By Alice Gugelev & Andrew Stern
The Reciprocity Foundation works with homeless
youth in New York City. Like many other
nonprofits, it works tirelessly to make a deep
and highly focused impact on a relatively small
population. Its founders believe that transforming
the lives of 90 young people in a profound and long-lasting way
is more meaningful than working with thousands of young people
in a superficial way. They worry that if an organization like theirs
attempts to expand—by opening new locations in New York State
or across the United States—it likely will dilute its impact and reduce
its overall sustainability.
Yet the magnitude of the challenge that Reciprocity has targeted
prompts a crucial question: How can a nonprofit that operates at
such a modest scale even scratch the surface of a social problem
that is growing exponentially? More than 20,000 homeless young
people live in New York City alone, and there are an estimated 1.7 million homeless minors nationwide. Wouldn’t all of them
potentially
benefit from the Reciprocity program?
In recent years, the Reciprocity Foundation has adopted a new
approach to dealing with the challenge of scale. Instead of expanding
its base organization, Reciprocity partners with large social-service
agencies to train their staff in the Reciprocity model and to deliver
programming at their sites. “It’s a way of covertly scaling—of growing
our impact without having to add office space, increase funding,
or replicate staffing,” says Taz Tagore, cofounder of Reciprocity. Such
partnerships enable Reciprocity to broaden its impact and deliver
high-quality outcomes that benefit the sector as a whole.
The scale of an organization, in other words, does not necessarily
equal the scale of its impact. In fact, most nonprofits never reach
the organizational scale that they would need to catalyze change on
their own. High structural barriers limit their access to the funding
required to grow in a significant and sustainable way. Given those
barriers, it’s time for nonprofit leaders to ask a more fundamental
question than “How do you scale up?” Instead, we urge them to
consider a different question: “What’s your endgame?”
An endgame is the specific role that a nonprofit intends to play
in the overall solution to a social problem, once it has proven the effectiveness of its core model or intervention. We believe that there
are six endgames for nonprofits to consider—and only one of them
involves scaling up in order to sustain and expand an existing service.
Nonprofits, we argue, should measure their success by how they are
helping to meet the total addressable challenge in a particular issue
area. In most cases, nonprofit leaders should see their organization
as a time-bound effort to reach one of those six endgames.
So what is your endgame? Is it “continuous growth and ever
greater scale”? In light of the enormous challenges that exist within
the social sector, that is an easy and compelling answer for nonprofit
leaders to give. But it may not be the right answer.
The Problem of Organizational Scale
For nonprofit organizations that aim to scale up, the odds of success
are long. If you held a conference on “managing large-scale organizations,”
the number of for-profit CEOs in attendance would dwarf
the number of nonprofit CEOs. Between 1970 and 2003, 46,136
for-profit businesses in the United States surpassed $50 million in
annual revenue, whereas only 144 nonprofits did so. The situation
for nonprofits has improved only slightly in recent years: Between
1975 and 2008, just 201 nonprofits reached that $50 million mark.1
Today, more than half of all registered US nonprofits receive less
than $100,000 in annual funding, and only 7 percent of them receive
funding of $1 million or more.2 In short, very few nonprofits
are reaching a significant degree of financial scale. More to the point,
few of them are reaching a scale that is commensurate with the
scope of the challenges they seek to overcome.
In our view, a US-based nonprofit needs to reach an annual funding
level of at least $5 million before it qualifies as having attained
“breakout scale.” Roughly speaking, an ideal nonprofit will follow a
growth trajectory that goes through the following stages (with the
size of its annual budget serving as a proxy for its scale): start-up
(less than $500,000), proof of concept ($500,000 to $2 million),
early scaling ($2 million to $5 million), breakout scaling ($5 million
to $10 million), and full scale ($10 million or greater).
Foundations, which often serve as early-stage funders for nonprofits,
have little or no incentive to support an organization through
later stages of growth. Even if they want to provide such support,
foundations often don’t have the financial means required to do so.
