Laying the Tracks for Future Growth

Peter Kim, The Bridgespan Group and Heather Peeler, Grantmakers for Effective Organizations
Posted: July 29, 2014

It’s hard for nonprofits to raise money for their day-to-day work. It’s even harder to raise money to grow their impact.

Funders and nonprofit leaders tend to focus on programs and expansion plans. That’s the sexy stuff that attracts support. Too few invest adequately in building the organizational capacity needed to lay the tracks for future growth—what Bridgespan’s Paul Carttar calls the “unsexy” side of scaling.

What explains this dilemma? Many nonprofit leaders find it hard to be forthcoming with funders about what their organizations really need to execute a growth strategy—whether it’s leadership development, IT support, financial management, or performance measurement. By and large, grantmakers do not provide support that adequately addresses those needs.

This disconnect shaped a key takeaway from the panel on Capacity Building for Sustainability at the recent Social Impact Exchange Conference: most nonprofits can’t invest enough in the organizational capacity they need to stay ahead of their own growth curve. In short, great programs may flourish, but the organizations behind them fail to keep up—an unsustainable mismatch. What will it take to ensure organizations are prepared to take programs to scale?

Invest in revenue growth. Bridgespan’s research shows that nonprofits ”get big” by focusing on a dominant funding source and anticipating needs five to ten years down the line. As an organization grows, it becomes increasingly difficult to master a diverse set of revenue streams. The skills needed for government contracting are different than the skills needed for major gifts. Funders can help by investing in grantees’ capacity to get clear about their funding model and build the internal capabilities to pursue the most promising type of revenue. That means, for example, investing to help hone an organization’s ability to secure and execute government contracts or funding systems and processes to pursue individual gifts more effectively.

Smile Train provides a case in point. Early on the organization realized that small, individual donors would be the key to its long-term scale potential. Thus, with the help of funders, it invested in building up its donor research and analytics capacity, and its direct-mail marketing capabilities. This enabled Smile Train to launch a highly effective fundraising operation and to become one of the fastest-growing nonprofits in the country, while other nonprofits with similar missions have hit funding ceilings by not laying tracks for future growth.

Don’t just invest in programs. Effective programs do not operate in a vacuum. They need strong organizations for support. Grantmakers should take stock of the whole organization rather than focus on a specific program. Panelist Rodney Christopher, senior fellow at F.B. Heron Foundation, emphasized the importance of investing in financial management and business planning needed as building blocks for future growth. These complementary skills ensure that grantees not only understand the sources of reliable and replicable revenue but also make plans to nurture and grow those sources over time.

Support evaluation and learning. Measuring and evaluating impact are prerequisites to scale, said panelist Gabriel Rhoads, director of evaluation and learning at the Edna McConnell Clark Foundation. Unfortunately program evaluation is an overlooked area of capacity building. Investment in measurement, including specific skills and IT systems, helps nonprofits use data to inform decision making and make improvements to their programs. It also lays the groundwork needed for attracting funder support for “what works.” When grantmakers help build evaluation and learning capacity, they ensure that grantees become more adaptive, sustainable organizations.

Strengthen nonprofit leadership. Funding a growing social enterprise is fundamentally an investment in the current leadership. “It’s placing a bet on a social entrepreneur,” said panelist Bob Searle, partner for portfolio investments at New Profit. Thus, New Profit prioritizes leadership and board development in its work with early-stage organizations, essentially helping leadership teams work better together. A focus on leadership also helps to build a mindset and culture required for long-term viability.

Organizational capacity building comes out of the shadows when funders and nonprofit leaders engage in honest dialogue and focus on the needs of the whole organization. You can’t stay ahead of the curve if you don’t put capacity building front and center. When that happens, funders and nonprofits are on the path to growing their impact in the communities they serve.

 

Peter Kim is senior director of learning and innovation for The Bridgespan Group; and Heather Peeler is vice president of member and partner engagement at Grantmakers for Effective Organizations.