Ready to Grow Your Nonprofit? Develop and Align 7 Key Elements
You can find many good websites and blogs on the Internet offering excellent information and advice on running a nonprofit. I’ve highlighted a lot of them on my resource page. The challenge is that often the information is not germane to a small organization trying to build capacity and grow. And there are potentially a lot of organizations trying to do just that.
How Many Nonprofits May be Seeking to Grow?
The chart below shows the breakdown of 1,581,445 nonprofits registered in the U.S. in 2016 by level of total revenue.
Twenty-three percent (363,732 organizations) reported annual revenues of $100,000 or less. (My own organization is in that slice of the pie). But a staggering 56% reported no revenue. This slice includes:
- 17,543 organizations (1.1% of the total pie) who reported their revenue as $0 on form 990;
- 515,739 organizations (32.3% of the total pie) who file form 990-N and are not required to report an exact revenue figure because their revenues are $50,000 or less; and
- 357,087 organizations (22.6% of the total pie) for whom there was no information available from the IRS.
Adding together those organizations with revenues of $100,000 or less with those reporting $0 and those with revenues of $50,000 or less yields 897,014 organizations for whom revenue growth may be of interest. That’s roughly 57% of the total number of registered organizations in the U.S. in 2016.
A Metaphor for Growth: The Seed of Life
With that bit of background, I want to focus on what a review of the literature suggests are seven essential elements for growing a nonprofit. A useful metaphor for this discussion is a diagram known as “The Seed of Life.”
The Seed of Life is formed from a relationship of six circles around one. In two dimensions, the arrangement gives rise to other shapes, the triangle and the hexagon. In three dimensions the arrangement yields the tetrahedron and cube. The perfect arrangement of the seven circles always leads to something greater than each of its separate parts, hence the phrase, “seed of life.” Using this metaphor, I will argue that there are 7 fundamental elements to nonprofit organizational growth. When the elements shown below as numbers 2 through 6 are developed and aligned with the plans outlined in element 1, the seed of life flowers and the organization grows.
The 7 Key Elements
Element 1: Organizational Performance Management
Performance management includes strategic planning, establishing your target population, outputs and outcomes, collecting and analyzing data, and making changes to the way you do things as a result of that analysis. This element is at the center of the seed of life because it includes your value proposition, the goals you propose to achieve through intentional action focused on a specific target population. It also contains the benchmarks you’ve established that will tell you whether you are on track to meet your goals and the means to track and periodically take stock of your progress.
I developed the diagram below (download a PDF here) to outline the key concepts of managing organizational performance for my ETO consulting clients. Those concepts may be explained as follows: :
- First, you need a strategic plan. It doesn’t have to be as elaborate as some would lead you to believe. In my next post, I’ll highlight what I think are the essential components of a good strategic plan for a small nonprofit and strategies for keeping that plan in play while you grow. Every person involved with the organization, including board, staff and volunteers, needs to be on the same page about the plan, i.e., the organization’s vision, mission and strategic priorities. Among these various components, vision is probably the most important because it describes, the ways in which the world will be transformed if you succeed in your mission and provides an explanation for why the hard work that growth requires should be undertaken.
- Second, whatever the size of your budget, it needs to be tied to the plan. You have to try to fund your highest priorities before you do anything else.
- Third, especially if you are working in health and human services, you need to clearly identify the target audience for your services. A good place to start is to go back to your mission and ask how the people you are currently serving align with that statement.
- Fourth, you need to define outputs and, more importantly, outcomes for your services. A good question to ask is “how many did we serve?” That’s an output; it’s akin to “how many widgets did the factory produce today?” It’s great to have a lot of widgets produced and sitting around in a factory, but, if you don’t sell them, and/or people who buy them don’t find them to be all that useful, you don’t have much of a success story to tell. The best question to ask about your activities, therefore, is “is anyone better off as a result of having received our services?” This way of deciding what to measure is known as “Results-based Accountability.” It is described in detail, in Trying Hard is Not Good Enough, by Mark Friedman, a book available on my resource page.
- Finally you need to establish a system for collecting and analyzing data on the outputs and outcomes you have established. At the very least, you need a template for recording outputs and outcomes. For those working in human services or workforce development, there are software packages like Apricot or ETO that will allow you not only to collect data about outputs and outcomes, but also to analyze that data using sophisticated reports. An organizational dashboard for presenting outcomes data to funders and other constituents on at least a quarterly basis is essential. A book on my resource page, The Nonprofit Dashboard: Using Metrics to Drive Mission Success, by Lawrence Butler, explains how to do this well. David E.K. Hunter discusses the foregoing steps in more detail in Working Hard and Working Well: A Practical Guide to Performance Management. The book is available on my resource page as a free download.
