If you operate an impact organization, you’re probably processing some uncomfortable thoughts about sustainability.
You’re right to do so – current conditions are unsettling, and you’ve probably seen good companies close their doors.
If it happened to them, could it happen to you?
That’s not catastrophizing, that’s a sensible question, and the earlier you start processing it, the more chance you have of creating a scenario you can live with.

There are no perfect solutions that will work for everyone, but there are some helpful steps that are likely to serve you well.
We’ll look at the principles of creating sustainability, frameworks for assessing your financial position, and suggestions for who might be able to help you next.
Let’s start with the principles…

“Principles endure, formulas don’t”

Bill Bernbach’s quote reminds us that the specific formulas used in your industry from 1993 won’t work today, nor will the formulas from 2019.
In some cases, the formulas that were working 12 months ago won’t work next year.
e.g. changes to government funding, changes in donor behaviour, changes in how customers spend their money, changes in the platforms you can use to engage your audience.

But there are some timeless principles that will continue to stand up, and these are the best introduction to the topic of sustainability:

A good social mission does not make you exempt from any of the challenges of running a company.
If anything, you get all of the challenges of building a business, plus the complexity of creating positive impact.
While your mission can give you an advantage, your funders / customers / members / partners / beneficiaries need to be treated well, and that means you need good systems, assets and people.
Just like everyone else.

No one is guaranteed longevity
You’ve seen a lot of upheaval in the past five years, and your corner of the industry is not immune.
Every company is navigating constant change, like they always have, but recently the pace and amount of uncertainty has stepped up.
There’s simultaneously more pressure on governments and philanthropists to fund urgent work, and less funding than in previous years.
There’s simultaneously more consumer awareness of causes and how they can help, more buyer fatigue and reduced disposable household income.
Great leaders have had to make tough decisions, and great causes have taken hits.
Financial performance does not equate to worthiness.
Having financial struggles does not reflect on your worthiness as a cause, as a leader or as a brand.
Everyone is rethinking their sustainability, either now or in the near future, and if they’re not, they’re likely to be hit by a “surprise” that their competitors saw well in advance.

The right question is more valuable than a comfortable answer
When sitting in uncertainty, you’re probably going to be drawn towards an offer of immediate relief – a plan, project or solution that will gives you peace of mind.
Unfortunately, these comfortable answers don’t often serve you well.
They take you out of the complexity, out of the discomfort, away from the good questions that can lead to your breakthroughs and “lightbulb moments”.
These are the slow and sudden realisations like “we are in the wrong business” or “we’re ignoring our biggest advocates” or “people would love our help with…”
The right question can take a while to sink in, usually requiring some spirited debates, long walks, conversations with mentors and time spent deliberately listening to yourself.
Good conversations can get you closer to a good idea or fuel your creative process, even if they don’t magically give you instant solutions.

The opposite of a good idea can also be a good idea
This concept from Rory Sutherland is a gem.
Our temptation is to hear success stories, and assume that any plan that deviates from this template cannot possibly work, and that this formula for success cannot possibly fail.
e.g. someone ran a hugely successful social media campaign, and you barely use it, therefore you feel silly and small.
But interestingly there are so many stories and so many examples of moves that have led to success, to the point where there’s a conflicting case study for almost every scenario.
Some groups found success through diversification, and others by specialization.
Some trained a great team, some recruited an expert.
Some used humour, some used facts, some used self-interest, some used human stories.
Some developed a base on 10,000 supporters, and some got their entire funding from a single individual.
When presented with an idea that sounds like it has potential, we’ll also contemplate the potential in doing the exact opposite.

Grant dependence is not a rewarding strategy
There have been times when a business could have its funding guaranteed by a government, donor base or philanthropist.
This provided a great deal of certainty and ethical purity, since the organization didn’t have to “sell” themselves or get involved in running a commercial operation.
While this freed up the leadership team to focus on their impact, it also meant they didn’t have to build assets, a customer base or watch their numbers with as much intensity.
So when funding arrangements changed, a lot of groups were caught off-guard.
Being dependent on these grants meant months of frantic searching for replacement cash, and in many cases a closure of the company.
Let’s not be nostalgic or critical of the past, but rather decide to avoid grant dependence in the future.
An impact business needs assets and systems that can create some self-reliance, and then use outside money to increase the reach of their work.

Revisiting The Three Buckets

We’ve previously described the topic of “Margin Mix” as being like three buckets on a see-saw – Cash Cows, Small Margins and Loss Leaders:

Cash Cows are products or services that generate a high margin, they bring in much more than what they cost to deliver.
This is not unethical; this is because you’re able to offer something valuable and don’t happen to need lots of expensive materials or work to create it.
They might not be your favourite or most impactful offerings, but these margins create fuel and resources to support the rest of your work.

Small Margins are products or services that cover their own costs, as well as a bit left over.
They keep you busy, they are fair for the customer, and they let you serve a broad part of the market.
These are pretty self-explanatory.

Loss Leaders are things you do or sell that make little to no direct revenue, but create the familiarity, credibility and likeability to set you up for Cash Cows and Small Margins in the future.
e.g. your social media accounts, building relationships, speaking at events, etc.
You make a loss, but a tactical loss – one which you can measure to see if it leads to something exciting in the future.

