Not-For-Profit Strategy Case Study
The Urban Rehab Project
This case was prepared for the JDC West 2012 Organizing Committee by The
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1
INTRODUCTION
The room fell silent as Alex Molina, newly-appointed CEO of The Urban Rehab
Project (the Project) opened the door and took his seat at the table. Sitting in a
second room conference floor with windows facing a busy street near Weston and
St. Clair, the Project’s four early childhood education specialists looked slightly
nervous. “I’m glad you’re able to meet with me given your busy schedule”, said
Molina, easing into his introduction, which he had given several times over the
past three days. It was Thursday, March 10th, 2011 and Molina had been brought
into the Project to revive the not-for-profit organization. “What I’d like to do
today is to learn a little bit more about what you do here, and what we can do, in
Cabbagetown, to help you.” Cabbagetown was one of the Project’s four locations
and its head office. “We’ve had two difficult years and I don’t think we’re out of
he woods yet,” Molina added. The four women shifted uneasily in their seats.
Molina, sensing that they were afraid he had come to close down the childcare
facility, added:
We won’t be making any decisions about the organization’s future
until I get a chance to hear from all of you. But as you have heard,
some changes have to be made to ensure that the Project continues
to exist. I can’t make any promises other than to say that we value
your commitment and passion for our mission, and we take our
people into account when deciding what next to do.
Molina asked each specialist to introduce herself and her role in the organization,
as a prelude to his presentation and questions. In a few days, Molina would have
to look at the entire picture and chart a path forward. For now, he was glad to
have the opportunity to continue meeting his new colleagues, and learning more
about the organization he had just joined.
THE URBAN REHAB PROJECT
In 1992, in the midst of a recession, Phillip Kalitsounakis started a youth
employment program to help teenagers around Toronto’s Cabbagetown
neighborhood – in the Carleton St. and Parliament area - find jobs after high
school. The side project, which was taking up Kalitsounakis’s weekends soon
morphed into something larger when a wealthy donor, who owned a chain of
restaurants in the Danforth area, donated $2 million to help Kalitsounakis start a
new not-for-profit organization, The Urban Youth Program.
2
Half of the funds were used to purchase an old building in the Cabbagetown area
and hire two full-time employees. Demand for the program, which focused on
helping urban youth find meaningful full-time employment, started to grow as
connections were made to local colleges and employers. What set the Urban
Youth Program apart from other charities and not-for-profit organizations was
that it charged a nominal fee ($5 in 1995) to teenagers wanting to participate in its
training programs. The rationale behind this, Kalitsounakis explained, was that
the payment of a fee – even a small one – increased the odds that participants
would be committed to the program.
Kalitsounakis, who was a director of health program services in the Ontario
provincial government, was a committed advocate of the Urban Youth Program,
and he oversaw the expansion of its services into other areas and geographic
locations. He used his connections to secure government grants and solicit large
donations to bolster programs. By 2000, the Urban Youth Program had been
renamed the Urban Rehab Project and was focused on improving life in
economically disadvantaged neighborhoods in Toronto. Kalitsounakis saw that
many working families in these neighborhoods spent long hours away from the
house and often could not afford childcare costs.
In addition, about 60% of the families that were the target group in the Project’s
service areas were new immigrants who were employed below their skill level.
For example, former high school teachers and engineers were working in
construction and as taxi drivers to make ends meet. Last, there was a need for
employment-focused programs for youths growing up in these families, who
needed assistance with career advice and employment leads. Kalitsounakis was
able to raise a total of $12.5 million in donations by 2001, creating an endowment
trust, separate from the Project, to hold and disburse the funds. In 2007,
Kalitsounakis passed away after a serious medical condition. It was fortunate for
Project that he had attracted a few committed individuals to sit on the Project’s
Board of Directors, and had left a management team in place.
In 2010, the Project operated from four locations, known inside the organization
by their neighborhood locations: Cabbagetown; St. Clair-Weston; DavenportOssington; and Woodbine-Danforth. The locations were chosen because they
were situated in or near to the most economically disadvantaged neighborhoods
in Toronto, where the working population mix had a disproportionate number of
families living under the poverty line, about $22,000 in income per household.
Exhibit 1 provides an overview of Toronto neighborhoods by income and shows
3
the Project’s four locations. Each location had been purchased by endowment
funds and was mortgage-free.
Depending on the need for services by neighborhood, the Project offered a range
of programs including childcare and childhood education, adult education, youth
programs, seniors’ programs, employment preparation, and financial literacy.
