P O S T E D B Y A L B E R T
To help nonprofit organizations grow and sustain their operations, well-meaning fundraising professionals and foundation program officers often urge them to diversify their sources of support.
An important new study from the Bridgespan Group turns this conventional wisdom on its head:
Diversification may seem like a good idea, but in practice most of the organizations that have gotten really big over the past three decades did so by concentrating on one type of funding source, not by diversifying across several sources of funding. Bridgespan obtained solid financial data for 110 of the 144 high-growth nonprofits we identified. Of the 110, roughly 90 percent had a single dominant source of funding — such as government, individual donations, or corporate gifts. And on average, that dominant funding source accounted for just over 90 percent of the organization’s total funding.
Bridgespan studied nonprofits founded in the U.S. since 1970 with $50 million or more in annual revenues. Some, like Habitat for Humanity and the Make-a-Wish Foundation, are household names, others less so.
But caveat lector (let the reader beware): Be sure to read the study’s fine print before throwing out that old fundraising manual. The authors of the study remind us that “[s]ecuring large-scale funding generally involves some programmatic trade-offs. And large sources of funding appear to be more readily available for—and appropriate to—some missions than others.” Try raising large dollars from individual donors for prisoner re-entry programs, for example.
I would add that:
1. The authors provide a snapshot in time The funding mix appropriate to a mature, $50 million organization might not be appropriate to a community-based organization on the starting edge of its growth curve.
2. Small can be beautiful Don’t equate scale with effectiveness, or efficiency, or benefit to society, or any other good you can imagine.
3. Know your organization’s business To borrow a page from Clara Miller, take time to understand the capital structure appropriate to your nonprofit. (Here’s a pop quiz: Why is a nonprofit youth theatre more like an airline than a youth soccer league?)
And finally ...
4. Secondary funding sources are still important The authors of the study give the example of the Metropolitan Boston Housing Partnership, which receives less than one percent of its funding from unrestricted foundation and corporate donations: “[A]ccording to Executive Director Julia Kehoe, those funds ‘allow us to do critical prevention work that is not currently funded by government programs.’”