About 5 years ago, I began an analysis of the path to growth for small nonprofits.
I was invited by a colleague to do some research to make a case to her board for a budget that looked really different than previous budgets. They had just hit $2M and she wanted to present a true cost growth budget.
- It was what the board called top-heavy. She wanted to hire more director level people to take some of the weight off of her and free her from management of he full team so that she could do visionary and external work
- It was more operational than in the past and didn’t seem to be as focused on program
- It was way bigger.
She wanted to know what other orgs her size were doing.
That’s so common – I remember ack when I was an ED, how helpful it was to see behind the curtain of other orgs to get real, concrete insights into how other people were doing things.
I thought I’d just do some research and pull together some info and that would be that. The specific question at the root of my analysis was: What factors should an organization at this stage in its lifecycle consider if it is interested in sustainable growth?
Nope — While some research exists exploring growth strategies for mid-sized organizations (typically identified as nonprofits with budgets ranging from $5 million to about $10 million), there is almost no information about the strategic and operational shifts made by orgs that are smaller than that.
How you think about fundraising and your board and hiring is so different at $1M than at $10M. And as you’ve heard me talk about in my life cycles episodes and posts, trying to do what organizations at different stages of development are doing will lead to frustration, negative self talk and burn out.
I found that there was very little information about how a $1M org should think about its board – the guidelines and rules for a larger org may not be appropriate.
So I decided to do my own research, and it started an ongoing collection of data and insights since then to discover whether there is logic to the seeming chaos of growth amidst small non-profits.
I did a few things: A lit review of articles exploring growth levers, in depth interviews with NYC-based nonprofit organizations that had specifically grown from under $1 million to $2M in annual revenue, and foundations that funded small orgs, and an examination of 990s, audits and annual reports of similarly situated orgs.
I looked specifically at their funding makeup, growth trajectory, staffing and board structure, and the strategic and operational changes that they underwent to facilitate and support their growth.
I’ve always loved research and I’ve loved this research project! As I’ve grown my company, and worked with over 100 nonprofit leaders under $2M, I’ve paid close attention to these questions of strategic and operational growth, and I’ve added to and refined my research over the years.
So I’m sharing some “lessons from the field” — behind the curtain insights into what sustainable $2M organizations look like.
One thing that I want to lift up, that was transformative for me, is that although the conventional belief about small nonprofits is that their growth is always unpredictable and random, my research does not support this belief. My initial research findings 5 years ago has shaped so much of the content that I teach and organize my coaching around inside my Next Level Nonprofit program.
What I found is that On the contrary, there are significant commonalities in the intentionality and strategy of small organizations that are trying to grow, particularly in the areas of staffing structure, fundraising, and boards of directors.
The other thing that I want to lift up because it was super interesting to me is that there are important lines of demarcation in the growth of small nonprofits. They’re not all just “small.”
They seem to be Above $500K, Above $1M, and Above $2M.
You’ve probably heard me say – and I have a training organized around this finding – what got you here won’t get you there. What I found – and this has been borne out again and again and again is that as organizations pass these lines of demarcation, they become different organisms.
Meaning, the strategies and tactics required for a $1.6million organization to remain financially stable are different in important ways from those required by an organization with a budget of $650K. If an organization tries to use the same staff and board and fundraising strategies and growth approaches at $900K that it used at $400K, it will most likely falter in some way – the staff will burn out, its funding will plateau…
Instead, as the organizations grows, in order to truly sustain their new budget size, they need to be increasingly intentional about fundraising, their investment in certain kinds of staff, and increasing focus and structure around governance.
Ok, those are the high level takeaways. Now I want to share trends in 3 core areas as decision-making points for all of you small orgs out there that are working to grow strategically and sustainably:
These are specifically trends for orgs that are sustaining budgets of $2M. Your organization may not be there yet, but I’m a firm believer that knowing that the benchmarks of sustainability are at each growth stage is important.
If you want to do a deeper dive into growth stages, check out my podcast on the topic from October 2021 (How To Use Nonprofit Life Cycles To Reflect On The State of Your Organization) and my smart growth mini series, which started in April of this year.