Running these programs was a mix of employees and volunteers, with each
location operating autonomously from the others, in keeping with the “local”
angle of the organization. The Project’s head office was a series of six offices on
the second floor of its Cabbagetown commercial building. It employed 82 people
in total, with 71 of them directly involved in program delivery. Its senior
management team included a CEO, a CFO, an Operations Manager, and a
Director of Human Resources.
The Project’s Programs
With the mission of building a social improvement network in each
neighborhood, the Project’s programs were focused on providing opportunities
otherwise unavailable to economically disadvantaged families.
Childcare and Childhood Education
While it had started out as an initiative to help youth find employment, the
Project’s largest program, available in all four locations, was childcare and
childhood education. The Project had purchased locations that were often three
or four stories high, providing ample space to run a substantial child daycare
program in each location. A team of 36 staff in total looked after 110 children in
each location per day, and the Project charged parents a fee of between $5 to $7
per child per day, or about a tenth of the cost of an equivalent program delivered
by an individual provider or a profit-oriented organization. “When childcare is
made affordable,” explained Dewey Sinclair, the Project’s Operations Manager,
“parents can take the time to find work and attend school. Our daycare program,
in terms of service delivery, is comparable to the higher end daycares in the city
because our staff and volunteers are passionate about our cause.”
Adult Education
The Project’s Adult Education services had counselors and tutors who assisted
men and women in obtaining their high school or tertiary degrees. While Adult
Education did not deliver any credit courses, its 8 instructors helped individuals
4
with skills such as computer literacy, tutoring (especially for individuals who had
English as a second language), and class preparation advice.
Youth Programs
The core of the Project’s programs, Kalitsounakis’s youth employment program
continued to link youth from economically disadvantaged families with local
employers. The staff of 11 helped youth learn about potential careers and
develop plans to achieve their goals. About half of staff’s time was spent visiting
local employers, forging links between the organizations.
Seniors’ Programs
The Project ran seniors’ programs from three of its four locations. Seniors’
Programs included recreational activities such as walking, targeted at seniors who
continued to live in multi-generational households and who could benefit from
social interaction with others. Many of these seniors were new immigrants and
had not had the time to create a network of friends in their new country. The
Project also offered computer literacy and other courses of interest to seniors,
such as “Life in Canada”, and “Living a Healthy Life”. Sinclair estimated that
over half of the Project’s current group of volunteers was seniors who had first
taken a course or participated in a program at the Project. In addition, threequarters of the annual donations (in the $50 to $100 range) and legacy donations
($5,000 and higher) came from the same group of seniors.
Employment Preparation
The Project had seven specialists who assisted clients who wishing to switch or
find jobs. The services included resume advice, interview skills, skills assessment,
and academic planning advice. Many of the clients participating in this program
were well-trained in their home countries and were looking for ways to get back
into their former professions.
Financial Literacy
In response to demand for financial literacy classes after the economic downturn
of 2008-2009, an instructor was hired in the Davenport-Ossington location to run
classes on basic financial topics such as budgeting, understanding credit and
credit cards, and how banking products worked. The latter part of the course
focused on understanding financial investments.
5
LOCATIONS AND PROGRAM DELIVERY
The Project’s typical location was a commercial building, located on a busy street,
with three or four floors. The buildings had been purchased between 1995 and
2002 during a period of time when real estate prices were at multi-decade lows.
Sinclair estimated the value of the various sites in Table 1:
Table 1: The Project’s Program Sites – Purchase Price and Value in 2011
Location
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Purchase Price
$1.5 million
$2.2 million
$1.6 million
$2.5 million
Value in 2011
$6.0 million
$3.9 million
$3.7 million
$4.3 million
In 2010, the four locations had 135,600 “Program Person Days Delivered”
(Program Days). Program Days was the Project’s metric to estimate the volume
of services it delivered. For example if a child was enrolled in a daycare program
for a full year, or 200 days, then that child “consumed” 200 Program Days of
services. It was typical for the childcare program to be completely full (and with
a waiting list twice the size of the available slots). The other programs varied in
duration from one day to 30 days or more.
Delivering these programs required combination of staff involvement and
volunteer participation. The programs were not designed for full cost-recovery –
they were heavily-subsidized by annual donations and, if there were to be any
shortfall in revenues, the trustees of the Endowment Fund could elect to cover the
difference with a transfer from the Endowment Fund.
