews to assess the financial performance of that unit.
CAU is growing in staff, as well. We hold a hiring fair every other week to match our growth in demand for services. Here again we differ from typical nonprofits. We offer greater compensation and more comprehensive benefits than do most nonprofits. In addition, CAU self-insures for medical coverage. Nearly 65 percent of for-profit businesses either partially or fully self-ensure. This is uncommon in the nonprofit sector, where only 47 percent of nonprofits with fewer than 50 employees (two-thirds of all nonprofits) offer health insurance and very few of those that do self-insure.
Yet CAU is proof that a nonprofit can operate and flourish adhering to a business model while never losing sight of its mission. Not only do we continue to provide exceptional support to our members but our business model allows us to continually expand those services in both scope and magnitude.
In addition, due to our insight into market trends and our investment in infrastructure such as technology, we now even support other nonprofits who have failed to change their approach.
A nonprofit passion with a business model approach works.