“Good to Great” for Nonprofit Leaders

What nonprofit leaders can learn from Jim Collin’s seminal work, “Good to Great” and it’s monograph, “Good to Great and the Social Sectors.”

Jim Collins is widely recognized as one of the foremost authors, researchers and thought-leaders when it comes to business management. He has also worked at McKinsey, taught at Stanford Business School, and has been published in the Harvard Business Review among other publications. In short, he has been a major contributor to business management thinking over the last 20 plus years.

In this post I provide a hyphenated look at some of the most important concepts in one of his widely acclaimed books, “Good to Great,” and its monograph “Good to Great and the Social Sectors.” I will also share my insights and commentary based on my experience in nonprofit leadership.

My method in analyzing these books are simple: I read the book and the monograph, re-read them and highlighted sections I found relevant to nonprofit leadership, and now I am sharing these with you.

Before I jump in, you should know that my perspective comes from over a decade in non-profit work, specifically in starting, building and sustaining community services in the Youth Development and Family Services sector. Along the way I have navigated fundraising, fiscal sponsorship, the merging of nonprofits as well as volunteered on policy and advocacy committees. Therefore, what you are about to hear from me is heavily influenced by my personal experiences in the work that I have done. Regardless of the space you work in, I would suggest going directly to the source and reading books by Jim Collins. In addition to this book and monograph, I suggest “How the Mighty Fall” and “B.E. 2.0.”

Okay, let’s jump in…

Oh the irony. In the monograph, “Good to Great and the Social Sectors,” he writes on page 12 “There is an irony in all this. Social sector organizations [nonprofits] increasingly look to business for leadership models and talent, yet I suspect we will find more true leadership in the social sectors [nonprofits] than the business sector.”

This statement resonated with me, as I believe that nonprofit leadership is generally harder than most other forms of business leadership, including for-profit/private business and startups. Here why:

• Nonprofits are perpetually fundraising, which is stressful, and a heavy burden upon the resources of a nonprofit. Whereas most for-profit endeavors exit the fundraising stage and live most of their life in a reliable revenue generation stage.
• In order for a nonprofit to make progress, it must create solutions that meet the needs of multiple stakeholders in the community (donors, participants, politicians, government departments, etc), whereas most for-profit endeavors sell their solution to one stakeholder for a profit, and then reinvest the profit to do it again.
• Community needs are constantly shifting, and nonprofits have to continuously refactor themselves to meet these needs, whereas most for-profit endeavors have a longer lifespan for the products and services they sell and therefore have more control over their business cycles.To bring this to life with a more recent and extreme example, during the pandemic sales of the iPhone surged, whereas most nonprofits that I know refactored themselves, sometimes overnight, so that they could stand-up emergency services to meet the needs of vulnerable folks, and many doing so before securing the funding needed to do it.

So, when the author says “yet I suspect we will find more true leadership in the social sectors [nonprofits] than the business sector,” I hear this because of how complex and challenging I know nonprofit work to be.

Okay, leaving the irony behind, let’s take a look at all the important points the author makes in “Good to Great” and I will do my best to relate it to nonprofit leadership.

Good is the enemy of great. He first posits that good is the enemy of great. Because when you are good, you will become comfortable, and never make the jump to great. While I would generally agree that this applies across sectors, there is an important distinction to make here for nonprofits — nonprofit organizations must create solutions that meet the needs of multiple stakeholders, and therefore getting to good results is very challenging. So when you look at a nonprofit that is good at what they do, just know that it is an impressive achievement given how many different people have to be satisfied with their results. And yes, there are nonprofits out there that live in the good zone, and have the potential to get into the great zone. So while good is the enemy of great, when it comes to the nonprofit world, don’t overlook good nonprofits, as they are indeed very important to each community and deserve your support and donations.

You need amazing leaders. The author’s next major point is that great companies have a “Level 5 leader.” He describes a Level 5 leader as “self-effacing, quiet, reserved, shy, and has a paradoxical blend of personal humility and professional will.” I wholeheartedly agree that this applies to nonprofit leaders.