It was important to note that the Endowment Fund was a separate entity from the
Project and the Endowment Fund trustees – who were a combination of two
social activists, three civil servants, and three business people – were tasked with
managing the Endowment Funds as they saw fit, with the same objective in mind
of renewing urban social infrastructure. To be clear, the CEO – or any other
executives who worked at the Project, did not have the right to demand that
shortfalls had to be covered by withdrawals from the Endowment Fund.
The Project had a two-person marketing team in its Support Staff which took
charge of eliciting donations. They were a self-managed team and maintained a
list of potential donors and “worked” the list throughout the year. There had been
6
a donation brochure developed and sent out in 2008 and 2009 but, due to cost
reasons, the brochures were not funded in 2010. The average donation amount
had risen from $1,120 in 2008 to $2,102 in 2010.
From 2008 to 2010, the number of Program Days had increased 15% per year to
135,600 in 2010, even as fee revenues fell. The Project’s managers had made a
decision, during the financial crisis, to forgive some of the fees owed to it from
users who were unable to come up with the money. An across the board
reduction in fees – by about $2 a program - was implemented at the end of 2009.
The decision to lower and forgive fees had a direct impact on the organization’s
bottom line. In 2010, the Board of Directors tried to work with the Project’s
former CEO to find a way to turn the organization’s financial situation around.
The Project’s shrinking revenues prompted the Endowment Fund trustees to
approve a total transfer of $2.8 million from the Endowment Fund in 2010.
Despite the fact that confidence in the former CEO was eroding rapidly, the Board
of Directors was still willing to work with the former CEO to fix the Project’s
issues. When it became clear that the former CEO was unable (or unwilling) to
make a decision on a new strategy, the Board asked for his resignation.
The Board of Directors fired the previous CEO and announced a search for a new
CEO. Alex Molina was hired at the start of March 2011.
ALEX MOLINA
Molina began his career in the not-for-profit sector when he worked for March of
Dimes Canada, an organization dedicated to helping rehabilitate people with
physical disabilities. After 10 years with the organization, Molina joined the
Ontario Ministry of Health, working as a program auditor. It was during this
time that he met Kalitsounakis and was introduced to the Project. He sat on the
Project’s Board of Directors from 2006 to 2008 until his term was up. Prior to
being recruited to the CEO’s post at the Project, Molina was a senior executive at
United Way Toronto, a charitable organization.
Molina begins work at the Project
When he accepted his new post, Molina was well-briefed of the situation he
would be walking into. Here was an organization that had grown rapidly and, by
all accounts, was having a positive impact on the communities it served. Yet, if it
did not find a solution to its current problems, it could be insolvent in a few years.
7
The Project’s Endowment Fund, which stood at $7 million in 2007, was worth just
over $3 million at the start of 2011. The funds were kept in cashable investments
– money market funds – at the Royal Bank of Canada.
On his first day on the job, Molina took a look at the organization chart (see
Exhibit 2 and an overview of each location and the services it offered. He was
informed that, in the past two years, employee groups in a few locations had
joined local union chapters (see Exhibit 3). Molina was told that the reason why
the unionization drives had been successful was that these employees had feared
for their jobs during the recent recession.
He asked for detailed information by program and location, and received a series
of tables (seen in Exhibits 4 and 5). These tables outlined the Program Days by
program by location, staffing levels, and even revenues and personnel expenses.
The last sheet he received was a simplified income and expense statement for the
years 2008 to 2010.
Molina spent the next three days interviewing staff and volunteers – and even a
few clients – at each of the Project’s four locations. He saved the Cabbagetown
location as the last facility he would visit.
Taking an overall assessment
Molina’s interviews gave him a clearer picture of the Project’s operations. It
seemed as if each location, operating independently from the others, was doing
the best they could to market and deliver the program services each offered.
What was happening, however, was that the make-ups of the neighborhoods
were changing over the years. For example, the Woodbine and Danforth area
was seeing more youth participation in their programs than any other location,
due to the increasing numbers of families in the area. Molina discovered that a
rising number of Woodbine and Danforth’s youth clientele could be described as
coming from lower middle and middle income families, as opposed to the lowincome families the Project wanted to serve. Woodbine and Danforth’s
enrollment numbers were expected to be similar in 2011.
