There is a story I first saw in Non-Profit Quarterly that has been bothering me for a couple weeks. San Diego based arts organization ARTS (A Reason To Survive) is apparently in danger of closing after it’s founder left and replacement subsequently quit after four months.
While this is unfortunate and regrettably not as uncommon a story as we would like, that isn’t what bothered me. What has been something of a low level irritation since I first read the article was a quote from the founder, Matt D’Arrigo, in the original article about the financial difficulties.
“It’s the classic tale of a founder transition,” said D’Arrigo, who’s back at ARTS as a part-time consultant until the nonprofit is on stabler ground.
While he would certainly be in a position to know best since he is there on the ground and there may be elements to the story that remain unreported, what made me think this wasn’t the real problem was something the woman who replaced him said.
…Remmell said that even after she got a sizable grant to turn the organization around, she recommended the “indefinite suspension of all operations and an organized closure” because of a lack of immediate general operating funds. In an interview, she said that the grant and other money the organization had in the bank was earmarked for specific programs and infrastructure and couldn’t be used on other costs to keep ARTS going.
D’Arrigo acknowledged that Remmell walked into a difficult situation.
“We never had a huge financial cushion,” D’Arrigo said. “Part of my burnout was that I was constantly on a hamster wheel of raising money. My job was constantly keeping it together … that’s one of the reasons I left. And it wasn’t as strong as was needed in order to successfully do a founder transition.”
When I read that, I immediately thought that the real problem was that so much of their funding had restrictions associated with it and there wasn’t much flexibility to use the money for general operations. Despite all the success the organization had realized, including an Oscar winning documentary about one of the homeless teens they helped, they couldn’t find anyone willing to provide unrestricted funding.
Once my initial indignation about the non-profit funding environment passed, I recognized that the problem might also be rooted in a failure to diversify their funding sources. Looking at their most recent 990, their earned revenue was about 18% of their budget with the rest in grants and donations. If the founder was feeling burnt out by the constant need to fund raise, he may not have had the opportunity to identify sources that would provide unrestricted funding or develop programs that could generate additional earned revenue.
In any case, I don’t think this is a case of founder transition at all since it doesn’t appear any of the challenges facing the organization emerged after his departure. There are probably lessons in here about not letting your ambition outstrip your capacity to generate revenue.
The fact the organization wasn’t moderating their ambition might be cause to closely monitor how funds were being deployed. However, the idea that their funders and donors didn’t might not have trusted them enough, despite their successes to loosen restrictions on how money was used, sticks in my craw.