Updates to our 2015 Financial Plan

I want to share today that the Association is implementing a new financial plan to address lower than anticipated revenues in 2015. To align our spending more closely with our revenue, we are implementing expense cuts that I’m very sorry to say include staffing. Regrettably, we are losing three staff people today from operations, engineering and our community teams. This was not a decision we came to lightly, and we’re committed to helping those staff through their transition as best we can. In this post I want to share some information about how we got here, and our revised plan.

A Brief history

This is a really hard post to write because we delivered a plan to the community at the beginning of 2015, and it’s clear that we are not going to be able to fully execute to that plan. I take responsibility for that.

I started at the Association two and half years ago, at a very different time for the organization. At that point in early 2013, the Association was a handful of staff, mostly focused on the DrupalCons. The D7 upgrade of Drupal.org had been halted. Not without some good reason, community trust in the Association was low, and that’s among the people who even knew the Association existed.

When I joined, the message I heard from the board and from the many community members I talked to was that the Association had to learn to implement consistently and communicate more. In other words, we needed to build our credibility in the community by executing our work well and making sure the community knew what we were up to and how to get involved.

One thing that was clear from the outset was that Drupal.org was key to our success. If we could not begin to make visible improvements to Drupal.org with the community, we would fail. With support from the board, we decided to invest our healthy reserve in ourselves and build a team that could improve Drupal.org. Our 2014 Leadership Plan and Budget laid out hiring for a full team, including a CTO, and included a few hundred thousand dollars in budget for the working groups to spend on consultants and other projects in their areas.

During this time, our intent was to build new revenue programs and grow existing revenue streams to pay for this investment, before we spent our entire reserve. So we took the little data we had about our existing revenue streams, made some best guesses about revenue programs we had not yet launched, and we built some models. I want emphasize this - we modeled all of our revenue, but a model is only as good as the data that fuels it.

By April of this year, it was clear that our models were overly optimistic and we began the work of remodeling based on current trends.

Where are we now?

Today, it feels to me that the Association is in a completely different place. I used to break out in a sweat when I posted to our blog or on the queues. These days, the number of people that find me at a Con to say thank you far outnumber the folks that come to complain. (Side note - I actually love it when you complain nicely. It’s hugely important to me that people voice their concerns because we can’t fix what we don’t know is broken.)

The Association itself has grown tremendously in the last 2 years. With over 30 staff, we’re able to execute on a lot more with the community. As our CTO Josh Mitchell pointed out in his anniversary blog post, we’ve done a LOT on Drupal.org. We’ve also made great strides in DrupalCons, introducing more first-time attendee support, providing more resources to all the sprints, and adding the third Con in global communities that are so eager to have us there. Our marketing team has helped create some key content for Drupal 8 and we’ve even raised over $210,000 to help fund the completion of D8 release blockers.

The revenue we generate to do this work has also increased, and diversified. We’ve grown the supporting partner programs, launched Drupal Jobs, and rolled out Try Drupal. You can see, even with our revised expectations for 2015, that things are still growing. One of our key programs, Supporting Partners, is up 26% over this same time period last year, for example. Growth of this program was only 4% in 2014.

So lots of amazing things are happening, but we have to address that we overestimated what was possible for revenue. We have to adjust our plan to meet reality.

Changing the Plan

Addressing our situation is not work we took lightly. We set several goals for the process that guided our thinking throughout:

• Solve for short-term revenue shortfalls while retaining resources we need to succeed long-term
• Minimize staff impact
• Do this once - find the scenario we can truly sustain, and then grow out of
• Retaining credibility with staff and ensuring we communicate how valuable they are for our future
• Maintain community confidence

The strategy we used was two-fold. First, we strove to preserve our core services to the community and our ability to fund our own work. Second, we decided to take action as quickly as possible because the sooner we made changes to the plan, the greater the long-term benefit to the organization. We know that this second strategy makes some of this seem like it’s out of the blue, but it means that we impact as few people as possible.

Our leadership team looked at three approaches to addressing our cash flow issues:

• Incremental revenue: Our new forecast extends actuals from the beginning of 2015 out through the end of the year. We believe that it is possible for us to improve upon this forecast slightly because, although our primary mistake was overestimating revenue, we also had some staffing change-ups (a retirement, hiring new reps) on the team at the beginning of the year that adversely affected the numbers. There is some room to modestly improve our revenue from the forecast.
• Non-labor expense: We looked at travel, consulting fees, hardware and software, among other places in the budget where we had built in buffers or non-essential expenses. Eliminating these now, and not carrying them into 2016 was a key part of our process.
• Labor expense: This was the last option we looked at because at the end of the day, not only do all our staff give the community everything they’ve got, we really like each other here. I care deeply for the well-being of everyone at the Association. There is also lot of discussion in the business community about the long-term negative impacts of layoffs on organizations. We looked at lots of ways to reduce labor expense, but were not able to find a solution that did not include some layoffs.

Using this process, we were able to identify $450,000 in non-labor expense savings, and increase revenue projections $250,000 from July 1 2015 through December 31 2016. That was enough to solve our 2015 revenue shortfalls, but it did not address the issues long-term. We needed to reach deeper to ensure our long-term success. We had to consider labor reductions.

Prior to looking at any other staff, the leadership team at the Association decided that the first staff cut had to come from us. As a team, Megan, Joe, Josh, and Matt volunteered a 10% reduction, and I volunteered a 15% reduction. But we still weren’t there. Looking at the remaining labor cuts, we wanted to use our values as our guide. We know that our team believes in our teamwork value above all else, and would want to minimize layoffs as much as possible. With that in mind, we experimented with the model and determined that we could limit layoffs to three if we asked remaining staff to take a 5% pay cut across the board.

All told, here’s what measures look like:

We believe this approach meets our goals and puts us in the best position possible to continue the great work we’ve been doing.

What Happens Next?

On the financial front, we’ll be managing to our cash flow for the next 18 months, as well as modernizing our budgeting and forecasting tools to reflect an Agile methodology. This will let us see further into the future more often, and give us more opportunities to update our plans based on what’s actually happening. And, if we find we are performing favorably to our plan, our first action will be to restore salaries for our staff.

Most importantly, we’re going to be focused on our team. They all got the news earlier today, and we’re taking this time to talk things through all together, in our teams, and one on one. I am here to answer questions and hear concerns for every one of them. We’ll also implement monthly internal review of our progress to the new plan with staff so that they have transparency on a monthly basis about what’s happening. These people are the best thing we have going for us, and I won’t ever be able to make this up to any of them, but I am committed to helping them find the best path forward they can.

Thank you

Sharing this is not easy. The only thing that makes it better is knowing that the Association, like Drupal itself, has so much potential. I want to thank our Supporters, partners, sponsors, members, and the general community for everything you’ve given us so far. The only way we will realize our potential and move forward is together, and we are so happy that we get to do that with you.