First, build a leadership team: In every instance, the organizations that I spoke with and researched had structured and formal leadership or director level teams.
This often meant having tough conversations at the board level about the need to invest in operations and administration staff instead of direct programs.
The conversations may be tough but I’ve paid particular attention to this one, particularly as organizations navigated COVID, and 100% of the EDs that I’ve spoken with noted the critical importance of having people at a Director level to take things off their plate.
The specific constellation of leadership staff varied between organizations but the attribute that they all had in common was that they allowed to the ED to “get out of the weeds” — i.e., They took over management of the internal world of the organization so that the ED could become more external facing.
Close to 70% of the EDs that I’ve interviewed about this made a specific point of noting that having a strong leadership team was a saving grace for their emotional (and often physical) health. They described the seemingly intangible, but very real, way in which their strong and high-quality leadership team served as: (1) thought partners to help navigate increasingly significant and strategic organizational decisions, (2) people to take ownership of entire areas of work off of their shoulders, and (3) (critically) buffers between them and the rest of the staff.
It is important to note that building a strong leadership team requires that a board that believes in, as well as a board culture that supports, investment in organizational infrastructure. While spending money on operations and administrative staff rather than programming made many of the boards uncomfortable in the short term, ultimately, they approved budgets that allowed the organization to make the investment in infrastructure. They ultimately understood that they needed to spend more to get the type of high-caliber leadership necessary to sustain.
Ok, second trend: intentionally construct your funding model.
In planning for growth over $2 million, organizations described taking a hard look at their funding model – and history in particular – in order to identify the sources and patterns of their income for the previous 5-10 years.
They assessed factors such as which areas of funding were growing and which were stagnating, which had potential to intersect strategically with programming, and which had potential for earned income.
Based on their assessment, they built fundraising strategies around only those funding areas that had potential for growth. They explicitly did not put energy into those funding areas that were not poised for growth. For many of the organizations that I spoke with, this tended to mean less focus on foundation funding in particular.
As EDs and their Boards had more time to think about fundraising in a more strategic way, as well as a board structure that supported this level of thinking, many organizations found that they were able to develop new earned income models – or expand on existing ones.
Organizations broke their programs into their component parts (e.g., staff, curriculum, outputs) and became granular about assessing how each element could be an asset that could be leveraged for revenue-generating purposes within different audiences. For example, an organization that creates public works of art in partnership with other institutions, identified ways to increase corporate sponsorship of different stages of the project’s development, as opposed to securing sponsorship of an entire project. Two organizations realized that their program staff held certain skills that could be monetized as training programs for corporations and government agencies.
Finally, the board: Increase systems and processes. Every organization that I spoke with that had a budget of over $2 million described a process by which their board underwent an intentional “professionalization”.
This is about increased structure and formalization of values, rules, and processes, not about the nature or level of professionalism of people on the board.
There were four elements of greater professionalization that each Executive Director identified (1) establishing standard and self-governing committees, (2) engaging in regular and meaningful board self- assessments, (3) instituting standard and explicit methods for maintaining board accountability, such as dashboards and formal agreements, and (4) establishing and tracking personal fundraising goals and engagement for each board member.
This shift also translated into a greater emphasis on board training and internal development, particularly around governance, finance, and fundraising. Organizations found that as board members’ had more confidence in their skills, they were more apt to engage in core board governance functions, such as financial monitoring and fundraising.
So to recap, the three trends in staffing, fundraising and board structure for organizations that grew to and sustained $2M:
- Structured and effective leadership team to get the ED out of the weeds
- An intentional funding model that leans into what’s work and away from what isn’t
- Increased board structure, skill, and focus on governance
As you think about your own growth, keep these 3 benchmarks in mind either as lighthouses to aim towards, or as gut checks to rethink your own structure. No 2 organizations are the same, but we can learn from one another so that we shorten the distance and lessen the effort for getting from where we are to the impact we want to have.
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