To grow a nonprofit is to will one thing
The 19th century Theologian and Philosopher Søren Kierkegaard wrote “The Purity of Heart is to Will one Thing” — while realizing that this goes against Kierkegaard’s suggestion, I have adapted this thought/prayer/mantra into other areas of life and work. In this case, I am applying it to fundraising with nonprofit organizations.
In 2007, William Foster and Gail Fine published the results of their research in the Stanford Social Innovation Review assessing the growth patterns of the nation’s largest nonprofit organizations in a piece called “How Nonprofits Get Really Big”.
As a part of the analysis, the researchers identified 110 nonprofit organizations that grew to over $50 million in annual revenue from inception and sought to uncover any trends in how or why these specific organizations grew to the size they did. What they uncovered is one of the most valuable insights I have come across when it comes to nonprofit growth. And for some reason it seems to be ignored by so many small to mid-sized organizations that aspire for such growth. Or even for just modest growth or sustainability. Forster and Fine wrote:
“…we identified three important practices common among nonprofits that succeeded in building large-scale funding models: (1) They developed funding in one concentrated source rather than across diverse sources; (2) they found a funding source that was a natural match to their mission and beneficiaries; and (3) they built a professional organization and structure around this funding model,” meaning that if their primary source of revenue was from grants, the organization built a team around grant writing/reporting professionals. Foster and Fine go on to identify five main sources of funding, including “government, service fees, corporate, individuals, and foundations.”
Even though these findings have been available for the mass-market for ten years now, it seems to fly in the face of commonplace nonprofit strategy. Instead, most organizations that I have encountered choose to 1) attempt to develop multiple revenue streams 2) seek sources of funds that don’t match with their organizational structure (for example writing grants with no possible way to report on the grant if received) 3) hire staff that reflects the scattered approach to diverse revenue streams.
This frantic approach towards funding diversification can be a strategic decision, one made out of desperation, or the result of a lost funding source. No matter, it is based on a flawed assumption that by “doing more things” something is bound to be successful.
This approach of throwing the spaghetti against the wall and seeing what sticks comes about when nonprofit organizations do not appropriately diversify revenue streams. Instead of diversifying across multiple funding streams, a properly aligned and staffed organization should instead seek to diversify within their main revenue stream.
For example, common diversification thought that I have encountered goes along these lines. “I’m worried that we our revenue isn’t sustainable and I’m interested in adopting a social enterprise to fund the organization going forward.” Oftentimes, I have witnessed this in organizations funded by individual donors. I have spoken with multiple nonprofit leaders who have tried this…few have been successful while others have told me the perils of this approach. If the organization did not fully invest in this new fundraising approach, the result was an organization spread too thin and becoming mediocre at a few things instead of great at one.
The temptation to scale by quickly by seeking revenue in a new stream can be alluring, but it will also require a certain supporting organizational structure to achieve. As can seen in the research, it would be wiser to invest in the proven funding stream and develop the organizational structure to scale. In the example above, it would be wiser to seek ways to attract a wider funding base, investing in peer-to-peer campaigns, engagement campaigns, or even recurring giving programs. After all, small-gifts from individual donors can power the growth of even the largest nonprofit organizations in the country.
To sum it all up: The findings suggest that the most successful organizations have achieved growth by investing in scaling their main funding source. Thus proving it’s not wise to diversify your revenue streams, but rather, diversifying in your main revenue stream.
To grow a nonprofit is to will one thing.
Author’s Note: Please take the time to read Foster and Fine’s entire article and the preceding research published called “Funding: Patterns and Guideposts in the Nonprofit Sector.” Their insight is invaluable if you are looking to scale your nonprofit organization.
If you find value in this insight please share it. And if you would like to connect please reach out!