Business Development for Data-Driven Times

That process may reveal that products that look like successes aren’t doing as well as they seem or have little room for growth. “You want to look at what direction membership is trending,” Vaughan says. “Is it becoming more diverse? Are we getting different types of members, attracting younger members? It may be that their core businesses are looking alright, but it may be it’s just the same old folks again and again. That’s a warning sign: If younger people aren’t joining, if different types of people are not joining, you’re not really growing.”

That challenge is exacerbated by a general disinterest among associations to work on and optimize business development. According to a 2023 survey by Professionals for Association Revenue, only 12 percent of association executives say they have a business development strategy that works, and only 27 percent are tracking the kind of sales metrics that help determine whether a strategy is effective.

Political and economic uncertainty has prompted some associations to draw back some of their internationalization efforts, Vaughan says. But that shouldn’t stop associations from looking to develop a variety of new ideas. The trick, he says, is to make sure there’s a structure for capturing ideas, and for developing the capacity to run multiple small pilots around them.

“You have to do more than just talk about innovation—you have to have a formal process around innovation, where you cultivate and test ideas,” he says. “Nobody knows what’s going to happen in the future, but you can take small steps, and diversify your efforts instead of putting them in one basket.”

Moreover, says Aplebaum, each pilot should be launched with a clear idea of what metrics it will measure and what success will look like. “When it comes to innovation and new business, you have to look at how you’re actually demonstrating impact,” he says. “You put on a new program and people come. OK, but are you actually building loyalty? Are they going to come back again? For leadership and boards, you want to manage risk tolerance [around new products], but you also want clarity on what success looks like so that the risk, if a product doesn’t do well, can be mitigated.”

But while the vehicles for investments may change, the overarching philosophy behind reserves at AFFI has stayed the same. Its reserves target is 50 percent of the association’s annual operating budget, and its breakdown of investments are defined by the board’s established risk tolerance. “Our organization is comfortable with a 60-40 split—60 percent equities, 40 percent fixed income like CDs, Treasury notes, money markets, and so on,” he says.

The pandemic, supply-chain crises, and rising inflation have understandably made associations more concerned about whether they’re taking the right approach to reserves policies. But A. Michael Gellman, CPA, CGMA, founder of Fiscal Strategies 4 Nonprofits, says that associations shouldn’t implement radical changes to policies out of fear. “No operating reserve is built to bridge a long term or permanent change,” he says. “The rules haven’t changed—economic conditions are constantly changing.”

Rather than look at reserves as a bulwark against catastrophe, Gellman says, associations would do better to look at them as an opportunity to support the need for business diversification—a key lesson from the pandemic, as associations relying on meetings revenue were hit hard. “You might want to reserve an additional 5 to 10 percent for special projects, to invest in technology or invest in a new program,” he says. “That way you don’t always have to run out to the members or donors for money to do something new.”

Raffa’s Gogarty concurs, noting that conversations around reserves should factor in conversations about what financial demands its strategic decisions may make on the association’s finances in the short and long term.

“You want a clear understanding of the future cash flows of the organization—what is the likely demand on those reserve dollars?” he says. “It’s important to interview all the stakeholders and understand the strategic plan for the association. Not just around the expected cash flows, but what are some of the investments that the association is considering? Are you going to launch a new program? Are you going to launch a new certification of some kind, or are you going to consider merging with another association?”

Short-term strategies for investments won’t last forever—though money market rates had been above 5 percent for a year at press time, there’s no guarantee they’ll stay there. As inflation diminishes, the Federal Reserve will likely consider lowering the key rate. Gogarty’s advice is to take advantage of opportunities as they arrive but avoid aggressively gaming the market.

“The best approach is policies that bring discipline to the decision-making process, and as best as possible remove emotions from that process,” he says. “Fluctuations are going to happen, and it’s hard to have policies that are going to cover unforeseeable events.”