For most businesses, these three buckets sit on the see-saw, and we need it to tip in favour of the Cash Cows and Small Margins.
Loss Leaders are good in the long run, but if we predominantly focus on them we are liable to run out of money.

The Three Lies

What catches entrepreneurs off-guard are three dangerous lies:

1.     Calling something a Cash Cow, when it’s actually a Small Margin.
We didn’t properly allocate the true costs of the work, and while we make money, it’s not as lucrative as anticipated.

2.     Calling something a Small Margin, when it’s actually a Loss Leader.
As above, the true costs eat away at our margins and we end up losing money.
It’s still worthwhile and leads to more good opportunities, but it’s not creating a Small Margin.

3.     Calling something a Loss Leader, when it doesn’t lead to anything.
If it doesn’t lead to something, it’s just a loss.
Again, it might be great, but from a financial sustainability perspective, these can’t be scaled up or we’ll burn our cash reserves.

The solution to all three lies is the same – create financial clarity so that we can see how money truly moves in and out of the business.
If we can see where our money goes, we’re empowered to make really wise choices.

Two More Buckets

While these buckets and see-saw are equally true for impact organisations, we can draw a more accurate picture with the addition of two more buckets.

Bucket 4: Art
“Design has to work, art does not” – Donald Judd
Not everything has to contribute to the economic engine of your company.
Not all work has to have a financial payoff, not all relationships need to be grooming someone for a future purchase or donation.
Not every project has to have a business case behind it.

e.g. starting a podcast where you interview people with interesting lived experiences in your field.
Hosting an event for the community.
Building something useful and accessible, just because you saw the opportunity.

You might have work that you and your team want to create without expectation of a quantifiable payoff.
It might be art for art’s sake, or because you feel it’s the right thing to do, or because you want to start making something before you know where it is going.
These might feel like distractions, and that’s not a bad thing.
They create some variety, meaning and intrigue for your work, and can re-energise your team.

The catch is, this work is only possible when you’re in a strong financial position.
For some teams, this work is the incentive to set up their Cash Cows, because the extra margin funds their Art.

Bucket 5: Your Life’s Work
You might have a vision or mission to create a certain type of change in the world, and can use your impact organization to make real progress.
This is part of your impact model, and is work that directly advances your cause or does something useful.
Crucially, these are not the things you are paid to do, or benefits from what your customers purchase.
You’re doing them because you want to do them.

e.g. making a donation to a cause, funding a project, building much-needed infrastructure, lobbying for high level change, sharing more stories, forming personal relationships, etc.

This work is unlikely to ever be “finished” in our lifetimes, but if we’re intentional we can make frequent progress and do things that are genuinely useful.
Like the Art bucket, this work is only possible when offset by Cash Cows and Small Margins, and is not usually profitable in itself.

Art vs Life’s Work
There’s likely some crossover here, but there are two distinctions: measurement and accountability.
The impact of your Life’s Work deserves to be measured, to understand if it is effective and not accidentally making the situation worse.
We do not have the right to be wrong, and good intentions are not enough.
There’s a long history of impact organisations that clumsily made problems worse, or created new headaches in the process.
It’s fair that we hold ourselves accountable for the performance, statistics and stories that stem from our attempts at creating positive change.
This work is usually what funders are keen to support, and they have a right to feel that you’re doing what you said you will do.

Art, on the other hand, does not exist to please or prove anything.
Art is hard to measure, and will not be for everyone, but it plays a useful role.
Projects in this bucket can do things that don’t totally make sense, that don’t get measured, that have no clear long-term plan attached, or don’t get advertised to the wider public.
This bucket might lead to some incredible results, but we’re not burdening it with expectation or a conservative business plan.

Three Big Questions For Your Sustainability

With these five buckets balancing in front of us, there are three helpful questions that can help us decide what to focus on next… 

1.     Which way does the see-saw tip today?
If we’re honest with our financials and have each piece of work in the right bucket, how is it sitting?
We’ll need to understand the Unit Economics of our work, to properly calculate margins and breakeven points.
If we don’t know our numbers, we won’t become sustainable by accident.
Are we sustainable or unsustainable?
If we’re losing money each month, how much are we burning and how much runway have we got?
Are our projects in the right buckets, or is there a more appropriate label for some of our work?

2.     What combinations of buckets might work for us in the future?
Do we want to go heavy on both ends – lots of Cash Cows and Life’s Work?
Or perhaps an increased focus on Small Margins?
Have we even considered Art projects or Loss Leaders?
This is as much a philosophical question as it is an economic question; how should we make our money, and how will we prioritise the impact of our work?
The thought of Cash Cows sometimes makes people uncomfortable, as does the idea of a Loss Leader.
They are right to question the concepts, but should also be open to different scenarios if they offer a better balance of buckets.

