Why the Tech Entrepreneur's View?
A recent Chronicle of Philanthropy feature article listing the 50 top philanthropists of 2014 noted that a surprising number of top philanthropists were younger tech entrepreneurs. I read the tech philanthropist article with interest, having recently completed a board development project with an organization founded by very successful tech entrepreneurs.
After interviewing each of the board members, reviewing the board’s policies, and comparing them to board practices, it became clear that the organization was transitioning from one life cycle phase to another.
In providing a report to the board and facilitating the implementation of the report’s recommendations, I felt the need to help them understand the nonprofit lifecycle in terms they would understand. For this reason, I developed a model to illustrate the stages of a nonprofit board’s lifecycle from the view of a successful tech entrepreneur.
The three key stages are:
The model describes six variables for each of the above stages:
Stage I: Start Up
The start up phase begins when one or two founders promote a great idea that offers the possibility of changing a sector. The key indicators include a flurry of chaotic activity to develop and launch a service or product around this idea, though this stage often requires obtaining initial investors (donors) in order to hire staff and provide services.
The founders of the organization provide the core leadership for the organization, and the board’s role is often to serve as advisors, cheerleaders, and initial investors. While the service (product) is being developed and launched, the board typically does not play a significant role in financial oversight, policy development, or fundraising. This is because the board infrastructure does not include a strong committee system and board recruitment is typically just the founders asking friends and colleagues to serve on the board without a full explanation or understanding of appropriate board roles. As a result, the board typically serves as a “committee of the whole”, with the founder providing updates and seeking feedback. With minimal board infrastructure, no formal orientation process exists and the organization has no succession plan. Since an organization in this stage is founder-driven, an unexpected loss of the founder before the organization is fully established usually results in the organization ceasing operations.
This start up stage is perhaps the most exciting of the three stages, but it is also the most fragile. The organization is coalescing around a great idea, and the air seems to be full of great promise and opportunity. The board’s role as advisors, investors, and cheerleaders is essential to the success of both the founder and the organization.
Stage II: Initial Public Offering (IPO)
While a nonprofit organization cannot issue stock or have stockholders, nonprofits started by tech entrepreneurs can enjoy the nonprofit equivalent of an IPO. Instead of issuing stock, the initial public offering are the first rounds of funding from institutional funders and partners. This may be government grants, large foundation grants, or even contracts for services with a large institution.
Just as with a tech IPO, obtaining significant outside funding dramatically shapes and changes the organization’s leadership and operational structure. With outside investors, the organization hires professional staff and begins to build the infrastructure to meet the investors’ (i.e. funders’) reporting requirements.
Leadership is now shared by the executive director and board chair, with the board chair taking more responsibility and ownership for care and management of the board. In organizations that have two founders, one chair will likely remain as CEO while the other may assume the Board Chair role.
The outside investors typically require audited financial statements, and board roles shift accordingly. Specifically, the board begins to assume greater oversight of finance and regulatory compliance, and board members are now asked to become rainmakers (fundraisers) so that the organization can obtain the precious unrestricted dollars necessary to fuel more growth. With additional staff now in place, the board can better define board roles and expectations of board service, and the board must develop a mechanism for enforcing those roles and expectations.
As the board takes on greater oversight and fundraising responsibilities, it must build an infrastructure to support these roles. As a result, the board will likely establish several committees that work closely with the executive director to make recommendations to the board. The committees often still function as key advisers to the executive director, but they have broader input and oversight.
With better defined board roles and infrastructure, the board more fully understands the importance of recruiting high performing members and orienting them so that they can best serve the organization. For this reason, a recruitment and orientation committee is often formed that works to identify and nominate board candidates three to six months in advance. As part of this process, the board may define terms and term limits for all current and future board members.
The outside institutional investors (government agencies, large foundations, large institutions) will play a greater role in the development of the organization in order to protect their investments. This will include providing technical assistance (or technical assistance grants) in the areas of strategic planning, board development, human resources, and succession planning. While the board may not develop a comprehensive succession plan for staff and board leadership, it can now competently navigate transitions as they occur.
Organizations that successfully transition through this phase have high performing boards that enforce appropriate expectations and maintain a robust committee structure. By the end of this phase, many of the founding board members may have been replaced and the founding CEO may be planning her departure (or already left).
Stage III: Corporate Board
From an outside perspective, an organization with a corporate board has two key indicators. First, the organization enjoys strong and longstanding relationships with many established institutional funding sources and program partners. Second, the organization is now viewed as an expert in the field, and it is seen as an expert separate and distinct from any individual staff or volunteer.
The organization being perceived as an entity with organizational expertise requires a professional team (staff) with a depth of expertise. This ensures that the organization maintains its expertise even if one (or three) staff experts leave. This depth of expertise also ensures the organization will have the prestige and connections necessary to replace experts that leave.
The organization’s leadership undergoes a significant shift at this stage as well. In addition to a CEO and Board Chair, a staff management team or chief operating officer position is developed to help manage the day-to-day operations of the organization. The CEO’s role once again shifts and has a more external focus, allowing the management team or COO to handle daily operations.
Board Roles also shift during this time, including lower-level oversight activities being assigned to the management team. Established organizations with budgets in the tens of millions, for example, might have the CFO review all insurance policies annually independent of the finance committee. Additionally, board committees will work closely with various members of management team, such as the vice president of human resources serving as the staff liaison to the human resources committee. This shift enables board members to focus on the highest levels of oversight and cultivating large gifts for operations, endowment, and capital.
Since there are a limited number of prospective board members who can fulfill the expectations of the corporate board, the recruitment and orientation committee begins cultivating prospective board members years in advance. To ensure board member success, the committee also operates a very structured orientation process that may last from a few months up to a full year of the new board member’s term. The Corporate Board also ensures smooth board leadership succession, having identified candidates and defined responsibilities for the president elect and president nominee.
Finally, the organization has a written succession plan for the CEO that includes expected and unexpected contingencies that may impact the process.
Just as with large tech companies, nonprofits at this level may acquire other organizations, be acquired, continue successfully for years, or even become obsolete and irrelevant. At this stage, how well the board, CEO and management team work together will determine whether the organization thrives or declines.
A summary chart of the tech entrepreneur’s view follows: