A more business-minded approach is helping Goodwill affiliates in West Michigan achieve and maintain healthy profits while remaining true to their nonprofit missions.
to their nonprofit missions. Goodwill organizations in Battle Creek, Grand Rapids and Kalamazoo each are operating with overheads of 10 percent or less, while proactively acting on opportunities to bolster their retail operations. They’ve also become more entrepreneurial in their approach to adding programs and services that will maintain their solvency and their ability to meet the needs of those who seek their services.
This is due in large part to the leaders of these affiliates, two of whom previously worked in the for-profit sector. Ken Bauer, president and CEO of Battle Creek-based Goodwill Industries of Central Michigan’s Heartland Inc. formerly worked as a banker, and John Dillworth, president and CEO of Goodwill Industries of Southwest Michigan in Kalamazoo, was a former executive with Kellogg Co.
Meanwhile Kathy Crosby, president and CEO of Goodwill Industries of Greater Grand Rapids Inc., came up from within the organization through the accounting ranks.
Michael Montgomery, owner of Huntington Woods, Mich.-based Montgomery Consulting Inc., said the crossover of for-profit executives to the nonprofit sector has become an ongoing national trend at Goodwills and other organizations.
“The hiring processes of committees at nonprofits are beginning to function more like those in the outside world,” Montgomery said. “This opens up positions for people with the for-profit sector. There’s more moving around in general and this has opened up opportunities for people coming from a business background.”
Along with a looming number of leadership retirements in the nonprofit sector, Montgomery said for-profit professionals who have served in a volunteer capacity on nonprofit boards, as well as those with a military background, increasingly are filling the positions.
“It blows hot and cold,” he said. “Management ranks are getting thinned again so there’s surplus talent and the availability of people who are either out or feeling underchallenged.”
Bauer spent 30 years in the banking industry and served as the banker for Goodwill in a volunteer capacity. He said his previous experience gave him the opportunity to see how well-run companies achieved their goals and maintained their success. As a result, he has hired a number of people from the for-profit sector among his more than 185 employees.
“As a banker, I was able to see cultures that work and cultures that didn’t,” said Bauer, who joined Goodwill in 2009. “Goodwill is a very complicated little company. You need to know financially all of the things that affect this market.”
Bauer and Dillworth both operate their organizations with 8 percent overhead, while Crosby said she keeps hers at under 10 percent.
Crosby came up through the accounting and human resource ranks with Goodwill, where she has worked for 30 years. In that time, she said she has seen dramatic changes, particularly in how the organization as a whole has grown its business acumen and best practices in its retail shops and other additional revenue-generating sources, such as contract business with for-profit companies.
“There’s a growing interest in Goodwills as part of the business community,” Crosby said. “Across the larger Goodwill movement, about 50 percent of CEOs are promoted from within and 50 percent come from the outside.”
The Goodwill affiliates in West Michigan are among 165 independent, community-based agencies in the United States and Canada, as well as 14 affiliates in 13 other countries.
Dillworth, who had a 21-year career with Kellogg, said board members with his Goodwill wanted it to run more like a business when they hired him in 2000.
“I know at the time that it was unusual for a business person to engage in the nonprofit community and look at it as a business,” Dillworth said. “One of the people on the hiring committee said, ‘You’re the great experiment.’”
Dillworth’s decision to leave the corporate world stemmed from a desire to spend more time with his son, who was diagnosed with Fragile X Syndrome. He said when people learned of his son’s disability, they knew he had a reason to be there beyond the job.
“My son was entering school and my job involved 50-percent travel, which was not working at home. I was looking for something to keep me at home and I wanted to do something meaningful, so Goodwill fit all of those parameters and the board’s operating philosophy was more of a business approach,” Dillworth said. “My thoughts about all that were in total sync with their thoughts.”
Among the obvious advantages of hiring people with for-profit experience is the ability to read and understand a balance sheet, Montgomery said, adding that it goes much deeper than the ability to interpret numbers.
“Usually there is a greater financial sophistication and there’s the advantage of new eyes and not being wedded to the way things have always been done,” he said. “Some come with a series of already-established business relationships that are helpful to organizations.”
With revenue of $34 million, 700 employees, 20 retail stores, a catering business and food truck, the Grand Rapids Goodwill affiliate ranks 40th among all Goodwills in terms of revenue. Crosby said she remembers watching a lot of Goodwills floundering in the 1980s.
“Thrift has been part of our history, but we needed to pay attention to operations. Through the 1990s and early 2000s, there was a push to focus more on training and business acumen,” Crosby said. “Goodwills were recruiting board members with business acumen and that was around the time that a drop in government grants began to occur.
“I don’t like relying on government grants because they tend to come and go. I think in the last 15 years, the entire organization has pushed to cover more and more of what it does for the community with dollars earned.”
The Kalamazoo-based Goodwill offers services including a Life Guides program that provides a 20-year commitment to families with a child aged 0-3 who want to exit poverty. The program’s goal is to break the family poverty cycle by giving the child and family all the resources a middle class environment normally would provide so the child graduates from a post-secondary institution and gets a job with a living wage. Families are nominated by nonprofits, schools and businesses to participate in the program.
In Kalamazoo, Dillworth remains optimistic as revenues generated from retail increased 5.5 percent last year, while contract work increased by 12 percent. The organization has revenues of $12 million, 10 stores plus an online store, and 310 employees. The affiliate is ranked 108th out of the 162 Goodwills in North America.
Despite the uptick in retail, Dillworth said that aspect of the business has been “tough.”
“Where we used to have retail drive-by — people who would see a store and decide to stop — those customers are done and we have to become more of a destination than we have in the past,” he said. “Our thing in retail is when you walk into our environment, you are greeted and feel welcome and there’s a product in your line of vision.”
In the last year, Dillworth said he’s brought in a lot of young talent who understand e-commerce technology, online business and the software involved.
“We’ve really ramped up our tech work and found cool people that bring a whole different knowledge set to the organization,” Dillworth said. “There are tremendous opportunities in terms of revenue and efficiency growth because of the acquisition of young talent.”
With revenues of just over $21 million, 13 stores and 10 collection sites, Bauer said his affiliate’s revenue stream has increased by 45 percent since he came on board in 2009. He’s relied on his banking background to ensure that funds are used judiciously.
“If we have to replace, repair or purchase something, we get multiple quotes from vendors. We make very good decisions about those things,” he said.
FOCUS ON SELF-SUFFICIENCY
Like his other Goodwill colleague in West Michigan, Bauer and his staff also operate a number of programs designed to get community residents into positions of self-sufficiency. They include a program for unemployed single mothers, a program that connects high school students with employers in the community and a financial literacy program.
He said the retail business remains a large part of the organization and gives people opportunities to learn about merchandising, customer service and logistics. Those skills can prepare people to move on to other jobs that enable them to make a living.
However, many of the programs and services offered by Goodwills would not be possible without the steady stream of donated items that make their way into the stores.
Dillworth said he and his colleagues, regardless of their backgrounds, cannot underscore enough how those donations translate into successful outcomes for those in need.
“The same principles apply,” Dillworth said. “You just have a lot more compassion on the nonprofit side. It’s about helping people as opposed to making money.”
MiBiz new coverage of Michigan’s nonprofit sector is made possible through a generous sponsorship by the Grand Rapids Community Foundation, a leader in funding, initiating and leading programs that benefit the Grand Rapids area in the arts, community development, education, environment, health, and human services. For more information, visit grfoundation.org.