In fact, foundations were the primary funder for only 2 of the 144
nonprofits that passed the $50 million barrier between 1970 and
2003. Of those nonprofits, one-third of them depended primarily
on revenue-generating programs, and one-third relied primarily
on government funding.3 Other significant sources of potential
funding—commercial lending, for example—are typically not available
to early- and mid-stage nonprofits. Those sources often require
a nonprofit to have a budget of at least $5 million. (Several years ago,
we presented a nonprofit investment opportunity to a commercial
banker. The banker told us to come back when the organization in
question had at least $100 million in funding!)
In the for-profit sector, angel investors or venture capital firms
might fill this gap. In the nonprofit sector, organizations persistently
face what we call a “social capital chasm”—a gap that yawns
wide between them and the budget of $10 million or greater that
they need to achieve full scale. (See “The Stages of Organizational
Growth and the Social Capital Chasm” below.)
The nonprofit sector, of course, has undergone a great deal of
change in the new millennium. A new generation of nonprofit leaders
is implementing revenue-generating models that promise to
alter the scale at which their organizations can raise funding. Have
they made headway in narrowing the social capital chasm? It may
be too early to tell; growth takes time. But early evidence does not
offer much cause for optimism.
To analyze this question, we looked at 142 nonprofits that receive
support from a group of leading US funders. We then focused our
attention on 41 organizations that were founded between 2000 and
2007.4 These organizations have had at least five years to grow but
are not so mature that their previous growth would account for their
current size. For 39 of those 41 nonprofits, we were able to locate
relevant, comparable data, and we found that those organizations
had achieved varying levels of financial scale by 2012: Two-thirds
of them (27 of the 39) had reached $2 million, but only one-fifth of
them (8 of the 39) had reached $10 million. These organizations are
some of the most promising nonprofit ventures of the past decade,
yet only a few of them are operating at a significant scale.
Inside the Social Capital Chasm
There are several structural factors that distinguish the nonprofit
sector from the for-profit sector.5 Because of those factors, we argue,
a well-functioning “social capital market” to support nonprofits
through each stage of growth has not yet emerged—and may never
emerge. Here, we point to four challenges in particular that make
it difficult for nonprofits to scale up.
Lack of ownership or equity | For structural reasons, nonprofits find
it difficult to attract the sort of managerial talent that helps lead for-profit
companies through periods of significant growth. They cannot
offer deferred compensation packages that involve equity (in the
form of stock options, for example), and therefore it’s hard for them
to recruit high-caliber people during their early growth stages. For
nonprofit founders, similarly, there is no financial incentive—no “exit
value”—that would encourage them to keep expanding an organization
until it reaches a given scale. The nonprofit sector also lacks the kind
of incentive structure that would promote scale-enhancing mergers
and acquisitions. There are no shareholders to reap the benefit of such
transactions. Instead, there are senior managers, who often have little
to gain and much to lose when two organizations become one.
Nonalignment between funding and service | In the for-profit sector,
the success of an organization depends on its ability to develop a
product or service that will drive revenue. Its ability to achieve commercial
“impact,” therefore, aligns with its ability to raise money. Rich
Leimsider, vice president of fellowship programs at Echoing Green, describes this challenge: “In the social sector, you have to win two
games simultaneously: a product game (delivering real social impact)
and a revenue game. And since the product users are not always the
same people as the revenue providers, that’s pretty hard to do.”6
Bias against investment in growth | The now-common (and sometimes
accurate) depiction of large-scale nonprofits as bloated and bureaucratic
institutions has led to a trend in favor of supporting smaller nonprofits.
