The Nonprofit Growth Dilemma

Bob Cryer

Bob Cryer

Growing a for-profit is relatively easy. Just demonstrate, in a credible test market, that customers will buy your product, and that you can deliver it at a cost that enables you to make a profit. Then venture capitalists, bank loans and your retained earnings will give you all the cash you need to expand at a pretty good clip.

A charitable nonprofit donates its services to the needy. If the nonprofit services increasing demands, its costs increase, but not its revenue, and its retained earnings available for further expansion declines. And there is no venture capital or bank loans to fund the nonprofit’s need to grow.

The government is a major funder of nonprofits, but local government agencies that disperse the funds have little influence on how much they have to disperse. Nonprofits that need to grow to meet rising needs must either find other government agencies with funds available for their mission or invest in a lobbying activity to increase the government funds available for their particular cause. The most likely outcome neither option, and being forced to underserve the need.

Growing a privately funded nonprofit is just as challenging. Foundations have a reputation of only wanting to fund a small portion of a new program for a few years, but not the growth of an established program. Corporations are typically interested in how much publicity they can get from sponsoring a nonprofit’s event, rather than funding where the needs are greatest. Individual donors tend to be attracted to unique causes and relationships that resonate with their particular values, rather than the cold realities of what volumes of what services are most needed in our community.

Given the nature of the funding sources available to nonprofits, it may be easier to fund a new program or nonprofit to serve a growing need rather than trying to get more funding for an established nonprofit program. Perhaps this is one reason why we have so many small nonprofits in our community.

Author:  Bob Cryer,  Executive Coaches of Orange County,  www.ECofOC.org

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