The Four Big Myths of Not for Profit Growth Strategies

Uniting NSW and ACT group executive Doug Taylor runs through four of the biggest myths when it comes to growth strategies in the not-for-profit sector.

We’ve all been on a not-for-profit (NFP) board and executive strategic planning day, when along comes the inevitable conversation about growth. Typically, it’s after a long day, and you are getting close to your new plan being signed off when someone pipes up about the need for more growth.

Of all the debates on the day, this will be the most simplistic, not only because everyone wants to get home, but because organisational leaders often have little appreciation of the unique factors in NFP growth. As a result, leaders make a number of mistakes that can have serious consequences for the future of their organisation.

What follows are the four big myths that exist around growth and how you can avoid being ensnared by them. I’ll be drawing on some of the great insights from Stanford Social Innovation Review which I recently reviewed when presenting at a workshop with the Centre for Social Impact.

Myth 1: Growth leads to greater social impact  

Hopefully, the drive to think about growth comes from a desire to increase an organisation’s social impact, although sometimes I have seen leaders pursue growth as an end in itself. This is clearly not consistent with the role of social purpose organisations which must make all strategy decisions through the mission filter first and foremost.

An even bigger mistake to make is to fall for the myth that having a bigger organisation will mean you will have a bigger social impact. The reality is that there are many ways to increase your social impact and a bigger organisation is only one pathway.

The other reality is that not all organisations have to be big; there are benefits for communities in some organisations staying small. In the article, ‘What’s Your Endgame’, the authors not only call out the raft of challenges in pursuing growth (such as a lack of capital for capacity and risk of mission drift), but also outline the host of options for NFP’s who want to scale their impact but not necessarily by making their organisation bigger. These can include making resources available through open source strategies, replicating through licencing or networks, getting government to incorporate through policy, or through commercial adoption and social enterprise.   

So instead of jumping immediately to grow your organisation, in the hopes of making a bigger impact, think about the other ways you can do this and the risks you will inevitably face in an organisational growth strategy.

Myth 2: Growth can happen without preparing for it

Okay so let’s assume that you have done the work and have found that the best way to increase your impact is to grow your organisation. If that’s the case, the next most common mistake or myth people fall for is to not get ready to grow and ensuring you address key weaknesses.

In Meehan and Jonker’s, ‘Earning the right to scale’ they argue that to grow, you need seven core elements in place:

• Focused mission that informs the work;
• Clearly articulated and well understood strategy;
• Robust impact evaluation systems and processes;
• Leadership insight and courage that can drive change internally and externally;
• The ability to manage talent and build a high-performance organisation;
• The capacity to adequately fund support and operational functions; and    
• A diverse, skilled and strategically focused board.  

Research on the topic has found 52 per cent of NFPs were pursuing growth before they were ready to. Our sector is littered with examples of organisations that have burnt precious reserves or no longer exist because they did not prepare effectively for their growth.   

Myth 3: Diversifying revenue is always the best way forward

There’s a myth that as you grow, you should diversify your revenue to mitigate risks of adverse changes for a particular funder or income stream. It intuitively makes sense, but evidence suggests efforts should be focused on the types of revenue you’ve developed strengths in, whether it be government contracts, fundraising or fees from clients.

In the article, ‘How nonprofits get really big’ research was done on NFP’s founded since 1970 who had reached over $50 million in annual revenue. Only 144 NFP’s (excluding hospitals and universities) fit that criteria, which is indicative of the challenge these organisations face in growth. The research found that most got big not by diversifying their funding sources, but by raising most of their money from a single type of funding aligned to their mission.

The Australian funding environment is of course different, but the principle still stands that there is a clear benefit of this approach in that an organisation can develop a business model that’s focused on a single set of capabilities. This isn’t to say your organisation won’t have multiple revenue types, but perhaps the 80/20 rule should apply here and remember there’s still scope for a variety of funders or customers within a dominant business model.

Myth 4: All revenue is worth pursuing

There’s a great old quote about NFPs that says, “there’s no mission without a margin”. Far too many organisations run programs or launch new ones that don’t generate sufficient margin to cover all costs incurred, and enough to put into reserves for the future. These are incredibly important, as they can be used for future investments in new systems, advocacy or innovation. This is important because the reality is, that investment for your future won’t come from government, philanthropy or private institutional capital (as it does in the business sector).

Making sure all costs are factored in when you are determining the true sustainability of the program a must. Of course, it’s ok to run a few deficit programs if you have others that can be used for cross subsidisation but this is getting harder, as government tightens the purse strings on the margin generated from social welfare and community services.

So, there are the four myths of not-for-profit growth strategies. Now when you hear someone raise this at your next strategic planning day you can go into the conversation with your eyes open.

About the author: Doug Taylor is group executive at Uniting, and has over 25 years experience in the sector. You can read more of his blogs at www.blogaworkinglife.wordpress.com