The seduction of false optimism
Without optimism it would be hard for leaders in any sector to get out of bed in the morning.
Positivity serves as a necessary part of our mental arsenal in these challenging and at times painful jobs. When you combine the strain of operationalizing mission, ensuring fair compensation for dedicated employees, addressing evolving fiscal realities, and sustaining long-term institutional vitality, it’s easy to see how it all can wear on even the most resolved leader. Optimism is the counterweight of these competing components that can drag us down.
Nonprofit trustees face similar challenges. The reason they give their time and treasure is that they care deeply about the organization and its mission. Trustees volunteer their time and shoulder fiduciary responsibility because they believe the organization can do good in the world. Although these dedicated individuals bring the necessary elements of wisdom, wealth and work, they often lack contextual expertise of the nonprofit world.
The problem arises when optimism clouds our better judgement. We can fall victim to three sins of optimism when we are:
· Blinded by resolve;
· Seduced by good numbers; and
· Felled by hubris.
Blinded by Resolve
It is easy to imagine success when an organization’s purpose is compelling and you spend countless time and energy working to make it a reality. If you read enough articles or listen to enough episodes of NPR’s How I Built This, you hear plenty of stories about organizations taking off with exponential growth after toil and near-death experiences. These stories can make such a trajectory feel like a birthright. It’s why even in our darkest hours we maintain hope and continue to root for real-time examples like the saving of Bennett College.
I’m of the belief that nonprofit leaders and trustees must inform their decisions with data rather than be driven by data. Senior leadership and the board of trustees must walk a tightrope that balances mission-critical work with fiscal realities. That can only happen if they do what Jim Collins’ identified as “Confronting the brutal facts.”
We can’t confront the brutal facts when optimism clouds our vision. Is it surprising that dedicated individuals risk unconsciously looking through rose-coloured lenses? No, but it is also dangerous. Small jumps in revenue turn into future trend lines, weaknesses become explainable blips, and the wrong metrics often gain top billing.
Such trappings are neither leadership nor stewardship.
One of the most common forms of this problem occurs when someone plugs a set of conditions into a spreadsheet and then declares them “viable” for the purpose of future planning. It happens mostly when a group starts with the outcome they want and then backward engineers the inputs for revenue and expense, regardless of whether those are viable operational parameters.
Take as an example an organization that had been healthy and now faces a changing financial landscape. A well-meaning leader may create a model that returns to a balanced budget by growing revenue by 2% more per year based on assumed growth from new programs enacted as part of the strategic plan. Once that modelling equation is in the spreadsheet, it fades into distant memory. At another point in the planning process, they may feel the need to cut expenses by 2% this year and then an additional 1% each year for the next three years as a result of current funding constraints. There might even be discussion within the finance committee of how such limitations could be managed.
How often is there a substantive conversation at the full board meeting about the feasibility of doing both and then having those figures compound in future years? In my experience, almost never.
Just because something is in a financial plan doesn’t mean it will (or even could) play out that way.
The full board has a bounded slice of one or two meetings where they “review” the rolled up proposed budget and then vote on what is before them. On paper, the numbers work. There is pressure to trust the people that brought the plan forward. Most importantly, the individuals in the room care deeply about what the organization can do to improve the world so they approve the budget and scramble to enact a plan that may be blindly optimistic.
The Seduction of Good Numbers
The seduction of false optimism isn’t only a problem in challenging times. It can be a significant risk during times of growth and prosperity.
I started using this phrase more than a decade ago during presentations to a governing board for an organization where I worked. Our team had inherited the practice of putting early-cycle admission numbers into board reports. These were standard metrics: inquiries, interview, campus visits, etc. And the data glowed with large gains in these categories. The problem was that our team dug into our historical data and statistically demonstrated that these “indicators” were not actually predictive of future enrollment or revenue from tuition.
Yes, every other school we knew used these numbers in board reports. Yes, they were the only data points we had available that seemed (incorrectly) like they could indicate if the enrollment cycle was on target. And yes, the big positive increases felt great. But, the data were neither predictive of overall enrollment nor of net tuition revenue.
There was not much push back in the first year we presented this information. The math was relatively simple and persuasive.
Ironically because the first year had gone so well, it was the second and then the third year when things got harder. The school was fully enrolled with a strong, diverse cohort of incoming students. Net tuition revenue met budgeted targets. When we presented similarly robust, yet no more predictive, increases in “key metrics” in subsequent cycles, there was more pushback to our warnings about the limitations of this information.
A few board members suggested that my colleagues and I were being too conservative. I understood this concern and it might have even been true. But it wasn’t the issue at hand. These same trustees wanted to make downstream decisions about spending that were based on data that looked great but didn’t actually tell us anything about the future. They wanted to maximize organizational capacity, but by doing so would have risked the financial health of the institution on assumptions that had no basis in the brutal facts of the school’s lived experience.
Most importantly, they wanted to be more aggressive because they were optimistic and loved the school. They wanted to make these decisions because their heart told them it was the right thing to do and they were confident about our ability to deliver on their dreams. That is the moment when optimism can tilt into the seduction of false optimism.
False optimism can come from blind faith in the institution’s ability to succeed, but it can also be a result of personal hubris.
For example, a new executive director hears stories of past fundraising hesitancy. She wants to launch a new signature program and believes she can pivot from slow but steady growth in the annual fund to increase contributions by 8% a year for the next three years. Unfortunately, she doesn’t yet understand the landscape of the organizations ageing donor base and the effort that had gone into reversing declining philanthropy earlier in the decade. Similarly, a new COO arrives at a thriving nonprofit that has outgrown its founding leadership structure. He enacts changes aimed at greater operational efficiency without truly understanding how these changes will impact serving the nonprofit’s client population.
In my experience, hubris more often comes from the board. The brashest form arrives in the statement of a trustee saying, “If you just ran this organization like I run my company…”
Trustees face the challenges of seeing the organization in snippets at monthly or quarterly intervals. These snapshots create a sense of oversimplification that can be exacerbated by hubris. Without question, there are lessons that nonprofits can learn from the for-profit sector. But anyone that believes they can take their business acumen and run a nonprofit on the “back of an envelope” in their spare time is mistaken. A trustee may take this stance because they want the organization to be successful, but hubris blinds them to nuance and making a more meaningful contribution by marrying their expertise with contextual understanding.
Suggestions to avoid the seduction of false-optimism
Remaining optimistic while avoiding the seduction of false optimism is a tall order. In my next post, I will look at a real-world example of these issues and explore suggestions to avoid the seduction of false optimism.