The New Dog-Eat-Dog Nonprofit
Running a nonprofit like Dave Hilliard's camp for at-risk children used to be a genteel, comfortably subsidized undertaking. Now, in an era of dwindling resources, it's a battle for survival. Here's how the Wyman Center learned to compete
January at most summer camps is a lonely month: the bunks are empty, the dining hall is boarded up, and the camp director, more often than not, is far away -- at his real job. But the Wyman Center, in the snow-dusted foothills of Eureka, Mo., is not like most summer camps, and Dave Hilliard is no ordinary summer-camp director.
Hilliard is Wyman's president and CEO, and he works year-round to live up to those titles. He speaks of customer service, relationship marketing, asset utilization, and "thinking out of the box," with the zeal of a fast-growth-company entrepreneur. Is such language incongruous for the director of a 97-year-old nonprofit camp for underprivileged kids? Hilliard doesn't think so. His job is to run Wyman like a business.
Make no mistake -- Hilliard is no corporate hotshot who suddenly found his true calling in the nonprofit world; he's been at Wyman's helm for 20 years. But 10 years ago it struck him that to keep the camp alive, he was going to need more than a big heart and an outstretched palm. Nearly 60% of all nonprofits nationwide have been founded since 1970, and their proliferation has intensified competition for both private donations and dwindling government funds. Hilliard and the social-service agencies with which Wyman does business rely on those resources to send poor kids to camp. In 1986 individual gifts and contributions from the United Way constituted more than 54% of Wyman's $567,000 in revenues; the balance consisted of program fees paid by agencies and schools, most of which rely on government money. Wyman's dependency on the public trough and on private philanthropy made Hilliard edgy. The United Way, which had, in other parts of the country, actually stopped funding camp tuition, was already grumbling that $300 to $400 for one child's two-week stay at Wyman was a bit pricey.
As nonprofits crowded the landscape, Hilliard knew, Wyman's customers -- parents, schools, benefactors, and social-service organizations -- would expect measurable results. Wyman's campers also were changing. With abusive parents, drug use, and gang involvement on the rise, the kids needed much more than two weeks of fun in the sun for Wyman to make a difference.
Hilliard knew Wyman had a problem. It served a single market -- at-risk inner-city kids -- with a single, outdated product: outdoor recreation. "We had all our eggs in one basket," says Hilliard. "But we had a gut-level feeling that Camp Wyman could be more than it was." His challenge was to grow and diversify it without forfeiting the camp's mission to "design and deliver programs that offer solutions to kids at risk."
What Hilliard achieved from 1990 to 1994 might well be a model for his peers not only in the nonprofit community but in the for-profit world as well. Wyman's client count is up 38%, contributions have increased 36%, and earned revenues have skyrocketed, growing by 152%.
And all Hilliard had to do was figure out what business he was really in -- one step at a time.* * *
Listening to Customers
Back in 1986 Hilliard had only a small staff of five, but he has always had the support of an extremely active board of directors. Like all nonprofits, Wyman has a board that's heavily involved in long-range planning and general policy. It was, in fact, longtime board member Isaac Young, a St. Louis lawyer, who nine years ago helped Hilliard plant the first seeds of Wyman's entrepreneurial transformation. "Businesses do five-year plans, look at markets, decide where they can be most effective, and assess their competition," says Young. "The members of the board felt those principles could be applied to a camp as well." Young encouraged Hilliard to sit down with his customers -- administrators at schools and social-service agencies -- to grill them until he had the market intelligence to make Wyman more responsive to their needs.
The customer list divided among them, Hilliard and his staff hit the road and, using their findings, "shuffled in the direction of incremental change." Every spring and fall since 1948 Wyman had been conducting outdoor educational programs for schoolchildren. Now Hilliard found that the school systems were more interested in the environment than in outdoor skills. Hilliard switched gears immediately. He quizzed leading curriculum-development specialists and combed the marketplace for materials to help his staff develop an environmental program. He settled on a package called Sunship Earth, designed to teach children seven core ecological concepts. "It was exciting for the kids because we integrated it into every aspect of the camp," says Hilliard. But the program, which included a franchise fee, was expensive to set up, and initially, Wyman had to absorb a hefty loss. "We were selling the same customer a different product. That was good because it added vitality to that relationship," says Hilliard. "But it didn't do much for the bottom line."
