ScaleMay 16, 2017

Is your nonprofit ready to grow?

Growth, despite its many risks, can help nonprofits increase impact and scale, reduce costs, improve efficiency, and attract investors. BCG details just six questions you need to ask to assess your growth readiness.
2019-05-20 00:00:00 India Development Review Is your nonprofit ready to grow?
3 Min read Share

As a nonprofit, you need a solid foundation, and a well-defined strategy and road map before expansion begins.  Based on their work in a wide range of industries, the Boston Consulting Group (BCG) has distilled six questions aimed towards helping your nonprofit assess its readiness for growth.

Three Types of Growth

1.   Steady-state: Same degree of growth each year

Benefits
Predictable annual goals
Fewer challenges over time
Can boost growth targets if initial performance is strong

Drawbacks
May not match your specific needs or challenges in a given year
If your organisation doesn’t meet its goals, people might feel discouraged

2.  Ramping-up: Slow growth initially, with significant increases in the following years

Benefits
Allows you to identify organisational gaps and provides the needed time to build capacity

Drawbacks
Risk of losing political support or funds before goals are reached, increasing staff challenges

Choose if
You have a steady source of funding
Your growth needs investments in capacity over time
Your organisation is relatively new, struggling to hire the right people, worried about staff burnout, or needs its processes strengthened

3.  Accelerating: Biggest growth in the first half of the expansion plan; then, it tapers off

Benefits

Allows you to seize an opportunity when it arises

Drawbacks
Can be hard on staff
Potential challenges with execution in the absence of needed capabilities
Failing to meet the stretch goals could tarnish your reputation

Choose if:
You have already invested in needed capabilities and have strong potential recruits, a robust brand, credibility with partners, healthy morale, and are able to provide intensive support to new sites.
You might also consider this strategy if a political or fundraising opportunity arises that may not last.

Alice in Wonderland gif

Assessing Your Readiness

1.  Have you earned the right to grow?

Before scaling up, make sure you have high-quality programs or services that deliver on your mission. Measurable results are increasingly important in the social sector.

Pulling together the right metrics can be complex, especially for smaller organisations that have limited resources or lack the necessary analytical skills. Furthermore, the social sector provides a wide range of services to varied populations, often in partnership with multiple organisations, making outcomes highly variable. Before deciding to expand, make sure that you have an effective model in place and are meeting the goals you have set to measure program quality and impact.

2.  Do you manage your costs effectively—and understand how they will change with expansion?

It’s important to understand your cost structure and the added costs of growth or of operating in a new region. Be sure to assess the break-even or the minimum scale required to succeed. Benchmarking your current costs against those of other organisations at a similar stage—or against other sites in your network—can help your team identify the key budget drivers and where costs are out of line. Costs to explore include total administrative costs, fundraising costs, and costs per employee.

Related article: Why don’t the best nonprofits grow? 

Costs per employee can increase during expansion as a result of investing ahead of the curve, the added complexity of new regions, and not managing for efficiency. Also, some functions are more scalable than others. Finance, IT, communications, strategy, development, alumni, and HR tend to be the most scalable. Training, development, recruitment, placement, and community relations, which are less scalable, typically require additional investment as your organisation enters new regions.

3.  Are the conditions for success in place?

Before moving forward with an expansion plan, confirm that there truly is a need for your products or services in the target area(s) and that any resources you will need—staff, partners, and government support—are available. Be sure that the leadership team is committed to the chosen strategic direction and that expansion efforts have a clear focus.

4.  Can you fund the growth?

To achieve sustainable growth, nonprofits require consistent financial support—from governments, individuals, corporations, or foundations, or a combination of all four. They also need an effective fundraising strategy.

Nonprofits need to operate under unusual circumstances. They may have commitments for funds that don’t arrive in predictable ways, are delivered over multiple years, or arrive at the year end in a lump sum. In many cases, donors impose restrictions on funds, earmarking them for specific programs. So your organization must conduct a 12-month risk-timing analysis as part of your funding strategy. Also, it’s best to create a budget with a cushion—such as 130% of estimated costs.

5.  Do you have the right people and leadership?

Recruiting and retaining good people is always a challenge. Nonprofits often lose potential hires and trained staffers to higher-paying jobs in the private sector.

In our experience, most leaders have to devote more effort to growth than to other types of change. The skills needed for the start-up phase of an organisation are typically different from the skills needed for the growth phase.

The smart founder recognises when to step aside—or at least when to share management responsibilities with a leadership team that has complementary skills. The same is true for staff members. Although hiring managers tend to focus on education, experience, or expertise, it’s just as important to bring in people who have diverse though processes.

6.  Is your organisation model scalable?

Before scaling up, ensure that your strategy and organisation structure can be replicated and exported and that key processes are robust and consistent. Consider, too, that growth can tax your people. The right disciplines and incentives must be in place to keep your workforce engaged and motivated. An organisation model with consistent processes and proven economics is more easily transferred to other locations.

This is an excerpt from the full article, which can be found here.

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