Critics routinely malign large-scale nonprofits—those that, say, break
the $50 million annual revenue barrier—for being inefficient in their
allocation of resources. Partly as a result, a general norm has emerged
in the social sector that requires 85 percent
or more of an organization’s
capital to go toward funding programs rather than operations
(also known as “overhead”). This norm strongly limits organizational
growth, which hinges on investments in structures, processes, and
capabilities. Too often, funders want to contribute only to programs
that deliver direct, immediate impact. As other observers
have noted,
this bias among funders destabilizes the sector and hinders the ability
of organizations to scale up.7
A skewed grant funding structure | Instead of supporting an organization’s
overall mission, funders often prefer to provide grants
to programs that target a particular issue over a limited period
of time. Corporate foundations, in particular, often allocate capital
to efforts that align with their own institutional goals but not
necessarily with the broad goals of the nonprofits they fund. The
International Institute
of Rural Reconstruction, for example, can
easily acquire one-time grants to install solar lights in schools, but
it struggles to secure multiyear grants to train teachers or to operate
schools. Fundraising thus becomes
a continuous scramble to
meet annual targets, and nonprofits focus on applying for small,
piecemeal grants—an effort that taxes their resources and further
limits their ability to grow.
From Scaling Up to Enabling Impact
Given these structural barriers and the unlikely prospects for overcoming
them, most social-sector organizations will struggle to reach
the breakout-scale stage, let alone the full-scale stage. Without the capital needed to develop certain core capabilities, they will most
likely end up with an empty bank account and a great deal of unrealized
potential. For that reason, nonprofit leaders should shift their
focus from the scale of their organization to the impact that their
organization can help to achieve.
Paying close attention to social impact is, of course, a common
characteristic of nonprofits today. Leaders of nonprofits routinely
develop not just a mission statement and vision statement, but also a
statement that outlines the organization’s “intended impact” and its
theory of change. Along with the use of traditional for-profit tools—from strategic plans to impact metrics—these statements have become
widely recognized signs of a well-run nonprofit organization. Many
intended impact statements cover a specific period (five or ten years,
for example), a certain number of beneficiaries (say, 10,000 children),
a particular location (such as Kerala, India), and a particular issue
(such as vaccination). Here’s a noteworthy example of that approach:
“Over the next decade, Harlem Children’s Zone’s primary focus will
be on children aged 0-18 living in the Harlem Children’s Zone project,
a 24-block area of central Harlem. … Harlem Children’s Zone’s
objective will be to equip the greatest possible number of children in
the HCZ project to make a successful transition to an independent,
healthy adulthood, reflected in demographic and achievement profiles
consistent with those in an average middle-class community.” Other
nonprofits create broader impact statements. Habitat for Humanity,
for instance, has announced its intention “to eliminate poverty housing
and homelessness from the world, and to make decent shelter a
matter of conscience and action.”8
The move toward developing intended impact statements has
led the nonprofit sector to become significantly more focused and,
arguably, more effective. But these statements typically lack two
crucial elements. First, they often fail to account for the overall scale
of the problem that a nonprofit aims to confront. As a result, they
fail to reckon with the gap between what the nonprofit can achieve
and what the problem actually requires. A nonprofit might cite an
intended growth rate in the range of 10 percent to 15 percent annually,
for example. In the for-profit world, such a growth rate would
be quite impressive. But it will hardly make a dent in a
social problem whose scale would require a growth rate
of 500 percent or even 1,000 percent.
Second, and more important, these intended impact
statements do not specify how the organization in question
will contribute to solving that broad social problem.
Is there a plan to replicate programs through a franchise
model, for example? Is there a path toward persuading
government agencies to take over a given program or
service? Nonprofits, in short, should take into account
not just the direct impact they hope to achieve, but also
the sector-wide change they ultimately aim to create.
We believe that every nonprofit should define not only
its mission, its vision, and its intended impact, but also
something that is no less critically important: its endgame.
Again, by “endgame,” we mean the specific role
than an organization intends to play in confronting the
total addressable challenge in a certain issue area. In our
research on nonprofits, we have encountered very few
organizations that clearly define that role.
Endgames that Organizations Can Play
We have developed a framework of six endgames for a nonprofit
to consider. (See “Plotting an Endgame: Six Options” below.) This
framework builds on previous research on scaling up nonprofits.
Organizations such as Arabella Advisors and the Bridgespan Group,
for example, have conducted studies on how nonprofits can use advocacy,
partnerships, replication, networks, and other approaches to
make a dent in the immense challenges faced by the social sector.9
How do nonprofits determine what their endgame should be?