Hilliard figured he really needed more customers, but the camp had two critical handicaps: limited space and the seasonal nature of its core business.* * *
Identifying the Assets
As he would often do in the coming years, he turned for help to Wyman's list of contributors. Bill Maritz, president of an international marketing and motivation company, was well known for his commitment to community service, and in June 1988 he asked Doug Hartmann, one of his top executives, to sponsor a pro bono brainstorming session at Wyman. Hartmann, who had been a Wyman camper back in the early 1960s, led a team of Maritz and Wyman employees and an eclectic group of community members including a manufacturer's rep, an art director, a travel agent, and a lawyer.
"Wyman's thinking was 'We're a camp; if we build it, they will come," recalls Hartmann. "But it needed to utilize its resources better to serve the extended community. We talked about what we could do on- and off-site, and we started using terms like return on assets." Hilliard and his employees discovered that they weren't simply selling outdoor recreation. What distinguished Wyman from other camps was its staff's expertise in teaching children how to work in teams, to be leaders, to resolve conflicts, and to respect the environment. "The single most stunning idea that came of those sessions," says Hilliard, "was Camp Caravan. It was our first truly new product."
Camp Caravan is a van the staff packs with every kind of portable camp paraphernalia. Wyman employees drive it to abandoned parking lots and playgrounds in St. Louis's worst neighborhoods, where, for half a day every day, for as long as a month, they set up "camp" -- a Native American village, say, or an environmental center. For the first time, Hilliard had succeeded in pushing Wyman beyond the boundaries of tradition. The caravan both brought Wyman's services to a larger constituency and generated enthusiasm on the fund-raising front. Agencies reported that the program had positive effects in the communities, and based on that feedback, Wyman landed additional funding from the United Way. But there was still a problem. "We tried to sell it to the same old customers, and we got the same reactions," recalls Hilliard. "'We love it. Give it to us for free."* * *
What Business Are You In?
By 1989 Wyman's revenues had increased to $800,000, but Hilliard was disappointed in the analysis of those revenues' sources. Only $300,000 were earned revenues; $300,000 came from the United Way; and the local Kiwanis clubs had contributed more than half the remaining $200,000 in private gifts. The Kiwanis Club is a service organization of local businesspeople whose members had for years dominated Wyman's board.
As Wyman's horizons stretched beyond Eureka, Hilliard realized that the board's perspective, too, had to expand beyond the Kiwanians' staunch dedication to Wyman's traditional summer camp. Fran Werner, who was a college friend of Wyman's head of development and the director of global planning for Monsanto, accepted an invitation to join Wyman's board. Under her tutelage Hilliard learned a new vocabulary -- one that provided a foundation for permanent organizational change.
Werner, a former high school biology teacher, summoned Hilliard and his second-in-command, Paige Banet, to a marble and mahogany boardroom at Monsanto. "She hauled out Michael Porter videos, gave us templates, taught us about unbundling our services, and questioned us about how we structure our business," recalls Hilliard. And then Werner got tough. "What business are you in?" she asked. The answer was obvious, Hilliard thought. "Camping," he offered. "You don't get it," Werner challenged. "Camping is your assembly line, not the product that comes off it," she explained. "We were stuck in methodology," Hilliard says. With Werner's coaching, Hilliard and Banet defined and assessed Wyman's four "products":
1. Prevention. The goal of Wyman's summer program was to "take at-risk kids and redirect their lives for success," says Hilliard. "But we had only one vehicle for that -- resident camp."
2. Education. Flanking the camp season were Wyman's "experiential education" programs for schoolchildren. The bulk of those programs, however, were designed for fifth- and sixth-graders; there was a substantial market segment Wyman hadn't touched.
