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Scaling Up: Give Money and Advice this #GivingTuesday

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#GivingTuesday is a good chance to scan the nonprofit landscape for worthy causes. In addition to donations this fall, your favorite nonprofit may be a good candidate for scaling advice.

Nonprofit organizations are formed with a charitable intent around a mission--an opportunity not to be missed or a problem to be attacked. There are some good reasons for forming a nonprofit corporation (one that qualifies as tax exempt under IRS code section 501(c)(3)):

  • You are eligible for private and government grants (not typically available to for-profits).
  • Unlike a loan, If you receive a grant you don't have to give the money back.
  • Donations are tax deductible for your donors.
  • If you make a profit, you don't need to pay federal corporate income taxes and, in most instances, do not pay state corporate income, franchise, excise, use, and sales tax.
  • You may receive generally favorable treatment from educators skeptical of private enterprise.

There are a couple downsides to forming a nonprofit corporation. The first is the loss of control. You need to put together a board of directors that become your boss-and they can fire you. You may be subjected to more scrutiny because your finances are open to public inspection. If your organization grows and becomes profitable you can't sell it. Nonprofits may pay lower salaries and have less incentive compensation than for-profits that can make it a challenge attracting talent.

The final disadvantage, and the subject of this, is the challenge of bringing a nonprofit to scale. For nonprofits, scale means more fundraising and more headaches but probably not a lot more remuneration--lots of hard work, more risk, and not a lot more reward. Nonprofit mergers are rare because there are weak incentives for scale and consolidation.

Despite inherent disadvantages of the nonprofit structure, there are big problems to solve and solutions that should be brought to scale. This blog outlines strategies and lessons for extending impact.

Dave Lash has spent 30 years studying innovation. He's learned some useful lessons on how systems change, how human beings develop, and the role innovation plays. Starting with a couple ideas from Lash, following is a list of 10 tips for expanding the impact of a nonprofit organization.

1. Build networks. Entrepreneurs lay the foundation for success by developing five networks: personal, regional, industry, innovation, and enterprise resources. Building connections is important because most big foundations don't accept unsolicited proposals so you'll need to find an opening and introduction.

2. Lead users. Identifying your first customers/clients and deeply exploring their needs helps you understand the problem you're trying to solve. Eric Von Hippel at MIT has been studying the sources of innovation for decades. In sector after sector, it comes down "lead users" who have the passion and persistence to keep working a problem until they find a solution. They are the first innovators although those that commercialize their discoveries usually get the credit. Lash suggests, "find, protect, and invest in lead users."

3. Lead donors. Now that you're connected and informed, it's time to raise some money. Crowdsourcing is a new option but it sure helps to have a lead donor to get things started. Lead donors may include friends and family, a local community foundation, or a national foundation focused on the problem you want to solve.

4. Scale ready. Scaled impact requires a program or intervention with a strong theory of change or logic model. An evaluation of the program should determine whether it has been effective, if so why, and whether the program elements can be transferred to a new setting.

5. Window of opportunity. It will help fundraising efforts if you can make the case that you're working on an important problem and that you're proposing a timely solution. Timing is more important than ever because most big foundations have adopted "strategic philanthropy" which means they have outlined a detailed change agenda; you'll need to find yourself in their agenda, use their language and metrics, and hit their grant making window.

6. Credibility. Perhaps most important to donors is that you appear credible as an organization--you understand the problem and have the capacity to do what you've committed to do. Reference projects, capable staff, and initial funding can all help boost credibility.

7. Fee-based. Successful nonprofits often develop a strong base of earned revenue to reduce philanthropic dependence. Charging for some of your services will not only improve your sustainability, it will encourage you to keep an eye on your costs.

8. Sweet spot. In many cases you'll need to be able to describe a solution that is cool but not too cool. In Mastering the Dynamics of Innovation, James Utterback discusses the gravity of the dominant design (such as the traditional school model) pulling down and crushing "deviant" efforts. But go too far from the dominant design and you risk losing credibility. The sweet spot for innovation is the orbit that balances these forces.

9. Adaptive entrepreneurship. Amar Bhide wrote about successful entrepreneurship in The Origin and Evolution of New Businesses. Lash built on Bhide's work to outline four elements of adaptive enterprising:

  • Plussing from one near-term opportunity to the next;
  • Leveraging skills and assets in increasingly sophisticated and uncommon ways;
  • Upstreaming attention and actions on emerging needs and trends; and
  • Spanning disparate ideas and resources assembled through proactive cultivation.

10. Capacity. The last step before a big expansion is building capacity. Make sure you have a plan to develop the people, systems and resources to go to scale. Consider management succession--who could do your job? Who could step up and manage a new location? Make sure your culture is scalable; how will new locations make decisions, treat customers, value resources?

These ten steps will help you build thriving nonprofit. Donors and customers/clients may be asking you to expand. It may be time to pick the right scaling strategy.

Scaling strategy

There are three basic scaling strategies: expand services, expand locations, or advocate for your solution.

1. Service expansion. If you are delivering value to a group of customers/clients it may be time to add new products and services. Focus groups and pilot projects can help you gain quick insights into the potential to create value. Donor discussions will help you understand if you can rely on your existing base or it new donors will need to be cultivated.

2. Replication. Adding new locations for your services can be accomplished by operating new locations yourself (like AAA) or by creating a network of semi-autonomous affiliates (like the KIPP school network) or something in between (like Communities in Schools which has local and regional affiliates that share an operating and measurement framework).

The key to replication is figuring out what should be tight and what should be lose--what will remain common and where will local affiliates have flexibility? The answer depends on your value creation formula and the variability in context variables for each affiliate site.

3. Advocacy. Rather than expanding to new locations, you could just share your success via open resources, success stories and advocating for productive policies. YouthBuild USA are leaders in this. They support over 260 urban and rural local programs through shared resources, public narrative campaigns on Capitol Hill and policies that put students first.

Stay tuned for some working examples in our paper on Scaled Impact out next week.

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