They can begin by thinking about the essential characteristics both
of the social problem they have targeted and of the operational model
they use. Those factors should inform which endgame they pursue,
as well as the capabilities they build as their organization matures.
Open source | A nonprofit that chooses an open source endgame
invests in research and development in order to develop and refine
a new idea or intervention. It then works to spread an idea or intervention
by serving as a knowledge hub from which other organizations
can draw resources. In some cases, a nonprofit that pursues
an open source model will also engage in advocacy efforts. A classic
example of the open source model is Alcoholics Anonymous (AA)—a framework for dealing with addiction that any religious group or
other nonprofit can adopt and implement. The AA organization, in
fact, doesn’t run any AA meetings. Instead, it operates a resource
center that provides instructional and inspirational materials to local
AA groups, and those groups host meetings for participants. In
sum, the core competency of an open source organization is effective
knowledge management.
Replication | A nonprofit with a replication endgame seeks to expand
usage of its product or model without having to expand its organization.
To pursue this endgame, the nonprofit needs to demonstrate the
efficacy of its approach and then to find other organizations that can
deliver its product or model. In many cases, other organizations are able
to implement that approach more effectively
than the original organization because
they have a stronger existing infrastructure
or because they enjoy greater
trust within a certain community. In
some cases, nonprofit founders pursue a
replication model because other parties
have approached them about starting a
similar organization elsewhere, but they
have neither the motivation nor the ability
to extend their model to other locations.
Once other organizations adopt
its product or model, a nonprofit that
pursues a replication endgame can serve
either as a certification body that maintains
quality standards or as a center of
excellence that demonstrates best practices
to potential replicators.
Charter school networks are a prime
example of the replication model. Along
with adding a level of competition to
school systems in which they operate,
charter schools test new pedagogies,
new curricula, and other new approaches to improving student achievement. But the implementation of those
innovations typically requires a deep familiarity with local institutions.
For that reason, successful charter schools—Harlem Success
Academy in New York City and North Star Academy in Newark, N.J.,
for instance—often set up replication centers where educators from
other communities can learn how to follow their model.
Government adoption | In the government adoption endgame, a
nonprofit proves its concept and demonstrates that its intervention
can be delivered at a significant scale. Then it mounts an advocacy
effort to influence policy and budget decisions. Once government
adoption occurs, the nonprofit can continue to serve as an advisor
or service provider to government agencies. The scale of delivery
required to confront many (if not most) social problems is high
enough that government involvement often becomes indispensable.
The development of universal kindergarten in the United States at
the turn of the 20th century provides a good case study in how this
model works. Private charities, orphanages, and parochial schools
ran the first kindergartens in the country. After boards of education
started recognizing the developmental benefits of early education,
they began to fold kindergarten classes into existing public school
systems. By World War I, all of the largest American urban school
systems included kindergarten, and kindergarten students in public
schools outnumbered those in private schools by almost 19 to 1.10
Commercial adoption | A nonprofit with a commercial adoption
endgame aims to alleviate either a market failure or a market inefficiency,
such as uncertainty or lack of information. Sometimes a
nonprofit organization can explore ways to fill gaps in production
or delivery that occur when start-up costs or strategic risks are
too high for commercial interests to absorb. Such ventures need to
have a revenue-generating component that a for-profit enterprise
could exploit once a nonprofit provider has reduced the real or perceived
risks associated with it. In recent years, for example, many universities have created centers where engineers
and other faculty members can develop
and test product or service prototypes that a
commercial provider might ultimately adopt.
Or consider the field of microfinance.
Early pioneers such as BRAC and the
Grameen Foundation showed that it was
possible to provide financial services to
the poor and to do so profitably. Commercial
banks subsequently moved in to serve
the higher end of the microfinance market.
Nonprofits continue to serve harder-to-reach
segments, to prepare borrowers
for the broader market, and to conduct
research
and development on new products.
They also help to ensure that the quality of
service provided by the commercial microfinance
market remains high.