Here are some other important statements from the author on Level 5 leaders:

• “They’re incredibly ambitious, but their ambition is first and foremost for the cause, for the organization and its purpose, not themselves.”
• “Level 5 leaders have ambition not for themselves but for their companies, they routinely select superb successors. Level 5 leaders want to see their companies become even more successful in the next generation, comfortable with the idea that most people won’t even know that the roots of that success trace back to them.”
• Level 5 leaders have a “ferocious resolve, an almost stoic determination to do whatever needs to be done to make the company great.”

In my experience, the above statements fit the best nonprofit leaders. And, nonprofit leaders, the great ones, are truly humble and always put the communities’ needs first and do everything they can to help people succeed, especially their staff. (In my case, I immediately think of the most impactful leader in my career, Mario Paz, Executive Director of Good Samaritan Family Resource Center in San Francisco.) Further, the great nonprofit leaders are collaborators and work shoulder-to-shoulder with their colleagues and the community. They are visible, trusted, authentic and their reputation always precedes them. And lastly, whether they know it or not, great nonprofit leaders are stoics in their approach to their life and work. If you want to learn more about stoicism, there are many great resources out there on it, and my favorite book is “A Guide to the Good Life” by William B. Irvine.

On leadership succession. “10 out of 11 Good to Great CEOs came from inside the company.” Leadership succession is an important topic for nonprofits, especially small to medium ones as they often do not have the capacity to cultivate and develop successors in the leadership roles. It is not uncommon to see a nonprofit lose its leader, and because there is no one inside the organization that was groomed or prepared to step-up, the board conducts a search outside the organization, and potentially ends-up going through two or three new Executive Directors until they find the right one. This can kill morale, and can pose a threat to a nonprofit’s existence. For nonprofits who do not, or cannot develop succession plans internally, the best they can hope for is that the service stays stable during the leadership search, that key staff members do not leave, and that the search firm employed by the board gets a great match from within the immediate community. If you are a board member and your organization has to go outside to find a new leader, it would benefit you to have strong relationships with each staff member so that you can all pull close, and hold together through the search process. Also, of note, there are usually some retired Executive Directors in each community who can act as an interim leader, or take care of the nonprofit while the board searches for the new leader. I have seen this work out well for small nonprofits.

Level 5 leaders are solvers not blamers. He mentions that leaders who blame bad luck, or explain things away due to a difficult environment are not Level 5 leaders. In other words, Level 5 leaders don’t blame anybody other than themselves when things don’t turn out the way they wanted it to. Great nonprofit leaders take full responsibility for everything that occurs in it, especially any uninformed/poor/bad decisions made by others in the organization (and they will happen). As a leader you should always work at being aware of your staff and supporting their growth process, so that increasingly you put your people in a position to make better and better decisions.

Level 5 leaders shine the light on others. The flip side of taking the blame when things go wrong, is shining a light on others when things go right. This is incredibly important in non-profit work, as most are in the work to make a difference. Often our work puts us at the edge of human suffering, which feels like an endless deluge of problems that we are trying to solve, and that is a really hard place to work from each day. So when the work goes well, leaders should be sure that they turn the spotlight on all of the staff and colleagues and do everything they can to give them the credit. And indeed, the best nonprofit leaders do this.

Anyone can become a Level 5 leader. The author also shares that Level 5 leadership is not something that you just are, and under the right circumstances you can become one. Some of the things he mentions are: self reflection, personal development, having a mentor, a great teacher, loving parents, a significant life experience and so on. I would add that you have to be a good communicator who can share the story of the work and do it with data.

Beware of the genius with a thousand helpers, they are not a Level 5 leader. He introduces the concept of a “genius with a thousand helpers,” and that a genius with a thousand helpers is not a Level 5 leader. He states that geniuses have an army of good soldiers who help implement their great ideas. However, these types of leaders are a huge liability to an organization in the long run because when the “genius leaves the helpers are often lost or worse, they try to mimic their predecessors with bold visionary moves, trying to act like a genius without being a genius that proves unsuccessful.” Most longtime nonprofit leaders have seen a genius nonprofit leader, a person who is able to raise as much money as they want, and likewise assembles a team to carry-out their vision. And when they leave, things fall apart. And because they were the person with all the ideas and made all the decisions, their staff never shared in the process of ideation and decision making. For nonprofit leaders who are reading this and identify as the “genius with a thousand helpers,” or for a board member who sees their Executive Director as this person, you should start the process of decentralizing the ideation and decision making process in the nonprofit, ensuring that you have a chance to develop other staff members into Level 5 leaders. Doing this now will ensure that your nonprofit has a chance to survive after the genius departs.

