The 9/11 effect: attacks just part of the problem.

Now we see a different kind of fallout from that awful September day, one that brings destruction not of bodies and buildings but of funds and organizational capacity--and hopes. Some stories from before that day:

The beloved local cultural institution bad announced an ambitious thee-part capital expansion plan covering the next 10 years. Part One was well underway, and donations for Part Two were coming in. The architects were already onto Part Three's drawings. Cash was tight but workable, and admissions were homing strong.

A respected local public television station was on an upward trajectory in viewers, donors, and peer recognition for quality programming. Many of its programs were nationally broadcast, and the CEO had quietly but effectively expanded into different geographic markets and cutting-edge technologies.

In the aftermath of September 11, both organizations suffered severe operating deficits and cash shortages. Both organizations lost their chief executive officers in large part due to the resultant financial crisis. And, several other senior managers resigned or were fired. Both organizations lost prestige and credibility.

The cultural organization had to give back donated capital funds when it canceled the Part Two expansion, and the television station came under intense public criticism of its operations when promises they had made in the late 1990s could no longer be fulfilled.

What happened here? More important, could it have been prevented?

It wasn't just 9/11

In just the past eight years, the term "perfect storm" has moved into the vernacular. For meteorologists, the perfect storm of book and movie fame was the collision of a high pressure system, a hurricane, and the remnants of a tropical cyclone. These two organizations--and many other similar nonprofits all around the country--were the victims of a nonprofit perfect storm, of which the terror attacks was only the most visible part. The 9/11 Effect is not just an unforeseeable event, but a completely unimaginable blow from outside the organization at a time when it is made vulnerable by the effects of other choices and decisions.

Let's break down the elements of these organizations' 9/11 effect. Both entities had years earlier made major commitments of capital. Both were apparently quite successful, to the point where few insiders or outsiders questioned the appropriateness of their expansion plans. The cultural organization had a substantial endowment held in the form of stocks and bonds.

The dot com boom had crashed six months earlier, taking with it the fortunes and energies of many donors and about-to-be donors. Both nonprofits suffered a significant drop-off in operating revenue and donations in the general mourning that followed the attacks. The cultural organization's daily paid attendance went to practically zero for several weeks thereafter.

The cultural organization's assets actually went up in value during the next several years, but since it had converted most of its stocks and bonds into a handsome new building it had very little cash to pay for it and still keep operations going. The television station ran up huge deficits, funding them in part by simply not paying their bills.

So here are the ingredients that will set your organization up for its own 9/11 Effect in the future:

* Ambitious growth. Both organizations anticipated continued rapid growth.

* Over-commitment of capital, financial and human. Both entities invested, or promised to invest, a large percentage of their stocks and bonds in buildings and technologies whose revenue-generating potential was not proven. Management egos were staked on the expansion.

* An unimaginable external blow.

No explanation needed.

Could it have been prevented?

This is an understandable question, but the wrong one. Something like a terror attack is not preventable by individual organizations. The best one can hope for is that it can be mitigated. Here are a few things to keep in mind to avoid your own equivalent of the 9/11 Effect.

* Recognize that growth is a risk. Growth also happens to be necessary. At a time when government is stepping back from many of its traditional responsibilities nonprofits have a strategic opportunity and a moral obligation to figure out how to grow to fill some of the gaps. Aside from the organizational and operational stresses that growth brings, perhaps the biggest danger is its seductive nature. After years of steady growth in viewers, attendance, or whatever the metric, it is easy for any organization to believe that growth will be a permanent state of affairs. It isn't.

* Don't over-commit resources. Financial and human capital fuel growth. The cultural organization committed almost 100 percent of the value of its stocks and bonds to the cause of growth. Senior executives, who had designed the plans, fully committed their energies and their careers, leaving little of either for daily operations.

* React. With brisk historical growth and expansion plans in effect, managers tend to be slow to react to external threats. No one likes to admit that the assumptions on which one has built a compelling strategy have changed. Admittedly it's always easier to see the need for change in retrospect, but managers must be quick to recognize threats and respond in real time.

The growth plans you put in place were built on certain assumptions, so have a way of monitoring them to see if they change. If profitability is a critical part of having enough money to cover some of the investment in growth, and if a certain level of attendance is a critical part of profitability, build in a way of setting off alarms if attendance dips below that level.

* Imagine the unimaginable. We now understand that the formerly unimaginable may in fact come to pass. But good things can be as unimaginable, as well as bad. One organization sold Christmas ornaments as a fundraiser. The program puttered along until an incidental endorsement of it by a prominent movie star caused demand to soar. They had no capability of fulfilling demand that year, and as a result they lost sales and credibility.

* Have an exit strategy. There is no such thing as a sure-fire idea. The 9/11 Effect means that any idea can fail. Know when to cut your losses and get out.

The 9/11 Effect means that the nature of risk in the nonprofit sector has changed. The boundaries of what is possible have been expanded in both directions. To respond, the streetsmart manager must undertake growth with a different mindset, and with an awareness that the environment may not be as forgiving as it once was. The stakes are higher, and performance must rise to the new level.

Thomas A. McLaughlin is a national nonprofit management consultant with Grant Thornton LLP in Boston. He is the author of Streetsmart Financial Basics for Nonprofit Managers and the forthcoming book The Art of Strategic Positioning: Decide Where to Be, Plan What to Do (John Wiley and Sons, 2005). His email address is [e-mail].