Element 2: Scalability of Your Organizational Model
Scalability addresses the question of whether you can spread the impact of your intervention. Typically this means being able to serve more people without impacting outcomes negatively. In assessing readiness for “going to scale” it is important to evaluate program implementation and outcomes to determine the following:
- Whether the intervention was implemented as intended;
- Whether the intervention was effective (i.e., in a workforce development program, “how many participants got a job,” “how many were retained in a job for a year?”);
- Why the intervention was effective (i.e., what elements of the intervention were linked to its success);
- How the elements that were linked to success can be transferred to new settings and how others can be tailored to meet local needs; and
- Whether the intervention’s effects were large enough to persist in the face of contextual variability.
Element 3: Marketing
To assess the strength of your marketing efforts, ask these questions:
- Have you done the market research necessary to assess the demand for the service or program you wish to grow?
- Have you developed a marketing strategy to target services to your clients, partners and supporters that addresses “the 4 P’s:” (a) PRODUCT: program/service development; (b) PRICE: pricing of services; (c) PLACE: distribution of services; and (d)PROMOTION: the messages and media used to communicate with your market about your services.
For a small organization, implementing an effective communications strategy (i.e., promotion) can be challenging, given the many communications channels that exist and the time and effort it takes to manage even a few of them well. Important considerations in developing a communications strategy include the following:
- Whether your website was developed with what is known as “responsive design,” making it friendly on mobile devices? Having made many mistakes when it comes to creating and managing websites, my recommendation to anyone who is thinking about building or updating a website is to use WordPress and to go with a theme developed by SiteOrigin, which will minimize your WordPress learning curve enormously and allow you to quickly create and easily maintain a great website;
- Whether video is among the media you are using for communications? Video can be a quick, engaging way to tell your organization’s stories to existing and potential donors. Techsmith’s “SNAGIT” software allows you to easily capture screen shots and screen videos. Its CAMTASIA software program allows you to both create and edit videos and has a reasonable learning curve. Both of these products are available on my resource page. The YouTube Nonprofit Program will allow you to make a YouTube channel for your nonprofit and will allow viewers to make a donation to your organization right from your YouTube video;
- Whether you are using social media effectively? You don’t need to be on 7 or 8 channels. You do need to be on the channels that your constituencies are using. You also need to be consistent in posting to your channels, to ensure your posts are consistent with your communications strategy and to develop a reputation of trustworthiness and responsiveness among fellow social media users;
- Whether email marketing is a part of your communications strategy? Services like Vertical Response, Constant Contact, and Mail Chimp typically allow small nonprofits to use their tools for creating professional email campaigns for free. They also provide tools for assessing the effectiveness of such campaigns; and
- Whether direct mail is a part of your communications strategy? Postal mailing can be an effective way to reinforce your message and to raise money. A well-crafted fundraising letter, the elements of which I will outline in an upcoming post, has helped to double the amount of money the nonprofit I run raises at year end. Consider also that a hard-copy of your newsletter may garner more attention from your members than a shorter, electronic version. Direct mail is hard for a small nonprofit because of the time involved in developing content and preparing same for distribution. A couple of quality efforts annually, however, can make a big difference in engaging your constituents and in increasing donations to your cause.
Element 4: Financial Resources
That financial resources are necessary for growth is an understatement. Some may ask why they are fourth on my list. My answer to that question is that all the resources in the world aren’t going to advance your cause if you’re not managing performance, if your program or service is not scalable and you haven’t implemented at least a modest marketing strategy. In discussing how to grow revenue so as to build organizational capacity, we need to first understand the traditional sources of nonprofit revenue, ways of growing that revenue, and sources of capital to support revenue growth.
Sources of Nonprofit Revenue
The various sources of nonprofit revenue are shown in the diagram below. Traditional wisdom suggests that diversifying revenue streams as suggested in the diagram below is the path to growth and sustainability:
Recent research has turned this thinking on its head, suggesting that small- and midsized nonprofits seeking to grown can benefit from identifying a primary funding source early in their life cycle, which can be aligned with their program model. This will lead to investment in a funding strategy—for example, building deep expertise in government grantmaking processes—that can better attract the resources needed to fuel programmatic growth. It is a strategy that also avoids spreading resources thinly across a variety of funding opportunities.
The research concluded that once a nonprofit institutionalizes a funding model at a large scale, it rarely departs from it. It also revealed that government grants and fees were the greatest drivers of growth for larger organizations.
For smaller organizations, “Big Bettor Philanthropists,” provided an early boost in growth: “Two key factors contributed to the emergence of these organizations: results-oriented philanthropists and ambitious social entrepreneurs seeking scalable solutions to major social challenges.” Grants from foundations have typically made up only about 10 to 13% of philanthropy annually, with the greatest giving (70 to 80%) coming from individuals. Organizations that tend to be most successful in obtaining and maintaining grant support from foundations are those that have set, measured and achieved clear outcomes. The research suggests that impact of foundations may grow more pivotal as projected reductions in public funding ensue.
