What funding model will sustain our mission, its impact and future growth?
Money is a constant topic of conversation among nonprofit leaders: How much do we need? Where can we find it? Why isn’t there more of it? In tough economic times, these types of questions become more frequent and pressing. Through our research, we have identified ten nonprofit models that are commonly used by the largest nonprofits in the United States. This article describes the models so that nonprofit leaders can more clearly articulate those that they believe could support the growth of their organizations.
More Than a Tool for Tough Times
Mergers and acquisitions (M&A) are much more common in the nonprofit world than most would think, as our study of 3,300 deals across four states over 11 years shows. But nonprofit mergers often come about through default—due to financial distress or leadership vacuums. But the potential for M&A to create real value in the nonprofit sector exists, particularly if more philanthropists take on the mantle of matchmaker and help nonprofits explore and evaluate M&A opportunities.
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Bringing Mergers and Acquisitions to the Nonprofit Mainstream
Funding Growth That Can Be Sustained
In the for-profit world, the term "investment" has clear meaning and investors have sophisticated techniques for identifying the most promising companies. Yet foundations and other nonprofit donors have not developed similar clarity or approaches. As a result, the nonprofit sector's greatest gems often languish well below their full potential. In tough economic times this kind of clarity is all the more important for philanthropists who want to see their money used most effectively. By better translating for-profit concepts, donors can learn how to scout out the select nonprofits that have the potential to sustain their operations and grow.
Finding the Best Approach to Growth
Between 1970 and 2003, 144 nonprofits went from founding to at least $50 million or more in annual revenue. While this is a small percentage of all the nonprofits started during this period, it’s a larger number than is generally perceived. How did these trailblazing organizations achieve such substantial growth? As this article explains, these nonprofits had some significant commonalities in their approaches. Most high-growth nonprofits had a single dominant funding source, which accounted for just over 90 percent of their total funding. They also found a funding source that was a natural match to their mission. And they built a professional organization to support their chosen funding model, for example, bringing in people with expertise in areas like marketing or logistics.
Should Nonprofits Seek Profits?
Looking at the Numbers Behind the Lure of Earned Income
Earned-income initiatives are becoming accepted—even expected—throughout the nonprofit world. But while the case for earned income may seem persuasive at first glance, a closer look reveals reason for skepticism. Bridgespan research shows that earned income accounts for only a small share of funding in most nonprofit domains. Few of the ventures that have been launched actually make money. And the stakes are high: Commercial ventures can distract nonprofits’ managers from their core social missions and, in some cases, even subvert those missions. (This article appeared in the February 2005 edition of the Harvard Business Review. Visit the HBR web site for more information or to purchase the article.)