Fool's Gold Sustainability Trap

Charter Support Organizations (CSOs) are strongly encouraged by their funders to become more financially self-sustainable. If I were to take this literally, this would seem to mean that I would need fewer grant dollars. Many CSOs are having to raise more grant dollars not less--even as their "earned revenues" increase. This is not the trend we would hope to see. The following are the reasons why sustainability becomes illusionary:


1. Measuring the wrong thing---"Net Surplus" from each member service or product is not measured...only "earned revenues".

2. Underestimating costs---If a Net Surplus is calculated, CSOs are not loading all the costs such as personnel, overhead, administration, marketing, sales, and product/service development into the calculation. This makes the member service or product seem profitable when it really is not.

3. Cost growth outpaces Net Surplus growth--CSOs increase overhead faster than the total sum of Net Surplus from all its products and services. This often occurs when the CSO takes on grant funded initiatives that in the end do not have revenues to cover the cost.
What to do...

1. Measure Net Surplus for each activity diligently with FULLY loaded costs that include personnel, overhead, facilities necessary to deliver that activity.
2. Face the Brutal Facts about what is profitable and what is not and be realistic how long an activity may take to actually generate a Net Surplus consistently.
3. Be disciplined to not take on initiatives with increasing costs that outpace your Net Surplus capability.

4. Be focused to make a few product and service offerings really generate Net Surplus versus spreading thin and losing money across many products and services.

5. Make each transaction with your members generate Net Surplus and use grants only to fund research and development of products and services as well as the initial marketing and sales push.