Similarly, the type of clients at Cabbagetown was changing as well. Enrollment in
its youth programs and childcare had fallen by 30% in the last two years. The
program manager at Cabbagetown believed that the decrease was temporary and
that enrollment would rise again in the future. Sinclair did not concur with the
8
assessment, thinking that overall enrollment at Cabbagetown was going to
decline another 10% in 2011.
The Davenport and Ossington location had the largest seniors’ program in the
organization and was the only centre with a financial literacy program. Overall
numbers at Davenport and Ossington were expected to climb 5% in 2011.
Of the four locations, St. Clair and Weston was expected to have the greatest
increase in enrollment in 2011, rising by 15% due to an unusually high number of
new Canadian families in the area. Sinclair believed that there would not be a
need to increase in staffing levels at St. Clair and Weston to cope with the higher
demand. In fact, Sinclair believed that the utilization rate of each facility could
still be improved: Cabbagetown was at 45%; St. Clair-Weston at 80%; DavenportOssington at 75%; and Woodbine-Danforth at 70%. There were no program
cutbacks in progress and, at least for the unionized locations, cutbacks would be
politically tricky to carry out.
Molina referred back to the Project’s mission of “improving life in economically
disadvantaged neighborhoods in Toronto.” It was clear to him that the
neighborhoods themselves were changing over time, and that it might be
necessary to align the Project’s strategy with it.
None of the four locations had a mortgage attached to it, and Molina thought
about whether borrowing against the properties – at a mortgage rate of about
4.4% per annum, to cover any shortfall in 2011, made sense. Another option was
to kick-start a donations campaign in an effort to bring funds in before the end of
2011. Building up a strong donations campaign required a donations strategy
and team, and Molina suspected that it would cost the organization another
$200,000 to accomplish this. A strong campaign could, potentially, increase
donations per capita by 20-30%, and could increase the number of donors by 20%
this year. However, he wondered about the optics of spending money when the
organization as a whole was in the red.
Molina considered raising the fees charged by a small amount, maybe $3 or $4 per
day, in order to boost revenues. He did not want to make a decision on this
matter before considering the impact the fee increase would have on the Project’s
clientele. “There’s always a struggle to balance “mission” versus “margin”, said
the Project’s CFO to Molina, in a conversation on his second day on the job. “It’s
a tough decision to make sometimes.”
9
On his tour of the locations, Molina noticed that none of the facilities had been
refurbished since they were purchased in the 1990s and the early 2000s. He
estimated that $2 million would be to renovate the four locations.
A more drastic move – to raise funds - would be to shut down operations at
Cabbagetown and sell the facility. This would raise much needed capital to cover
at least some of the shortfall in 2011 and invest in facility improvements. If he
were to close Cabbagetown – or any other location – he estimated that the Project
would incur costs during the shutdown, including severance pay, of roughly one
year’s salary for every staff member employed at that location. Instead of closing
an entire facility, Molina could recommend a less drastic move, such as reducing
the number of programs run at that facility (but still keeping it open and within
the Project’s control).
But he wondered how to best compare the societal benefits of providing daycare
versus adult education versus youth programs or employment preparation.
Perhaps there was a way to rank the various programs – from the highest impact
to the lowest impact – and cut the less important programs. But, if he were to
head in this direction, how should – or could – he select the criteria?
Molina makes up his mind
Back in the conference room, after each of the four women described the type of
work they did and how proud they were to see progress in the children they
looked after, Molina held a general question & answer session with them. One of
the women spoke up:
You mentioned that we’re facing financial pressures and that there
is a possibility that some programs may be cut. I’m not an
executive, but I wanted you to know I, and many of the Project’s
employees, have worked here for more than a few years and we
could most definitely be making more money elsewhere. So I
wouldn’t want you to think we’re scared for our jobs because of the
money. The real reason, and my colleagues will back me up on this,
is that we fear for the children – or clients - for whom we care.
We’re a lifeline in our communities and we wouldn’t want anyone
to forget that.
10
Molina listened intently but said nothing. He had a long few days in front of him
to weigh all of the factors and come to a recommendation on how to effect a
turnaround at the Project.