Another form of commercial adoption
occurs when a nonprofit incorporates an
earned revenue component that ultimately results in all or most
of its revenue coming from commercial activity. With the pioneering
efforts of organizations such as Ashoka and with the recent
emergence of the impact investing movement, we have seen a
growing emphasis in the social sector on the pursuit of market-based
solutions. Donors, moreover, are now more likely to include
revenue generation as one of their grant criteria. The Spark Fund
of the Global Alliance for Clean Cookstoves, for instance, states
that it requires each grantee to “demonstrat[e] how the business
will achieve sustainable growth over the long term.” Sometimes
it is the founders of nonprofits who drive this quest for commercial
viability.
Examples of that trend include Digital Divide Data, a
digital content services provider that receives most of its revenue
from paid clients, and Riders for Health, a health-care logistics
organization that aims to double its impact while moving toward
a sustainable earned revenue model.
Mission achievement | A nonprofit that uses a mission achievement
endgame has a well-defined and plausibly achievable goal. Organizations
that focus on the eradication of diseases such as polio and
malaria are good examples of this model. One organization that is
pursuing this endgame today is End7, a nonprofit whose mission is
to stamp out seven neglected tropical diseases by 2020. That mission
gives End7 a singularity of purpose that helps align its near-term
activities with its long-term strategy.
In most cases, once a nonprofit attains its goal, it should wind
down. Too often, though, nonprofits in this category enter a period
of drift as they try to stay alive even after they achieve their mission.
An organization should continue beyond that point only if it has an
especially valuable asset or capability that it can deploy for another
social purpose. The March of Dimes, for example, was founded to
fight polio through a combination of patient aid programs and vaccine
research. Then, after Jonas Salk and Albert Sabin developed
vaccines that effectively ended the polio epidemic in the United
States, the organization redeployed its core assets—an extensive
grassroots network and a trusted brand—to serve a new mission:
preventing birth defects and infant mortality.
Sustained service | The decision to sustain
a service indefinitely seems to be the default
endgame for most nonprofits—yet it’s not
always
the right endgame. This model makes
sense only when a nonprofit can satisfy an
enduring social need that the commercial
and public sectors cannot or will not satisfy.
With respect to commercial adoption,
nonprofit leaders can test whether the risk-return
profile of their product or service
would meet the needs of a for-profit company.
Regarding
government adoption, they should
evaluate whether public sector institutions
are unwilling to adopt their intervention or
simply lack the capacity for doing so. (In the
latter case, a nonprofit may want to engage
in advocacy efforts to help build that kind
of public sector capacity.)
US nonprofit hospitals present a good
example
of how to apply the sustained service
endgame. They fill gaps in the nation’s health-care system—particularly
gaps related to equity of service—that government and
private sector entities are unlikely to fill. These organizations sustain
their funding through a combination of earned revenue and philanthropic
contributions, and they depend on strong local community
ties. In addition, they often have an orientation toward customer and
community service that helps drive accountability and efficiency.
Efficiency, in fact, is an essential characteristic of nonprofits with
a sustained service endgame. Typically, they must strive to create
an ever-greater impact using the same amount of resources, or even
fewer resources. For that reason, they need to develop world-class
leadership and world-class operations.
The "End" as a Beginning
“Death is the destination we all share,” Steve Jobs said in his commencement
address at Stanford University in 2005. “No one has
ever escaped it. And that is as it should be, because Death is very
likely the single best invention of Life. It is Life’s change agent.”11
The purpose of a nonprofit, like the purpose of an individual life,
should derive from its inevitable conclusion. To be sure, a minimum
level of scale is essential for a nonprofit to develop its capabilities.
But scaling up is not its reason for being.
Nonprofits need to account not just for the impact they hope to
achieve, but also for the sector-wide change they aim to promote.
“Scale,” in this context, takes on a new meaning. Indeed, for some
organizations, achieving impact on a large scale will involve slowing
the growth of their budget and transferring services to other providers.
In any event, a nonprofit that defines its endgame early will tend
to make better use of resources during its initial stages of growth.
