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Many in the city were shocked and saddened with the announcement that the San Diego Opera would close in June this year.
The San Diego Opera was created more than 49 years ago and has flourished to become the 10th largest opera company in the country. This is a loss that should be felt by all of San Diego.
How does such a large and successful nonprofit collapse? I’m not involved with the opera company, but as CFO of a nonprofit, I work with 60 other agencies, and I see the same pattern every day.
To understand, first we need to differentiate between the issues facing nonprofits and those facing for-profits, like Apple, Microsoft and Amazon. For-profit companies exist to increase shareholder value, and do so by bringing in more money than they spend. Sometimes growing companies spend more than they bring in with the hope that they will see even more profit. If for-profits don’t fulfill their purpose, they cease to exist.
With that in mind, what exactly is the purpose of a nonprofit? To add community benefit. Because of this, our democracy doesn’t tax them, but we limit their default structure so that no one person can own an organization. There are no shareholders, so there is no shareholder value to increase. Board members answer to the community if they fail to ensure the organization fulfills its mission.
So most nonprofits spend as much money as they can to provide the highest quality of service possible. Employees are passionate about their work, and the donors want their money to go toward services for the community. When nonprofits generate a profit, they usually spend it as fast as they can on programming.
But there’s a catch in this noble focus. The word “profit” carries an almost dirty connotation for nonprofits because it means a group had resources to spend on the mission — and chose instead to keep the cash. But they have to turn regular profits in order to survive.
This is sometimes an impossible balance to strike. Should a nonprofit sell out its mission for the almighty dollar? Or should it refuse to settle, and put the organization in jeopardy?
Iris Lynn Strauss, a San Diego Opera board member and major donor, told the U-T, “Our audience has diminished greatly and our costs have gone up. And we will not compromise the quality.”
The San Diego Opera made its choice.
David Fuhriman is CFO of Mission Edge San Diego, a nonprofit. Fuhriman’s commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.