The Challenge: Management and Money

	Robert G. Ottenhoff President, GuideStar

Eventually, just as in a more conventional business, it became clear that the entrepreneurial founder of GuideStar would have to give way to an experienced manager who could lead the organization out of the wilderness of start-up mode into the promised land of long-term equilibrium. When Schmidt relinquished the role of top manager in order to focus on taking his visionary ideas global by founding versions of GuideStar in other countries, Ottenhoff took over. He became full-time chief operating officer in February 2002.

He brought an interesting background to the job. Ottenhoff founded the renowned jazz station WBGO in Newark, New Jersey, and for nearly a decade was the chief operating officer of the Public Broadcasting System. (He compares GuideStar to Sesame Street, which supports its ability to provide the public benefit of free programming with the profits it makes from toy licensing and the like.) Before joining GuideStar, Ottenhoff spent a couple of years consulting in the realms of new media and business planning, among other things. What he brought to GuideStar was a raft of nonprofit management experience along with a fresh perspective on the organization’s dilemma. What he got in return was a decent paycheck and a long commute from his home in Washington’s northern Virginia suburbs. (Ottenhoff acknowledges frankly that the organization’s Williamsburg base is not an advantage, and GuideStar also has an office in Washington as well as staff members in New York and San Francisco.)

The McKinsey trio, in their 2001 paper, nicely captured the management challenge facing someone like Ottenhoff. They noted that most charitable organizations are not as effective as they might be because they are too small, lack the ability to invest in staff development and information technology, and spend much of their time and energy raising money—often in competition with one another. Funds that do come in often are earmarked for a specific program or short time period, and thus aren’t available for organization building. “By balancing a reliance on grants and donations with other revenue sources, such as income generated from commercial activities or licensing agreements, nonprofit organizations can circumvent some of the problems created by the funding environment,” they write. Or as Glenn puts it, at some level, “nonprofit is only an accounting term.”

GuideStar had little choice but to go in this direction. In the old days, it might have been able to rely on continuous philanthropic funding, much like the Center for Responsive Politics (CRP), a shoestring operation that puts federal campaign finance information on the web at opensecrets.org. But CRP has an annual budget of just $1 million—and despite the great job it does letting the public find out who gives what to which candidates—it has few potential paying customers, according to Geri Mannion, Chair of Carnegie Corporation’s Strengthening U.S. Democracy Program.

“The difference between CRP and GuideStar, I believe, is that GuideStar provides a service that a wide number of audiences may be willing to pay for: nonprofits, foundations, charity regulators, governments, etc.,” Mannion says. “Few organizations want to pay CRP for its data, despite its importance. It’s one of the main concerns of the few national funders who support data-gathering groups on money in politics, such as CRP. And while CRP provides as vital a public service as GuideStar, the opportunities for diversifying its revenue sources beyond foundations is extremely limited.”

  The Corporation’s Cynthia Gibson agrees about the challenges of generating income to support mission, cautioning that for many, it’s just not a feasible goal. She says, “Balance and diversity in revenue streams are the keys when it comes to nonprofit sustainability. While foundations can encourage nonprofits to explore income-generating venture-type projects and other earned revenue models, it is important to keep in mind that most nonprofit organizations will never be wholly financially self-sufficient, given that their missions are not about the bottom line, but rather, about serving the public good. That is why nonprofits, especially infrastructure organizations, will always have to rely, at least in some part, on donations from foundations, the public sector, corporations, and individual donors. In short, earned income ventures are a piece of the nonprofit financial equation, not the magic bullet that some think they are.”

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