Each of the six endgame options that we have outlined has a defined
life cycle and a predictable budget trajectory. Once an organization
has achieved a proof-of-concept and a minimum scale, its budget
should shift to match the endgame it is pursuing—and only in the
sustained service model should budgets continue to increase. In each
of the other endgames, the budget of a nonprofit won’t rise steeply
over time; instead, it will level off or even decrease. With the open source, replication, or mission achievement
endgame, funding will drop significantly as
a nonprofit evolves into a knowledge hub
(open source), becomes a center of excellence
(replication), or declares “success” and winds
down (mission achievement). In the case of
government or commercial adoption, budget
trajectories will vary depending on the niche
that an organization fills and on whether it
plays a continuing role in service provision
for the government and commercial adopters
of its intervention. (See “The Budget
Implications of Various Endgames” below.)
The hard truth is that a nonprofit is likely
to be most effective if it pursues an endgame
that centers on creating a movement through
an open source or replication model, or if it
works to promote government or commercial
adoption. (Mission achievement is a special
case that applies mainly to nonprofits that
work in certain issue areas.) Adopting one of those models isn’t easy.
Creating a movement requires nonprofit leaders to be collaborative
in a way that an early-stage organization—an organization that must
focus on sustaining its own operations—will find especially challenging.
Government adoption often means working with a large bureaucracy,
and commercial adoption poses the risk that a nonprofit will
appear to be “selling out” to the corporate sector. As we have noted,
however, nonprofits that reach one of these endgames are often able
to achieve ongoing impact by other means.
Game Changers
There are social sector leaders today who resist the common tendency
to focus primarily on “scaling up.” These leaders understand that increasing
the size of their organizations is not the only means, or even
the best means, of achieving impact. In our research, we have encountered
several high-performing nonprofits that are pursuing endgames
that align closely with their capabilities and their circumstances.
Consider Root Capital, a lender to smallholder farmers
in Africa and Latin America. In 2013, Root Capital
had an average outstanding loan portfolio of about
$70 million, and its cumulative loan disbursements
came to $574 million. The addressable global demand
for smallholder financing is $20 billion to $40 billion
per year.12 To reach just 10 percent of the lowest estimate
of addressable demand, therefore, Root Capital
would need to increase its annual loan portfolio by
nearly a factor of 30. Recognizing the need to collaborate
with other parties to achieve its mission, Root
Capital has decided to pursue activities that advance
a commercial adoption endgame. To help catalyze the
broader market for agricultural finance, it serves as a
research and development platform that develops new
financial products, it encourages commercial banks
to serve the top end of that market, and it works with
other agricultural lenders to create industry standards
and responsible lending practices. Willy Foote, founder of Root Capital, says that in its effort to
create
such partnerships, the organization
aims to be “pathologically collaborative (but
not suicidally collaborative).”
Another successful nonprofit that has
adjusted its scale—and its strategy—is
mothers2mothers
(m2m). The mission of
m2m is to prevent mother-to-child transmission
of HIV, and its core intervention
involves enabling “mentor mothers” to provide
education, psychosocial support, and
referrals to health-care and other services.
At one point, m2m operated 800 direct
implementation sites and reached about
15 percent of the 1.2 million HIV-positive
pregnant women in the world. But in 2010,
the organization redefined its endgame.
Leaders and board members at m2m realized
that the organization
would need to
increase its budget sixfold (to more than
$120 million per year) before it could reach all HIV-positive pregnant
women through its existing service delivery model. Today,
m2m strives to reach those women not by serving them directly,
but by encouraging governments to adopt its Mentor Mother program
and by helping
local
NGOs and other partners to replicate
that program. To promote
government adoption, the nonprofit also
advocated successfully for inclusion of its program in a UN global
plan for eliminating HIV infections among children. In addition,
m2m maintains facilities for research and training purposes, and
in some cases it acts as a local implementer.
Ends and Means
For stakeholders in the social sector, asking “What’s your endgame?”
is only a first step. To play their part in maximizing social impact,
they need to change how they manage their own organizations and
how they interact with other organizations. Nonprofit leaders, we
believe, must reckon with three basic imperatives.