3. Hospitality. To capitalize on its off-season capacity, Wyman rented the camp to other nonprofit groups as a conference site. But Wyman's rustic cabins couldn't compare with the comforts of other facilities.
4. Recreation. Though fun was a big part of the Wyman experience, the camp used recreational activities as channels to teach kids life's lessons. Hilliard wondered whether the camp could market entertainment for its own sake -- say, sell a hayride and a bonfire sing-along. As with hospitality, the competition would be tough.
As he dissected each of those "products" with a newly critical eye, Hilliard saw that there was only one reason for Wyman's being in the education, hospitality, and recreation businesses: to use the assets not consumed by prevention -- Wyman's raison d'être. Why not turn those three products into profit centers? Any "surplus" (as profit is termed in the nonprofit sector) he would plow back into prevention, which, on account of the limited resources of its constituency, remained relatively free from bottom-line pressures. "Fran pointed out to us that the worthiness of the mission does not have to be at odds with selling services at or above cost," says Hilliard.
Wyman's board, which Hilliard had helped redesign to include seven entrepreneurs, six lawyers, four corporate executives, three educators, three bankers, two public-relations experts, and a certified public accountant, assigned him an ambitious five-year goal: make the three ancillary businesses 15% profitable. "Our challenge was to find the customer that values our expertise in the same way we do," says Hilliard.
By 1991 a self-sustaining Wyman Center had started to emerge, and that had meant making difficult choices. "We didn't want to shut the door to needy cases," Hilliard says, but he and the board decided that even the poorest camper should pay $15 a week. And agencies that were accustomed to a free ride from Wyman had to settle for a new deal -- buy one camper space, get one free. "We lost a few friends," Hilliard admits.* * *
Determined to find ways to bolster revenue growth, Hilliard had reorganized his staff of 12 into units that represented Wyman's four products: prevention, education, hospitality, and recreation. The four employees who headed those units had autonomy, budgetary authority, and responsibility for meeting the 15% profitability goals set by the board.
Claire Wyneken, who had been at Wyman since 1987, headed education. She recalls that "we started spending much more time listening to school administrators and adapting programs to their needs. And we talked about outcome and impact -- to show them the value of what we were doing." Wyman's clients, accustomed to the "take it or leave it" approach, were impressed. Steve Huber, principal of Normandy Middle School, in St. Louis, sends his seventh- and eighth- graders to an outdoor program at Wyman. He says that "with many vendors, if the program doesn't fit you, you're the problem. But with Wyman, if the programs didn't work, the organization was constantly adjusting and compensating. That made for a very positive relationship." It was the kind of customer service that helped Wyman successfully target affluent school districts, whose schools pass the cost of Wyman's educational programs on to parents.
Meanwhile, Wyman's empowered employees, responsible for their own budgets, paid close attention to the bottom line. In the past the camp had itself covered increases in its costs. Under the new system, says Wyneken, "we went back to our customers and told them we had to raise rates to cover our costs. When we explained why, most of them had no problem. It made us think that maybe we had been undervaluing ourselves."
Dave Knobbe, the manager newly in charge of prevention, says that his independence "opened up a lot of room for creativity." He had developed a "teams course" -- group exercises that encourage collaboration to solve such problems as how to scale a 12-foot wall. When he realized he could adapt those activities for either playgrounds or indoor gyms, he successfully marketed the programs to schools that could pay.
Wyman's version of employee empowerment worked -- for a while. It was the engine that drove Wyman's growth for two years; earned revenues increased 66% from 1991 to 1993, and in 1993 accounted for 57% of total revenues (compared with 46% in 1991). But Hilliard hadn't taken into account that his managers' individual responsibility for their "business units" engendered internecine competition for resources. And even though business was booming, surplus remained elusive.
Wyman's books for 1993 recorded a loss -- which was frustrating, even though the loss was less than 2% of the total budget. "We had gone from zero to 60, and we were still guzzling gas," Hilliard says. "It suddenly hit us that the profit would not come from volume." He had spent money to recruit new staffers and pay them competitive salaries, to develop innovative programs, and to build the center's capacity. He'd even leased another camp 20 miles down the road -- so great was the new demand. But, says Hilliard, "we had outgrown our headlights." It was time to slow down.
