July marks a significant transition for us at Community IT. First, I’m very pleased to announce that on July 11th Johan Hammerstrom will be promoted from his current role as President to a combined CEO & President role. Johan has been running core business operations for several years, and with all the members of the Community IT Board I look forward to his continued success and leadership at the head of Community IT.
Simultaneously, we’re merging Community IT’s Information Strategy Consulting practice with Build Consulting and I will join the new organization to continue providing this valuable service to the nonprofit sector. At Build I will continue my path of the last few years providing information systems consulting and utilizing my 20+ years of experience providing technology to nonprofits to address issues of impact and structure in new arenas.
So July also marks an enormous change for me – from Community IT, the company I spun off in 2001 – to joining and creating a new Build Consulting.
To make this move possible, Community IT had to be able to continue without me, and I had to have every confidence that it will thrive and grow.
None of this happened by accident. We have worked hard over the years to ensure that Community IT and its legacy of mission-focused nonprofit work survives long term.
When I started providing nonprofit IT support and database development back in 1993, I was introduced to Stephen Covey and the 7 Habits by Chris Chang, my mentor and the founder of our original parent company. One of the core principles of the 7 Habits is to “begin with the end in mind.” So when I led Community IT through the spinoff from our parent company in 2001 and became the owner of this social venture, I knew that I had to start planning then for my eventual exits, both as owner and as CEO.
Business Model or Nonprofit?
Yes, a social venture can be organized as a business instead of a nonprofit. And a business can be created with the mission of “doing good.” Back in the ‘90’s people would look at me quizzically when I talked about creating a business with a social mission. But with the rise of social entrepreneurship, the lines between nonprofit and business have become increasingly blurred.
When Community IT went through the spinoff in 2001, we seriously debated whether to become a nonprofit – but felt that our time and focus would be better spent earning the trust and investment of clients, as opposed to convincing third party funders that we were a good investment. While it may not be an option for many nonprofits to earn 100% of their revenue through services, for an entity providing technology guidance and support we felt then and still believe that organizing as a business and earning 100% of our revenue from clients is the strongest model.
All businesses risk becoming driven entirely by the quest for financial success for the owner. This can often result in an owner exit that involves selling to a larger business, which in turn is “rolling up” smaller businesses for an acquisition by an even larger company. These larger companies seek to make their service as efficient, replicable, and scalable as possible, which almost inevitably results in the commoditization of their service in an effort to maximize short-term share value. That formula usually involves spending as little as possible on front-line staff, putting them in a position to make as few real decisions as possible, and treating them accordingly. This inevitably results in a poor overall product for their clients, a poor and demoralizing environment for their employees, a loss of identity and brand, and further commoditization if the product survives. If you’ve been a client of one of these services companies, you probably have many stories to share.
So how does a business avoid this? By having an ownership model that balances financial return with being a fulfilling and sustainable place to work. To that end, I implemented an Employee Stock Ownership Plan (ESOP) in 2004. With this model, the employees become the owners and the company answers to owners who have a stake in the workplace culture and company mission. The company contributed stock to the ESOP for the first 8 years, and then the company bought out the remaining stock at the end of 2012. In turn that stock is allocated to the employees, and the ownership transition is effectively completed quite painlessly. This model prevents the type of disruptions and abrupt changes in direction that accompanies most ownership transitions.
While the employees may own the company, the leadership model has a huge impact on success. ESOPs can be run as a cooperative, or with traditional leadership roles, or even as an anarchy. At Community IT we have stressed participative decision making and servant leadership, which I will discuss in Community IT Changes Part 2.