A short update today, following up on an email to the Board from incoming VP of Finance Douglas McDowell who suggested we go through an evaluation process similar to what is done at Charity Navigator.

As far as I can tell we don’t meet their qualifications to be rated, and to be fair we’re not a charity, but I think a lot of our goals are very similar. The idea behind the ratings is to give those who are thinking about donating confidence that the money will do some good. Clearly any organization has a certain amount of overhead, but it’s easy for it to turn into 98% overhead while paying a CEO a whole lot of money. For PASS it’s a different model, sponsors ‘give’ us money as long as we provide an audience of good prospects, so the rating has more value to our members – are we doing good with the money we earn from sponsors?

Let me change course for a minute.

I find a lot of people get hung up on whether PASS is a business or not. It’s never that simple, for PASS or any non-profit. You have to hire employees, pay office rent, train people, retain people, buy computers,etc,etc. In the early stages it’s easy to run super lean (think the early days of SQLSaturday when it was me and my spare time), then you mature and your expenses go up sharply as you build an organization. Then you typically expect overhead type expenses to stabilize. It’s possible that you hit additional change points after that, but really the key decision is whenever you grow or want to add a service is to go through the process of deciding whether to add overhead or reduce services in some area.

Here’s an example. We recently hired Karla Landrum as one of two “community” people on our full time staff. Let’s say she was hired with the expectation of coaching and overseeing 50 SQLSats per year. Let’s say that for 2012 we project 75. At that point we either reduce the amount of work per event, or we look at hiring a second person that might be (initially) only 50% utilized.

I’m always skeptical of hiring more staff, in any business. We all end up with our share of TPS reports and assorted things that if you take the time to value them, at some point you realize aren’t as valuable as you thought they were. In a for-profit that’s a much easier calculation, you say “does this help me make money?” and then you decide. In a non profit it’s harder, we need to make money (raise funds) but once we cover our overhead, we’re looking for ways to spend (reinvest) in things that are good for our members.

So back to rating and measuring.

How much do we “give back” right now and what’s a fair way to measure that? Is it a percentage of our total budget, which if I had to guess might be as little as 5% if you looked at direct community staff plus sponsor dollars we send to event plus related costs. Or should it be x% of “profit”?

I don’t know. The Charity Navigator people have done a lot of work to figure it out. We should go ask them, or someone similar, to come evaluate us and help us understand how we rate. Maybe we’ll rate well, maybe not, either way, the right question to ask is “how do we do better next year?” and then work on it. We can then do an annual or bi-annual reassessment and see if we’re making progress.

I think about how that ties in to transparency – its powerful. Kudos to Douglas for raising the idea and I hope he makes it a cornerstone of his term managing finance for PASS.