The business-unit structure had outlived its usefulness, so Hilliard scrapped it. The managers retained considerable autonomy, but now they reported to Wyneken, an able administrator. "When you look at the strengths of all the individuals, it really made sense," says Knobbe, who was happy to devote himself to program design. Wyneken rallied the team around a unified goal. Without pressure to compete among themselves, staff members examined Wyman with detachment and assessed the camp's strategy for growth. If volume wasn't generating surplus, they'd have to look elsewhere.* * *
Contributors Are Customers, Too
As Hilliard applied the brakes he instantly realized that he had been neglecting an essential source of revenues -- contributors. From 1992 to 1993, the United Way funding had increased only .8%, and private donations had actually fallen off 3.6%. Worse still, for four years the donor base had remained static -- a potentially devastating situation for nonprofits that rely on new blood to replace contributors who either die or lose interest.
To help analyze and expand that donor base, Hilliard retained the Suddes Group, a maverick fund-raising consulting firm. At the outset of a major fund-raising effort, a nonprofit customarily hires an outside consultant to survey current and potential donors to forecast future contributions. Suddes, instead, taught Hilliard to think of his contributors as customers. Competition for dollars in the nonprofit world is every bit as stiff as in the for-profit arena. Wyman had to master "relationship marketing" to gain the trust of large donors and to convince them of Wyman's merit. "We learned," says Hilliard, "that before you ask people for money, you ask for their advice."
Because of his years of service in St. Louis, Hilliard had long ago established his credibility with community leaders and businesspeople. He recruited 100 of them to work with him on six task forces to develop Wyman's comprehensive plan. "He called and said, 'I value your expertise, I want your input, and it won't take forever," recalls Georgia Archibald, director of the Network for Educational Development, who served on a task force. After meeting twice, the groups delivered 102 specific suggestions for Wyman's improvement. In turn, Hilliard reports, "within 18 months, we issued reports to those people, saying, 'Here's how we've followed your recommendations."
Many of the task-force advisers were so excited by Wyman's potential that they now constitute a large portion of the fast-growing Frank Wyman Society, a group Hilliard established in 1993 to honor donors of more than $1,000 a year. But, says Hilliard pragmatically, "we use them as mentors as well as donors.
"The bigger and more diverse your network is, the stronger your organization is going to be," Hilliard asserts. So two years ago he hired Jim Miller as vice-president of institutional advancement (read: fund-raising). Miller, onetime director of the Lutheran Layman's League's annual $28-million campaign, aims to increase Wyman's cash endowment in three years, from less than $1 million to $3 million. Following Hilliard's model, Miller has assembled a marketing task force of St. Louis executives to "help us leverage our current position. It will involve print media, radio, and direct mail. We're also going to people who have connections with the camp -- influential people who were here as kids," he says. The cornerstone of his citywide marketing campaign is to "listen instead of tell -- to find out what people are interested in and match that up with what we need."* * *
Creating Value -- and Selling It
The active fund-raising push, Hilliard hopes, will help generate surplus. But he doesn't kid himself that donations alone will pave the path to permanent self-sufficiency. He and his staff are getting smarter about pricing and controlling costs, and Wyman's new chief financial officer, Brad Sharpe, aims for Wyman to generate "more income with margin by leveraging ourselves not only as providers but also as sellers or franchisers."
The Wyman team, now consisting of 23 full-time employees, continues to expand upon Fran Werner's lessons -- find value in what you do and unbundle your pro-ducts and services. Hilliard is discussing producing videotapes on Wyman's approach to conflict resolution. He plans to telemarket the videos to high school principals. There's talk of franchising Camp Caravan and of selling Wyman's program expertise to other camps. Hilliard carries a teams course in the trunk of his car so he's always prepared for impromptu test marketing. And Wyneken is looking into the possibility of a for-profit training and personnel-development division to serve corporations. Yet another group of community leaders, Wyman's Council for the 21st Century, has assembled, as Jim Miller says, to "put the acid test to our plans." The council -- 10 highly esteemed members of the St. Louis community -- will help Hilliard develop and fund those margin-driven projects, all of which share at least one important element: Wyman will be selling directly to the end user rather than to an intermediate party such as a social-service agency or a school district that relies on public funds.