It’s all about getting the right people on the bus. The author spends a lot of time discussing that the most important thing you can do is get the right people on the bus, and, get the right people in the right seats, and lastly, get the wrong people off the bus. Most nonprofit leaders understand how important it is to have the right people. It is also important to call out that due to the low wages in our sector, we struggle to attract as much talent and interest as other better paying sectors. Add to this greater economic challenges, including the continually rising costs of housing, healthcare and education, and we are faced with extremely small pools of applicants for critical roles in our community, and worse, jobs that remain open for excessively long periods of time. Due to this, nonprofit leaders are often more hesitant to get the wrong people off the bus, for fear of leaving a seat open too long and resulting in lowered service output to the community. That said, I am in total agreement, in light of the challenges I just mentioned, that the most important thing that nonprofit leaders can do is get the right people in the right seats. And when all options have been exhausted, and/or the situation is toxic, people need to be let off the bus.

How to evaluate your people. The author provides a simple framework for evaluating who is on the bus, and who should be let off the bus:

• “If you hired the person, would you hire that person again?”
• “Or if that person came to tell you they were leaving to pursue an exciting new opportunity, would you feel terribly disappointed or secretly relieved?”

Nonprofit leaders should spend time reflecting on staff, and asking these hard questions of themselves. If these questions lead to surprising answers, namely that you wouldn’t hire them again or that you wouldn’t be disappointed if they left, or that you would be secretly relieved if they did, then it is the duty of the leader to begin the process of searching for the right person for the role.

Give your best people your biggest opportunities, not your biggest problems.

“The good-to-great companies made a habit of putting their best people on their best opportunities, not their biggest problems. The comparison [not so great] companies had a penchant for doing just the opposite, failing to grasp the fact that managing your problems can only make you good, whereas building your opportunities is the only way to become great.”

Because nonprofits are literally in the work to solve community-level problems, I would reframe this message to say let your best people work on the most important community problems that present the biggest opportunity for positive impact.

You have to confront the brutal facts, and yet never lose faith. I think nonprofits generally do this well at the community-level because it is the DNA of our work. Specifically, we in the community, in nonprofits, and in coalitions, come together to confront the brutal facts facing our communities everyday, and we work to resolve them. And it is indeed our faith in humanity, in God, in each other, that keeps us going. And what the author speaks of here is confronting the brutal facts inside our organizations to ensure we stay relevant and effective. This is where the culture of a nonprofit is critical. Nonprofit leaders should cultivate a culture of transparency and empower staff to have the ability to have hard conversations regularly. If you as a leader in a nonprofit are not facing the facts, or work on the premise of “don’t worry about this organizational problem, just keep going and things will get better” i.e. you are toxically positive, know it is just a matter of time until your organization starts to come undone. So make sure you give your team the authority and the safety to be transparent and allow and encourage hard but respectful conversations to happen.

Do something you can be the best in the world at, and keep improving. The core of the author’s thesis, once you get through the critical part of having great leadership and people, is that great companies have grasped the “hedgehog concept,” meaning like a hedgehog they do one thing over and over again, which keeps them at focused on the intersection of the three important principles of achieving greatness:

1. Doing what you are passionate about
2. Doing what you can be best in the world at
3. Doing what best drives your economic engine, note for “social sectors” the author expands this to include your resource engine.

He goes on to state that if you keep your work at this intersection, and consistently improve over a long period of time, sometimes decades, you will have given yourself the opportunity to go from good to great.

Let’s breakdown these three principles that make up the hedgehog concept for nonprofits, starting with point one, “doing what you are passionate about.” This is something the folks in our sector have an abundance of. We are in the work because we are so passionate about humanity and improving our society, and each day we are compelled to do the work. However it is important to focus on your main passion, and the passion that you have deep experience in. In other words, don’t allow yourself to be pulled into too many directions, stay focused for the deepest impact.

