How nonprofit and for-profit board work is different

For those who sit on nonprofit and for-profit boards, the differences between the two organizations couldn't be clearer. Nonprofit boards meetings tend to be longer, less tightly organized, and more sporadically attended by the board members themselves. 

The focus is far less on making money, but this can be a fatal flaw. Both nonprofit ad for-profit need to focus on revenues.

I attended a womens’ Board Director’s dinner held by the prestigious Heidrich and Struggles firm, who have done invaluable research on women and boards. 

Diane Francis was the guest speaker and she had recently been invited to sit on the board of a mining firm with a profit motive. Diane commented that it was a completely different experience and far more demanding. Immediately, this was dismissed by one of the women, a formidable lawyer. Her rebuttal was that women are told to go on nonprofit boards to build their resumes and there are talented people on these boards, working just as hard as on a for-profit board. 

I agreed with Diane Francis though, because the for-profit is under far more pressure with paying shareholders money at risk. For women, I believe it is an important message that putting time into a nonprofit board might not make as much sense as we are lead to believe. There are many companies with revenues of $10M and up who need board members and would give a great experience of how to add value to a company from that position.

My chief regret from the evening was not speaking up to encourage more debate between Diane and the woman who snapped the topic closed. 

Now, here is a book from Harvard that opens up that topic and the authors  support Diane Francis and her view on for-profit boards. Another reason I wish I had spoken up - think of the opportunity for these top women to get out a few more points we could all have discussed. 

Next time.

Marc J. Epstein of Rice University and F. Warren McFarlan of Harvard Business School have a book to crack open this debate with solid facts about the key differences. These key differences are said by industry leaders and are well worth re-visiting. Here are Epstein and McFarlan:

 Failure to understand these differences can cause the new board member to stumble badly and perhaps irretrievably damage her credibility and effectiveness in a nonprofit organization.

Differences

At its core the nonprofit is fundamentally different than the for-profit. At the center of the nonprofit is its social mission. Understanding the mission, helping the organization to fulfill it, and adapting it to a changing world is the very core of nonprofit governance and management. It is for this reason this book starts with a detailed discussion of mission and how it grows. Right behind this are the two major intertwined strategic themes that the nonprofit trustee must deal with. 

The first theme is fulfilling the mission and whether we are doing it in a fiscally responsible fashion. There is the complex multifaceted issue of mission definition and evaluation of its appropriateness. There needs to be a deep understanding about how organizations can go about measuring their performance against mission. For the new trustee, understanding these issues is the place to begin her trusteeship. 

The second theme is financial solvency. There is the board's fiduciary responsibility and financial sustainability. Our life experience drives us to put this behind "performance measurement against mission." Repeatedly we have seen new trustees and ineffective boards try to wag the mission dog with the financial tail. It just doesn't work that way. Without mission and its accountability we have nothing.

Achieving financial sustainability is very different for the nonprofit than the for-profit in that the nonprofit cannot easily access the public equity markets but instead has philanthropy as a potential additional source of funds. Non-profit boards must deal with the role of philanthropy and the trustee's role in it. This may be summarized by giving often and generously and when not giving helping others to give (hence the phrase, "give, get, or get off.")

Finally, the execution of the work of the board is deeply different from that of boards in the for-profit world because of the tasks of mission performance measurement and different capital markets. Nonprofit boards are often larger, have more committees, and have a very different trustee life cycle. Further, the heart of the governance process is a volunteer nonexecutive chairman and volunteer board, leading a staff of paid professionals. The dynamics of this are complex and profoundly different than the process in the for-profit world.

Business expansion top reason for private equity success - Cassels Brock

The finance industry is changing as private equity funds are setting up that are smaller, deals are smaller and are looking across a wider range of businesses. To do a better job of explaining how private equity helps business owners, Loewen Partners held an event with the law firm, Cassels Brock and invited speakers from some of our favourite private equity funds to talk about why private equity does so well with business owners. Particularly business owners of companies in the $30M revenue range have been surprised by their growth once taking on private equity partners.

I thought I try and get down a few of the critical points made:

Michael Castellarin, Clairvest, spoke about why family businesses should look to Private Equity over a final sale as the fund can smooth the family issues. Yet, I never hear a word about private equity's value at business succession events. This has got to change for Canada's economy to grow. We have 200,000 small businesses needing to get much bigger.

Jeff Brown of Edgestone focussed on the "value add" of private equity for even the best business owners. According to a 2007 study by Ernst and Young, two-thirds of the earnings growth (before taxes, interest and capital expense) at PE-owned portfolio companies came from business expansion, with organic revenue growth being the most significant element. Cost reductions accounted for only 23 percent of pre-tax earnings growth in U.S. companies. In other words, PE investors add to the company’s strength by implementing significant operational improvements to the business.

Another study done for the European Parliament supports this view. The study found that PE-acquired companies outperformed comparable publicly- traded companies in terms of sales (14 percent), earnings before taxes, interest and capital expense (5 percent), and profitability (five percent) growth.

Carlo von Schroeder of Westview Capital had inspiring words of advice for companies falling below the $24M revenue target range. Carlo suggested that if they needed to get to the level of revenues to attract private equity, owners need to do what they can to grow. Merge, acquire, add product lines and get a good advisor, like Loewen Partners and a law firm like Cassels Brock.
Thank you for everyone who attended and a big thank you to our host: Stuart English at Cassels Brock, senglish@casselsbrock.com Telephone: 416 860 5223


Jacoline Loewen at Loewen and Partners, 416 961 0862

BNN The Pitch Gives Thumbs Up to 500px and Pinpoint Social

Smart entrepreneurs with high tech products on BNN The Pitch today. I was on with the warm Rick Nathan from Kensington and the more I spend time with Rick, the more I see why his company is Canada's leading private equity firm.
View BNN The Pitch.
Here were a few of my notes I scribbled about the two exciting presenters and maybe you can decide what you think. The panel was quite split in their views:
500px Inc.

The overall look and feel of the site is nicely set up, the interface is user-friendly and the professional quality of product (photos) is what sets it apart from the current competition.  They’re playing off the online community concept (similar to all the social networks out there). Technically, the platform in not very advanced at this time, and there’s significant growth opportunity in the site’s capability to purchase, sell and share photos via established social networks.

What is the growth plan for getting more exposure and populate the site with paying customers?

There’s also opportunity to earn additional revenue through membership sales and advertising to complementary trades, such as make-up artists, modeling agencies, production companies, interior design professionals.

Another important growth market (not yet being explored by 500px) is the mobile  market.

It has potential to become THE destination for professional photographers to market their products and services, but it’s currently lacking scope, and the founders need to dedicate to a well-structured marketing program to build a brand – the product (photos) will follow.

Pinpoint Social

It essentially offers the ability to create and track marketing campaigns on Facebook. The space is about to become 1000x more competitive due to the newly introduced (May 2011) regulation that requires companies to use a 3^rd party application to conduct promotions.  So you better have superior technical capability or lower pricing to attract market share.
Pinpoint  - nice idea - and who doesn't want to invest in a company that uses FB as its platform?? A couple of questions:
1. Need to get the platform into the hands of agencies - how?
2. What's the $250K used for? Is this for software innovation - keeping
ahead of their competitors? How much to marketing and sales force salaries.
If they get traction with their platform I can see them as an attractive acquisition target - where their software is embedded within a larger software suite (by Adobe, for example).

Yet, a major downside may be that Pinpoint’s capability is limited to Facebook, and many professional organizations remain anti-Facebook (crazy as it sounds!) If campaigns created on Pinpoint could be integrated with complementary print/social network/other campaigns, that would significantly increase their utility.

To succeed, Pinpoint has to be a highly scalable model, i.e. 100% self-serve, otherwise you’re paying expensive developers to manage campaign requests. Currently, creating campaigns requires a lot of customer support and they want the money to launch the self-serve, so thinking in the right direction.

The Pitch – Wednesday, May 18, 2011

Entrepreneurs:

Daniel Patricio, founder, Pinpoint Social

Ian Sobolev, founder, 500px.com-SK

Panelists:

Larry Wasser, Genuity Fund Management

Rick Nathan, Managing Director, Kensington Capital Partners

Jacoline Loewen, Director, Loewen Partnershttp://www.bnn.ca/Shows/The-Pitch.aspx

Why dating and raising capital are similar

Like a first date, business owners meeting with private equity meetings can be over quickly, Stuart MacDonald, founder of Expedia and venture capitalist, says.

“I use the three-finger rule:

1. Is it easily profitable,
2. Easily sustainable and
3. Does it matter to customers?

It’s a simple thing, but you’d be surprised at how many do not have a valid viewpoint.

Like dating, Stuart is not going to tell the owner of the business, but will quietly end the coffe meeting.

Mr. MacDonald is just one of hundreds of Canadian financiers who, upon meeting entrepreneurs and asking all the obvious questions, have been stunned at some of the answers.

It pains Stuart MacDonald to hear an entrepreneur utter something like, “We have no competition,” or “The product sells itself,” or “Within five years, Google will buy us.” Hearing those, he quickly pulls the plug.

The Toronto-based angel investor, who started Expedia.ca, has endured endless pitches for financing and has the capital heft to show for it. These days, he spends his time running Tripharbour.ca, the cruise ship search engine, and meeting with entrepreneurs who need financing.

An Idea, Not a Plan.

Here are 3 mistakes you’ll want to avoid when seeking money.

An idea, not a plan

Never say, “I have this really good idea,” or “This has always been a dream of mine.” Nobody wants to hear about an idea. You must have an actual business and not a dream, or your banker will take a pass, says Mike Bonner, Bank of Montreal.

Any good business starts with a solid plan, and entrepreneurs seeking financing must have one in tow.

“We need to understand the customer, the business and the industry – in that order,” says Mr. Bonner. “In the early stages it’s really about the business plan, the planning and preparation.”

It doesn’t have to be complex, he says. Details can be added and strategies adapted, but the core plan must be in place.

The long-term view

Don’t offer up business projections that look 10 years out – no one can predict the future, and it is not in your best interest to try.

“We’d never ask them for that,” says Mr. Bonner. “We really don’t want to see any more than one year.”

Bury mistakes

Never attempt to hide a poor credit history. A credit check is the first step in any due diligence process.

“We have to take a good look at management and how they handle finances,” says Mr. Bonner. “It’s a good proxy for future viability of the success rate of the business.”

 “They should come prepared to tell us why they may have had credit problems,” says Mr. Bonner.

“There could be very good reasons and we could help them deal with it.”