Growing revenue usually means doing one of the following things:
- Increasing the amount of an existing service provided thereby increasing revenue in the form of fees, contracts, or grants;
- Adding new programs and services, thereby increasing revenue in the form of fees, contracts or grants; or
- Merging with another organization.
Each of these activities is associated with new costs that must be supported by capital if revenue growth is to be achieved.
Capital is different from revenue. A dollar of capital is unlike a dollar of revenue, because a dollar of revenue flows out of an organization in the form of expenses almost as soon as it comes in as revenue. Capital dollars, on the other hand, stick around. There are several sources of capital for growth and each has its limitations:
- Profit: Profit is the excess revenue that exists when all expenses have been paid. In most nonprofits, that excess gets plowed back into programs and services because of the traditional view that “nonprofits” by definition shouldn’t have “profits.” This is an admirable commitment, for sure, but it is the death knell of growth.
- Loans: Loans are a challenge for nonprofits because most lenders want collateral in the form of tangible assets, rather than the promise of future revenue from implementation of a new program.
- Capital Donations: Often, these come from a multi-year capital campaign, which is a sophisticated undertaking. They can also come from less formal means of fundraising, however. The nonprofit I run, for example, received a large capital donation that was negotiated as part of a land transaction. We explained to the donor that taking on the project would require us to grow the organization. The donor allowed us to devote 30 percent of the contribution toward these expenses, with the balance being applied to ongoing stewardship of the donated land.
- Sweat Equity: Put simply, “sweat equity” means that someone will work harder and longer and not get paid for it until the expansion of services or the implementation of a new program begins to bear fruit. The obvious limitation here is that the willingness of some person or group to work for nothing is not likely to last a long time.
- Excess Cash Flow: You might divert excess cash flow, if it exists, to an expansion of services. The problem is, of course, that if the expansion fails to quickly yield new revenue, a cash deficit will ensue.
Element 5: Team and Culture
It should come as no surprise that a well-functioning team, be the members paid staff, volunteers or some combination of the two, is essential to growing any organization. That team should include a program manager so that the CEO or executive director can turn his or her focus to raising capital. The team should also include a development person with the skill sets necessary to pursue the chosen funding model. If the organization’s fundraising model focuses primarily on grants, then a grant writer is essential. If, however, the model favors private fundraising from individuals, then someone who is adept at cultivation and understands the traditional fundraising pyramid is in order.
The staff and volunteers who started the organization may not be the best team to help it grow. Growth requires more effort than any other type of organizational change. Depending on the elements of an organization’s growth strategy, i.e., its strategic, marketing and fundraising plans, new skill sets may be needed to take the organization to the next level.
The team finally charged with executing on an organization’s plans for growth must have at least one or two champions of the organization’s vision, along with a “blocker,” someone who will keep the champions on track and prevent the naysayers and those resistant to change from derailing forward progress. The team must also be governed by discipline. They must rigorously eliminate those tasks and activities that don’t add value to fulfilling organizational goals. As one commentator has argued, “Without disciplined people acting in a disciplined manner that aligns with the vision, the mission fails every time. Discipline and consistency are the path to greatness.”
Element 6: Infrastructure
The programs and services that you intend to ramp up or develop to increase revenue will likely strain existing infrastructure. You may need additional computing power, for example, if you intend to use robust outcomes reporting software like ETO Results. You may need to purchase new software, like Hootsuite or Buffer if social media is to be a major part of your communications strategy. As revenue increases, so must your accounting for it, which will likely give rise to needs for additional software and contractors, like accountants and auditors. Since programs and services play such a pivotal role in any growth strategy, it’s all too easy to focus on them at the expense of other considerations. Don’t forget to plan and budget for infrastructure needs.
Element 7: Networks
The ability of a nonprofit to mobilize others to achieve high impact, I.e., to be “forces for good,” is also a key factor in an organization’s ability to grow. In a recent review of Forces for Good: The 6 Practices of High-Impact Nonprofits, available on my resource page, I outlined the six mobilization strategies that nonprofits can use to spur members of their networks to take action on the organization’s behalf. They can work with government leaders to change policies impacting service delivery and build business partnerships to make market forces work to their benefit. They can also give support to and draw support from other nonprofits to increase their impact. In these ways, a strong network of these “forces for good” can be leveraged to support a small organization that is seeking to grow bigger.
The Seed Becomes a Flower: An Organization Grows
The major point to be made is that growth requires the development and alignment of fundamental elements, including:
- Performance Management
- Financial Resources
- Team & Culture
When elements 2 through 6 are developed and aligned with the plans contained in element 1, the seed of life flowers and the organization grows.
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