11
Exhibit 1
Toronto Poverty by Neighborhood, and The Project’s Locations
Woodbine and Danforth
Weston and St Clair
Davenport and
Ossington
Cabbagetown
Source: www.toronto.ca/demographics/.../pollutionwatch_toronto_fact_sheet
12
Exhibit 2
The Project – Organization Chart
Board of Directors
URP Endowment
Fund
CEO
Operations Manager
CFO
Director of
Human Resources
Support Staff
St. Clair-Weston
Program Manager
Davenport-Ossington
Program Manager
Cabbagetown
Program Manager
Woodbine-Danforth
Program Manager
Childcare and
Childhood Education
Childcare and
Childhood Education
Childcare and
Childhood Education
Childcare and
Childhood Education
Adult Education
Adult Education
Seniors’ Programs
Adult Education
Youth Programs
Seniors’ Programs
Employment Preparation
Youth Programs
Employment
Preparation
Financial Literacy
Seniors’ Programs
13
Exhibit 3
The Project – Services by Location
Locations
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Program size
Not offered
Small
Medium
Large
Unionized
Childcare and
Childhood
Education




Adult
Education
Youth
Programs
Seniors'
Programs
Employment
Preparation
Financial
Literacy


X


X
X

X



X


X
X
X

X
X



Exhibit 4
14
The Project – Services by Location
Average daily enrollment by program and location in 2010
Childcare and
Adult
Childhood Education Education
65
20
Cabbagetown
80
40
St. Clair-Weston
125
X
Davenport-Ossington
110
40
Woodbine-Danforth
Youth
Programs
30
X
X
85
Employment Financial
Preparation Literacy
X
X
29
X
4
5
X
X
Seniors'
Programs
X
10
25
10
Program Person Days Delivered (Program Days) in 2010
Childcare and
Adult
Childhood Education Education
13,000
4,000
Cabbagetown
8,000
16,000
St. Clair-Weston
X
25,000
Davenport-Ossington
8,000
22,000
Woodbine-Danforth
Youth
Programs
6,000
X
X
17,000
Seniors'
Programs
X
2,000
5,000
2,000
Employment Financial
Preparation Literacy
X
X
5,800
X
1,000
800
X
X
Average Daily Number of Volunteers in 2010
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Childcare and
Childhood Education
0
4
0
4
Adult
Education
2
0
X
0
Youth
Programs
Seniors'
Programs
Employment
Preparation
Financial
Literacy
0
X
X
5
X
5
10
5
X
2
7
X
X
X
8
X
15
Exhibit 5
The Project – Staff, Revenues and Expenses by Location
Number of Full-Time Equivalent Staff in 2010
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Childcare and
Childhood Education
10
8
10
8
Adult
Education
2
3
0
3
Youth
Programs
5
0
0
6
Seniors'
Programs
0
2
4
2
Employment
Preparation
0
5
2
0
Financial
Literacy
0
0
1
0
Childcare and
Childhood Education
65,000
112,000
150,000
154,000
Program Revenues in 2010
Youth
Seniors'
Adult
Education
Programs
Programs
20,000
X
36,000
40,000
X
0
X
X
0
40,000
102,000
0
Employment
Preparation
X
0
0
X
Financial
Literacy
X
X
8,000
X
Program Expenses – Personnel - in 2010
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Childcare and
Adult
Childhood Education Education
450,000
76,000
280,000
114,000
450,000
0
129,000
288,000
Youth
Programs
205,000
0
0
210,000
Seniors'
Programs
0
62,000
120,000
60,000
Employment
Preparation
0
220,000
70,000
0
Financial
Literacy
0
0
35,000
0
16
Exhibit 6
The Project – Simplified Statement of Income and Expense Statement
For the years ended December 31st
Fee revenues
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Total
2008
251,000
139,000
135,000
256,000
781,000
2009
145,000
151,000
165,000
275,000
736,000
2010
121,000
152,000
158,000
296,000
727,000
Total expenses
Cabbagetown
St. Clair-Weston
Davenport-Ossington
Woodbine-Danforth
Total
2008
875,000
875,000
985,000
985,000
3,720,000
2009
1,005,000
985,000
1,100,250
1,120,000
4,210,250
2010
1,462,000
1,352,000
1,350,000
1,374,000
5,538,000
Operating surplus (deficit)
Cabbagetown
Davenport-Ossington
Woodbine-Danforth
Total
2008
2009
(624,000)
(860,000)
(834,000)
(736,000)
(850,000)
(935,250)
(729,000)
(845,000)
(2,939,000) (3,474,250)
2010
(1,341,000)
(1,200,000)
(1,192,000)
(1,078,000)
(4,811,000)
Total donations, net
2,800,352
2,568,452
1,985,875
138,648
905,798
2,825,125
St. Clair-Weston
Funds from Trust
17