Dimensions of Growth

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.

~ Mark

Photo Credit: Unsplash

 

Mark Fulop
Mark founded Facilitation & Process in 2009 to help organizations and communities bridge the gap between where they are today and where they want to be tomorrow. He’s led dozens of Portland nonprofits, government agencies and philanthropic organizations through complex change initiatives including strategic planning, revenue planning, board development, collaboration, and facilitation.

4 Comments

  1. Great to see you back in the swing of things. Keeping a blog going is tough work when you have a million other things going. And congrats on expanding to full-time!

    Regarding the post, I’d love to hear some stories of how groups have moved through these phases.

    Thanks!

    1. Matt,

      Thanx for the kind regards on going full time. I think being fully focused on our local community is important and I look forward to serving more clients!

      One bit of clarification on the post. I am not sure that nonprofits necessarily “move through” the stages as a sequence, rather thegrowth dimensions are a constellation of decision pathways. Caveat, I do believe that all nonprofit organizations must grapple with operational growth because without the stable base of fully funded programs and a strong underlying capacity and infrastructure no organization can thrive or be innovative. However beyond that basis, I think the other dimensions of growth are a set of choices. Replicating a program nationally takes a very different skill-set than being a broad social service provider addressing multiple client needs. Big Brothers Big Sisters or Habitat for Humanity, are successful because of a narrow and singular focus. There is a reason that strong nationally replicated programs do one thing (or very few things) well. Conversely, looking at the local level, we can have Human Solutions or Metropolitan Family Service, Impact Northwest, and many, many very successful nonprofits who expand programs thoughtfully and clearly in ways that magnify their social impact. My point is that the growth models of replicators and expanders are different.

      As a result, I am more inclined to think about case studies of nonprofit growth that might include elements of two or three growth strategies. To that end, you sit in the middle of a great case study of a nonprofit doing multiple work well. You know I am a fan of 211info and while I am not expert in your organization, it is clear that you are serious about operational growth, program growth, and scale. Yet, I would be hard pressed to think of a nonprofit that sequenced through stages going deep in one area, broad in many areas, and then wide geographically with a replication approach.

      In my consulting practice, I have found that growth is contextual and driven by strong needs assessment work. Out of such assessments, typically one or two growth domains emerge and rare would be the organization the could or should sequence through all dimensions of growth. It is to that end, that I argue considering the dimensions of growth is important to the work of strategic planning.

  2. Ah, thanks for the clarification Mark. That makes sense. We do grapple with all four kinds of growth. The tricky part is at a time when things feel particularly unstable for many in social services and health (that’s how they feel, not sure if that’s the reality) some days one type of growth seems like the way to go, the next day it seems like another. And there lies the constant tension, for me at least, between being nimble and being a good planner. Thanks for your thoughtful response!

  3. Clearly there is a challenge to balance managing opportunities and planning. I would just add that in my experience, the feeling of instability is more often the direct result of a lack of intentional strategic planning rather than managing multiple opportunities. The most effective nonprofits will increasingly be those who operate from a place of focus and discipline … and I would argue that in this context, nonprofits are better prepared to manage innovation and opportunity.

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