It's a risky undertaking, but Hilliard is confident the past four years have prepared him to take Wyman into a more competitive environment. Earned revenues for 1994 grew to 60% of total revenues -- an enviable accomplishment among Wyman's peers. Hilliard and the board intend to increase that to 80% by 1997 while generating a 9% surplus, but first Wyman has to "slow or stop growth so we can do some limb trimming." After three years of double-digit revenue gains, Hilliard has set 1995 to be a "no growth" year. Sharpe is imposing efficiency throughout Wyman: he has negotiated longer no-interest terms with vendors as a way to conserve the camp's line of credit; by phoning delinquent customers after 30 days, he has dramatically cut aged accounts receivable; he actively manages cash reserves; and he's looking to integrate volunteers and contractors into operations.
Hilliard and his staff will apply the cardinal rule of competition: pick your fights. Wyman shouldn't compete with the Ramada Inn in the hospitality field, and it shouldn't compete with high-amenity summer camps for customers who want simple recreation and are able to pay for it. Wyman excels at prevention and education, and its competitive edge is its reputation as an industry leader in those fields. That, ultimately, is what Hilliard will take to market and what he believes will make Wyman self-sustaining. It's not standard operating procedure for your average nonprofit, but Hilliard is unapologetic. "We can manage ourselves with all the rigorous intensity of a business," he says. "It doesn't take a thing away from our mission."
VIVE LA DIFFÉRENCE
A nonprofit can run itself in a businesslike way, but there remain several critical distinctions between the for-profit and nonprofit worlds:
A nonprofit has no owner. "The assets of the organization are dedicated in perpetuity to charitable purposes," says Laura Kalick, director of nonprofit tax services for Coopers & Lybrand. There are no private shareholders, and the organization is governed by a board of directors or trustees who may not receive any individual benefit -- direct or indirect -- from the organization.
A nonprofit like the Wyman Center is set up for charitable purposes, and its IRS classification confers special tax-exempt status. Nonprofits are chartered by the states, which may also grant exemption from property, sales, use, and income taxes.
Nonprofits may generate profits (or "surplus"), but they may not distribute them. All the assets of a nonprofit must be dedicated to its exempt purposes. Kalick says, "You may give incentive compensation based on productivity, but you may not give compensation based on the profitability of the organization."
All nonprofits have mission statements, and the IRS forbids such organizations to engage in businesses unrelated to their charitable mission.
BY THE NUMBERS:
Wyman Center Operations ($ in thousands)
Revenues '91 '92 '93 '94 '95*
Contributions $270 $302 $291 $344 $367
The United Way $280 $305 $308 $371 $381
Earned revenues $472 $638 $782 $1,111 $1,163
Total Revenues $1,022 $1,245 $1,381 $1,826 $1,911
Payroll $546 $619 $712 $942 $956
Surplus (Deficit) $14 $5 ($21) ($17) $0
Full-time 19 20 20 21 23
Part-time** 25 30 26 24 20
Clients 13,000 13,500 15,000 18,000 18,000
*Budget **Full-time equivalent
Slash and Burn?
Dave Hilliard must have had a premonition about the survival scramble that is likely to erupt in the nonprofit world should Congress have its way, and that foresight has given Wyman a head start. "We're going to see federal-government cutbacks to a lot of programs," says Virginia Hodgkinson, vice-president of research at Independent Sector, based in Washington, D.C., a nonprofit umbrella group supporting philanthropy and voluntary action. "It's particularly important for nonprofits not only to become more self-sustaining but also to diversify their sources of income. From the perspective of financial and strategic planning, they're going to have to be much more sophisticated, and contributors will be looking even more carefully to make sure services are effectively managed."
DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.