Four Dimensions of Nonprofit Growth
This article describes four dimensions of nonprofit growth. For those leading a nonprofit enterprise, it is important to understand what growth means. Without a clear understanding of growth, your organization runs the risk of failing to align your strategy with the growth trajectory that fuels the impact of your organization. Understanding growth creates focus, prevents mission drift, and enables the nonprofit organization to more effectively chart a direction for the future.
One of the common inquiries that I receive is from nonprofit leaders who are thinking about organizational growth. In my initial conversations with such clients, I often ask, “what kind of growth are you seeking” and for “growth for what purpose?” Not too infrequently, a conversation follows where the nonprofit leader and I work to clarify the organizational needs related to growth. Thinking about growth is a core component of nonprofit strategic planning (see here and here) and can’t be boiled down to a simple article.
However, in an article, we can at least describe dimensions of nonprofit growth. In my opinion, there are four major categories of growth that your nonprofit needs to consider in a strategic planning process.
1. Operational Growth: The first growth that your nonprofit needs to ponder related to your existing programs and services and growth that may be required to do the same work more effectively, efficiently, and at higher quality. This growth conversation starts with clarifying the true operational costs of your programs, services, and overhead. The fundamental question is to think about your current operations and determine if your agency is actually generating enough revenue to adequately cover the true operational costs. There are a growing number of surveys and studies that document how many nonprofits underestimate the true cost of operations. Often this underfunding of operations works to your organization’s detriment. Understanding true operational growth starts with assessing the cost of programs and services, infrastructure investments, and staff compensation. Examples of such an internal inquiry might ask to what extent does your compensation of employees includes living wages, health insurance, retirement or professional development expenses? This inquiry also asks to what extend your technology infrastructure supports performance? Are your organization computers current, do your databases and networks support productivity and clear, accurate reporting? Probing further might ask if you are investing in resource development, social networks, and donor cultivation? Completing this self-assessment should be an objective analysis of financial metrics such as trends in cash flow, net unrestricted assets, and debt burden, among others fiscal measures. Assessing operations may help your nonprofit organization identify a strategic growth agenda to the guide your organization –namely the growth of existing operations.
Capitalizing on an operational growth plan requires carefully considering how to increase revenues. Strategies might include renegotiating a contract with funders, building secondary revenue streams to compensate for grants that underfund services or creating operational efficiencies to reduce other expenses (such as renegotiating lease or lowering IT costs through re-engineering systems). A clear operational growth plan also serves as the basis for seeking capacity development grants that bring short-term capital to your organization to assist you in creating new or strengthened long-term operational revenues.
2. Program Growth: Once fully funding operations, your organization can consider the growth of existing programs and services. Understanding the true cost of services defines the base of the formula for growing existing programs and services. Program growth has the goal to serve more clients, often through expanding hours, opening a satellite office, or adding staff. The program growth strategy has two drivers of 1) a compelling social need that is 2) coupled with strong evidence that your programs and/or services effectively address the needs. Together these twin drivers create a case for program growth. Serving more people with your programs and services that produce outcomes is a compelling argument for program growth.
Growing programs is a strategy that capitalizes on your agency’s existing development strengths. Your organizational donors likely understand your business model and value proposition. Expanding programs becomes the process of deepening and expanding relationships with your current donors and cultivating new relationships with like-minded or similar donors.
3. Program Expansion: A third model for nonprofit growth is to expand the number and types of programs and services that are offered by your organization. Program expansion takes your organization into new areas of operation. Expanding programs and services is not taken lightly as it often reflects an agency needing to build new program skills, competencies, and systems, as well as creating stable revenue streams to support the new endeavors. Careful assessment, planning, pilot testing, and gradual expansion require time, energy and resources. The calculation, related to the program and/or service expansion, that your organization must make, is how will the expansion of programs and services magnify the social impact relative to the cost of the undertaking? In the long-term calculating a social return on investment will be required but, at the point of strategy, it is equally important to think about opportunities created by expansion versus the opportunity cost of pursuing expansion.
An expansion of programs and services is a growth opportunity that requires the development of new revenue streams to pay for the start-up costs and the ongoing operating costs of the program. Thinking about the business model is critical for program expansion. I have known several nonprofit agencies that added programs and/or services without sufficient thought to sustainable revenues need to sustain the expansion. Subsequently, these agencies found themselves in the precarious position that overt time they were fragmenting their revenue base in ways that stymie the effectiveness and growth of all of the agencies’ programs and services. Program expansion is the equivalent of developing a new business or product line and your nonprofit must plan carefully to preserve rather than cannibalize the revenues required to sustain the other programs and services of your agency.
4. Program Replication: The fourth category of nonprofit growth is to replicate a program model outside of one’s immediate geography. Replication differs from program growth primarily based on scale and geography. While some think of replication and “franchising” a program approach, there are actually a number of models for replication and scale. The core of replication is based on your program or service that creates a social impact and that can be implemented in another location and that can produce similar positive outcomes in the new location. The model for growth through replication requires that your nonprofit agency understands the critical characteristics of implementation that leads to success and how you will exert enough “control” over the process of replication. Control is required to balance fidelity of the core characteristics of the program or service. with the freedom to adapt the program to the context of the new site. In some cases, replication will require a tightly controlled fidelity model and in other cases, replication might allow for greater degrees of freedom to adapt the critical characteristics of the program implementation.
Planning for program replication is an intensive process that requires a nonprofit to demonstrate a strong foundation of success. Preparing for replication also requires an agency to clearly identify: 1) the process of implementation (including what is critical and what is adaptable in that process), 2) the cost of replicating the program, and 3) how your agency will ensure implementation quality of each replication site. The long-term challenge of replication includes developing a consistent brand as well as managing the relationships and fidelity between implementation sites.
Financing program replication is similar to program expansion in that it requires the development of clear cost structures, start-up capital strategies, and long-term operating revenue strategies. Replication also requires a nonprofit to think through “licensing” and/or implementation criteria to be required of each replication site. Finally, your agency will need to create an assigned value for the replication model that is based on the criteria. This value can often be monetized as a revenue stream for your nonprofit.
In a couple of pages of this article, it is impossible to create an in depth exploration of nonprofits growth models, however, by introducing a typology of growth that you can start the conversation among your staff and board. Without a shared understanding, your organizational growth will likely be more opportunistic and reactive rather than proactive and accidental rather than intentional. Conversely, creating the foundation for what growth means to your organization will influence your options for strategy, funding, and operations. Understanding growth equips you to be intentional and proactive.
As always reach out if you need anything.
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