Define your endgame early | The start-up routine for nonprofits
should include the creation not just of mission and intended impact
statements, but also of an endgame statement. Endgames aren’t
necessarily mutually exclusive, nor is the right endgame always
fully evident when an organization’s founders begin to act on their
initial idea or inspiration. But deliberate reflection on a nonprofit’s
endgame will help set the organization on a path toward maximum
impact and prevent it from focusing exclusively on organizational
growth. Nonprofits should make clear to funders, beneficiaries, and
supporters which endgame category they fall into, and under which
circumstances their organization will dissolve, merge, or change
scope. Going through this exercise can also help nonprofit leaders
clarify their theory of change.
Focus on your core | With a defined endgame, nonprofits can
spend more time on the core activities that will advance their mission.
For some organizations, having that sense of focus will mean
being
“pathologically collaborative” about knowledge sharing. For
others, it will mean building strong relationships with government
agencies or commercial banks. Focusing on core activities allows an
organization to make seemingly difficult decisions more readily. If
the ultimate goal of a nonprofit is to transfer its operations to local
partners, for example, then opting to engage in direct implementation
would not be in its best interest—even though taking that step
might expand its reach in the short term.
Prepare your team | Nonprofit leaders are not just stewards of their
mission but also stewards of the people who join their organization.
Both stewardship roles are important. Yet the purpose of a nonprofit
is, first and foremost, to achieve a social goal. Nonprofit leaders, as
their organization nears its endgame, need to communicate with their
team about the likely inevitable reduction in the size of its budget and
its staff. Managed properly, that process will create a sense of purpose
that will motivate staff members during their time at the organization.
Funders of nonprofit organizations, meanwhile, face a different
set of imperatives.
Fill the gap | Making a large impact, as we have emphasized, does
not necessarily mean attaining a large scale in financial terms. But
nonprofits do need a minimum level of funding to develop certain
core capabilities. In our research, we have noted a gap between
the point at which nonprofits can easily secure early-stage foundation
funding and the point at which they can access commercial or
government
funding. Funders can help grantees move forward by
filling the social capital chasm and by working with them to develop
sustainable growth strategies.
Invest in catalytic impact | Funders, as they evaluate grantees,
should consider the total impact on a field that each grantee makes—or has the potential to make. Traditionally, they have paid attention
to impact that is direct (delivering health care to beneficiaries, for
instance)
or indirect (lowering infant mortality). But they should also
consider the catalytic impact that a nonprofit can achieve by pursuing
an endgame such as government adoption or commercial adoption.
Similarly, funders should base their grants less on small-bore considerations
(“What level of funding do you need for a particular program?”)
than on broad issues related to mission achievement. Some
funders have started to take this approach. The Skoll Foundation,
for example, has repositioned its portfolio to target certain sectors
(education and economic opportunity, water and sanitation), and it provides funding (in the form of Innovation Grants) to nonprofits
that have the potential to remake those sectors.
Provide endgame support | Funders, recognizing that the social
capital chasm threatens the ability of nonprofits to reach their true
potential, should commit to supporting grantees until they reach their
endgame stage—and then through that stage. Instead of providing
piecemeal assistance to a multitude of nonprofits, they should help
the most promising ones to achieve large-scale social change. As part
of the grantmaking process, moreover, funders should explicitly ask
each nonprofit, “What’s your endgame?” With that information in
hand, funders can more easily discern when a grantee should make
a shift toward (for example) commercialization or replication.
In the end, the goal of a nonprofit is not to increase its budget (or
even its reach) indefinitely. Its true goal, rather, is to achieve social
impact. Analyzing nonprofits according to their endgame represents
the next stage of maximizing impact in the nonprofit sector. Nonprofit
leaders need to define their endgame early, therefore, and
funders need to help grantees bring that endgame to completion.
Perhaps at no time in history has the social sector held so much
potential. A new generation of purpose-driven professionals are flowing
into the sector, and they come equipped with new business models
and new tools to mobilize social changes. To achieve the true promise
of social sector work, however, these and other nonprofit leaders must
start a dialogue about which endgame they will pursue.