There is an important point to be made here for those who are about to start a nonprofit — before you build a nonprofit, or start a new service in your existing nonprofit, please check to see if there is another nonprofit out there that is already doing great work in the space. I say this because, unlike the for-profit sector, the nonprofit sector is financially constrained as there is usually a very small pot of funding in any given area to service the entirety of the community’s needs. So, if there is a great nonprofit already doing the work, instead of competing with them, and potentially hurting or diluting their efforts, and therefore their impact on the community, you should seek to work with them, to bring your passions together, and partner with them to support them in reaching a higher level of impact. Hat-tip to Oliver Hack of Social Good Fund for elevating my understanding on this point.

Moving on to point two, “doing what you can be the best in the world at.” While there are a few global impact nonprofits, most are constrained to their geographic service area, i.e. the city that they operate in, or region and sometimes the state. Therefore, I would reframe this to, do “do what you can be best in your location at.”

On point three, “doing what best drives your economic/resource engine,” the author expands on this point in the monograph to state that the nonprofit resource engine has “three basic components: time, money and brand.”

Let’s break this down further — time is people giving their time to support the nonprofit, money is donations/funding, and brand is the “deep well of emotional goodwill and mindshare of potential supporters.” To get all three of these things going and sustained at a nonprofit is very hard work, and involves very different skill sets:

People giving time — This comes in two major forms:

1. The board provides their time, which basically means they love the nonprofit and its mission and are willing to spend time thinking about the nonprofit, i.e. leverage their knowledge to help guide the nonprofit, and spend time bringing their network to support the nonprofit. As a nonprofit leader, you should be focused on building the best board possible as this is a very important point of network leverage.
2. Have a core of volunteers that provide their time to support the services. We know that building up a base of volunteers is hard work, also we recognize that some nonprofits services don’t call for volunteerism.

People giving money — This breaks down into multiple channels — direct donations, grant awards, and government contracts:

1. For direct donations, you break this down further into large donors, which should start with many of the board members who have the financial means, and often by extension their ability to influence their network to give. Next you have recurring donors who are public supporters of your work. Lastly, you have one-time donors who are moved by your call to actions. In the best situation, you should be able to keep a continuous stream of one-time donors coming in, and then cultivate them into recurring donors, and from there take strong recurring donors and look to them as potential board members (so long as they are a good cultural fit with skills needed by board and the organization).
2. For the next channel of money, grant awards, these are either restricted or capacity building funds that come from private/family foundations. These are great awards and can lead to wonderful long-term relationships with foundations whose mission is aligned with the nonprofit’s mission. Grant awards also take a lot of work to get, as well as lots of work to fulfill the reporting requirements needed to maintain the grant.
3. The next channel of money is government contracts, which usually go to fund a specific service, and take a lot of work to get and service, however they have two distinct characteristics: 1) They are usually a reimbursement grant, which means the nonprofit spends it from their cash reserves first, getting reimbursed later, and 2) they are often multiyear contracts (a good thing).

A note on restricted funding, the author and I are in agreement that if a nonprofit is doing great work, the best thing to do is give it unrestricted money and trust its leadership to continue to do “their work in the best way they know how.”

Building the nonprofit brand — this basically breaks down to how much the nonprofit is telling and owning their story, and voicing it actionably by sending relevant messaging to its supporters and potential supporters. If you are doing this right, when folks think of a certain charitable service or activity, they immediately think of your nonprofit.

A final note on driving a nonprofit’s economic/resource engine. As you can see from what I shared above, this is complex work, often far more complex than the work of for-profit work. Which takes me back to the earlier point, that nonprofit leadership is much harder than for-profit work — as a leader in nonprofit work, you don’t just track cash or revenue coming in, you track a minimum of 6 different inputs, and in order to be successful, you have to find the the right levels of effort and output on each of them to keep the economic and resource engine balanced. In the author’s words, as written in the monograph “the inherent complexity [in the social sectors] requires deeper, more penetrating insight and rigorous clarity than your average business entity.”

