A conversation about diversifying small nonprofit organization funding for success

A leader of a nonprofit organization came to me a few days ago with a problem many small nonprofits face. With a staff of about five and almost no staff time or financial resources to spare, this leader wanted to move the organization into new areas of work in an attempt to diversify funding.

Currently the organization is funded by a single large grant, with funds restricted for use to accomplish specific goals. Despite the inherent instability of “putting all your eggs in one basket,” the organization has been able to extend this same grant for about 10 years. The current economic climate makes future extensions questionable. Her objective of diversifying funding sources was sound, and it was essential.

The only question she had was, “how do you finance nonprofit organization growth with no resources to spare?”

Any one organization has different strengths and weaknesses than any other, so my advice was matched to the leader’s situation. But I’ll bet what I told her will be pertinent for many other small organizations.

First, we discussed freeing up some staff time. I recommended getting her staff together to better define their current responsibilities and then redistribute and focus existing job responsibilities among the group. I described a process to build individual performance plans around existing organization work load and then manage jobs with laser precision. Perhaps by finding efficiencies staff could “free-up” a little time.

Second, we spoke of bringing in some cash. I described a technique to solicit small donor funds without spending large amounts of money or staff resources.

Third, in agreement with her original objective, we talked about finding new mission-driven work that would diversify funding.  We needed to find a way to finance nonprofit organization growth with either staff or dollar resources.

This is where she really needed sound advice. The organization simply did not have the staff skills or financial safety-net to mount an expansion into new areas. They would need to get lucky to succeed.

Why bet your organization’s future on luck when you can set yourself up for success?

We talked of diversifying work into services related almost exactly to the current work underway — the kind of work they have been doing for a decade. With a little staff time freed up by more efficient work assignment, the staff would be well-positioned to succeed in expanding existing services. I called this the “do more of what you do” approach to diversification. Here diversification means providing the same basic “services” to others desiring that service. Given limited resources this is an excellent strategy.

Too often organizations with insufficient resources to do so, attempt to build a new business stream in an area where they have no capacity to instantly succeed. Sure the “grass may look greener” working in a new area (and it may be), but without staff or financial capacity to get there and actually do the job, the organization takes a risk when it bets its entire future to get there.

The “do more of what you do” approach made better business sense.

Beyond doing more of what they already do, I suggested an approach to further broaden the organization’s reach into areas where staff had no current capacity without risking any current cash reserves. I suggested using the same business-minded approach businesses used to expand into new areas of business. Unfortunately, too many nonprofits base their organizations’ future more on hope and good will than on realistic financial planning.

I suggested a course to finance nonprofit organization growth and future financial stability.

A for profit company seeking to expand its business into a new area or start a new business seeks investors, issues an IPO (initial public offering), or gets bank loans. A nonprofit having limited resources may need to do the “same.”

Of course nonprofits don’t normally get loans (but, loans are possible) or do an IPO as a way to expand program areas or fundraise, but nonprofits can seek “capacity building grants” from foundations or get donor support for “expansion.” There are ways to get the equivalent of a loan. There are even ways to broker real “loans” through donors, although the organization at issue in my discussion had no capacity to do such a thing.

In the end, I suggested immediately expanding existing “services” and to use any remaining financial resources to seek “capacity building funds.” This way the organization could leverage the funds it had to gain the much greater resources it needed to successfully expand in new directions that would provide greater long-term financial stability.