3.     Who can help us think about new initiatives, which might take a while to develop?
Something these all have in common is lead time – it takes a while to design, test, improve and market any new project.
It’s hard to build a Cash Cow in a hurry, and it’s hard to build credibility under time pressure.
Ideas can come from other people in your industry or in parallel industries, perhaps taking inspiration from new concepts that are working in other countries.
The hard part is holding on to new ideas without making any commitments – neither falling in love too quickly nor getting spooked by uncertainty.
It's also helpful to hear from outside perspectives who recognize your strengths and your assets.
We tend to discount the things we’re good at, but likely have assets that would give us a big advantage in a new project/business unit.

Where To Look Next

You’re probably after some more specific suggestions, so let’s have a look at some of the more promising paths that have worked for some people, some of the time.
That’s not a very inspiring hook, but context is important, and what works for your friends may not suit your situation.

Developing A Case For Support
If you want to make the most of philanthropy without the dreadful process of dart-throw grant applications, you can start a process that will eventually give you a strong advantage.
This is where you create a “Case For Support” – a short brochure that tells the story of what you do, who it’s for, how you help and where you’re going next.
When meeting with prospective funders, you can use these documents to introduce your work, then send updated versions every six months as you establish a track record.
Then 18 months later, when that funder is about to launch a grant or funding opportunity, you can call them and ask if they think you should apply.
But now you’re not strangers – you’re known, liked and trusted.
You’re not guaranteed of anything, but you have a significant head start over the other cold applicants.

As a starting point, you might want to track down recent examples of impressive groups, and see how they present their Case For Support or equivalent collateral.
Good taste can come from copying good taste, and you get the most up-to-date sense of what seems to resonate with funders.

Research Cash Cows In Your Field
Your peers and competitors likely have their own versions of Cash Cows, even if they give them a more dignified name.
These might be events, training programs, high-value products and services, contracts to manage large projects, annual fundraising events, lucrative partnerships, etc.
How much do they charge?
How much do you estimate it would cost to do the work?
How did they get to this point?
How do these Cash Cows fit (or clash) with the organisation’s other work?

Interestingly, most social enterprises are not Cash Cows, most are Small Margins at best.
Cash Cows are usually dull projects or contain some unpleasant work, hence the price tag and the lack of competition.
Everyone thinks they can run a café, but have you met many café owners who seem to be benefitting from their Cash Cow?

One helpful perspective comes from Daniel Priestley who says “Income follows assets”.
Cash Cows are able to command proper prices because you can offer something unusual or high in quality, and that comes from having valuable assets within the company.
These assets might come from team members with niche skillsets, the reputation and credibility of your brand, your ability to take on large projects or difficult tasks, your intellectual property and transferrable knowledge, or the existing systems you have in place than enable you to consistently deliver good results.
It is hard to create a Cash Cow from scratch – they usually start with your assets as an advantage.
What assets might you have that could be the foundation of a Cash Cow?

Ask Your Customers And The People Who Know Your Work
It can help to ask “What is the market asking us to build?”, and talk to critical friends about the opportunities might be nearby.
The people who know your work are the most likely to see openings where you might have something to offer.
This is particularly useful with friends and partners who are willing to speak the truth with compassion – not to bring you down or pump you up, but to give insights that can help you fix weaknesses and refine your ideas.

It is scarily easy to talk yourself into weird stories or out of good opportunities, and doubly so when you feel stress or pressure.
That’s why customer conversations are going to be so important for your development – if something would make you sustainable on paper, but customers seem indifferent or disinterested, then you can either block out the bad news or save yourself some financial heartache.
If there’s an issue with your “Product-Market Fit”, when do you want to find out?
Once you’ve made big commitments, or while the ideas are still malleable?
If an idea is good, we should be able to identify and approach several customers who we suspect might find it compelling.
We can then listen to their words but more importantly watch their actions – do they follow up with commitment or advancement?
Do they like the idea enough to pay for it, or at least schedule another conversation?

Look For Examples From People Who Have Done What You Want To Do
This might sound obvious, but you’d be surprised at how many people neglect this step.
Finding people who have done what you want to do is so useful because they can add tremendous value in a single conversation.
Back in 2016, Bec Scott from STREAT came to one of our programs and said “If you have anyone who wants to start a social enterprise café, send them to me; we can save them 18 months and $50,000”.
When we mentioned this to her recently, she said she still stood by the sentiment, and suspects that the number is now closer to $100,000.
People with lived experience can spot the flaws in your impact model, business model and financial model, issues that nobody else would think to question.
They’ll have stories around raising funds, setting up businesses, handling adversity and telling good stories.

The bigger reason why this step works is because if you can’t be bothered to research and learn from past attempts at this work, you’re unlikely to build a sustainable model.
Sustainability comes from flexibility and valuable assets, and both of those come from a genuine love of the field.
If researching growth and choices is boring, this might not be the field for you.

Hopefully this gives you some frameworks for thinking about your company and what it might become in the near future.
There are no recipes for sustainability, but there are lots of case studies and helpful people – if you’re willing to look for them and truly take in their advice.
As Brad Graham said: “You get what you design for”.
It won’t happen by accident, but if you specifically try to create a viable balance of those five buckets, you give your organization the best chance of success.
At the very least, you and your team will have clear terminology for describing all the facets of your work, and articulate how each person can help the company become more sustainable.