Regardless of sector, you need a culture of discipline to be great. “When you have disciplined people you don’t need hierarchy.” This is incredibly true as it relates to nonprofit work, social service work, and supporting the community. Also, when you hold true that nonprofits are far more resource constrained than for-profit businesses, you understand how damaging it can be for a nonprofit to have spent resources on folks who are not disciplined and whose work doesn’t deliver the results the community expected.

If you have a culture of discipline, you also can do away with cumbersome chains of command and extensive decision making trees. Combine discipline with transparency and trust, and a lack of overbearing bureaucracy, and you end-up with a team or nonprofit that is allowed to move as fast as the community needs it to solve the challenges it faces.

The author goes on to state that when you have too much bureaucracy in the organization, it means that the organization is less dynamic, will be less innovative and interesting to work for, and therefore you will lose good talent who will want to go elsewhere where they can be creative.

The author cautions us not to confuse a culture of discipline with that of a culture led by a tyrannical disciplinarian. Instead he states that we should be “adhere with great consistency to the hedgehog concept, causing an almost religious focus on the intersection of the three circles,” and to “create a company with a system of clear constraints, but they also gave people a responsibility within the framework of that system,” and when you “hired self disciplined people, you don’t need to manage them, you need to manage the system.”

Slowing down for a second, often smaller and mid-size nonprofits have an operating system that relies on the institutional knowledge of its staff. This can create big vulnerabilities if key individuals leave the nonprofit with that knowledge. Getting the system out of people’s brains and into a cohesive operating system is critical for all nonprofits.

Going from good to great doesn’t happen overnight. The author tells us that in the companies he and his team reviewed, it did not “matter how dramatic the end result, good-to-great transformations never happen in one fell swoop. In building a great company or social sector enterprise, there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.” This is a great reminder for nonprofit leaders. Great services get built over many years, sometimes decades, before they reach greatness in terms of impact. So while we should try to move as quickly as possible, we also need to remember not to hurry and to take a longer view of the problem set, and what it will take to get there.

Budgeting discipline matters. The author also reveals how great companies used budgeting as a discipline to decide which areas should be fully funded and which should not be funded at all.

One could translate this discipline into the nonprofit sector as: Don’t use your budget to figure out how much each of your programs or activities should receive in the coming year, rather use it to determine which programs and activities best supports your mission and fund them fully, and cut the programs and activities that don’t support your mission, and/or are not providing benefit to the community.

An add-on to this topic is to use the budgeting process to evaluate how much the nonprofit has drifted from its mission. Often, nonprofits will see funding opportunities in areas that are directly adjacent to their current work and think “we can fulfill that need, it’s in an area we already work in,” and apply for the funding. This isn’t necessarily wrong, and nonprofits should evolve with the work. However, too much of this type of grant seeking will cause a nonprofit to drift away from its mission and that an have the effect of diluting the impact of the work, confusing the community as to what a nonprofit does, and potentially demoralizing staff — “I am not sure what we do anymore, I am not sure what purpose we serve, I am not sure why I am here.” In short the pull of money can cause a drift, use your budget season as a checkpoint to course-correct. This ties in with the author’s point in both Good to Great and the monograph that you need to know how to say “no” to opportunities that take you away from your hedgehog concept.

Another add-on to this topic, nonprofits that have great leadership empower their managers to understand their budgets and further expect them to be good stewards of their finances. Regardless of how big your budget, from a couple of thousand to millions per year, every nonprofit leader should work with a great sense of responsibility, as they are spending funding on salaries and expenses that should result in providing services that benefit the community.

Keep up with technology, but don’t worry about lack of technology bringing you down. The author shares that it is important to keep up with technology, however in the companies he and his team studied, technology was never the primary cause of greatness or decline. I know in nonprofits, most of us have done a good job at keeping up with the change of technology. And I also know that in the nonprofit space we are often worried that we aren’t doing enough, or have enough money to utilize the technology that is out there. This finding is a reminder that we don’t need to be obsessed with technology, or fear the lack of it, rather we need to stay focused on delivering our services and making a difference, and adapt to technology at a pace that works best for each individual nonprofit.

[Article originally posted to http://kian.io]