This underscores the point that while organizations that want to scale substantially should be driving toward finding one or two primary sources of reliable ongoing revenue, they should get there by testing a good diversity of approaches as they’re growing. In one of the most widely read Stanford Social Innovation Review articles, titled “ Ten Nonprofit Funding Models,” William Foster and his Bridgespan colleagues reveal that of the 144 nonprofit organizations created since 1970 that have grown to $50 million a year or more in size, each grew by more narrowly pursuing sources of funding, typically concentrating on one particular source: what they call the “natural match.” For example, the Sierra Club relies on membership fees.Ī key point to highlight, however, is that their research also shows that organizations typically do not begin to transition to dominant funding sources until around $3 million in annual revenue. The vast majority of organizations under $3 million in annual revenue will rely on a combination of funding sources to come up with a model that fits their unique mission and values. Source: Adapted from William Foster, Ben Dixon, and Matthew Hochstetler, In Search of Sustainable Funding: Is Diversity of Sources Really the Answer? But my research into how nonprofits generated earned income also highlighted that the process is fraught with challenges, and is more viable in some subsectors, such as education and health care, than others.ĭominant (>50%) funding sources for organizations of different sizes. These findings indicate that testing earned-income strategies should be a key ingredient of efforts to scale. The responses showed that while organizations typically start out with mostly philanthropic support, with just 8 percent of their budget coming from earned income, as they grow past $2 million in revenue, they are more likely to report that a higher percentage of their budget is covered by earnings on average about 30 percent. My survey revealed that successfully developing an earned-income strategy was one of the ways organizations broke through the $2 million annual revenue barrier. By purposefully experimenting with revenue, they discover a funding model both authentic to their mission and effective at raising money.Įarned income such as selling products or services is fertile ground for experimentation. What separates the best organizations is a culture of testing a variety of funding streams to figure out what works. Nonprofits at all levels struggle to get noticed by new funders. In fact, 81 percent of the social entrepreneurs I surveyed identified access to capital as their most pressing problem. Kathleen Kelly JanusĪttracting funding is by far the biggest barrier to scale. We need to spend less energy keeping organizations alive, so that we can devote more energy to spreading positive impact. My hope is that this book and the tools it recommends will help you to make your own organization, or those you are supporting, thrive. In these uncertain times, when so many social problems are not only persisting, but in many cases, worsening, we need every bit of creativity and determination to find better solutions. I’ve interviewed over a hundred social entrepreneurs, academics, and philanthropists, both newcomers and veterans in the field, including the leaders of Teach for America, City Year, DonorsChoose, and charity: water, and started our conversations with a simple question: “What is the key to nonprofit success?” Social Startup Success highlights the findings of my study in the form of a playbook for any organization that wants to increase its impact. In 2014, almost two-thirds of reporting public charities in the United States had an annual budget of less than $500,000.įor the past five years, I have been traveling around the country, visiting the founders, leadership teams, and funders of dozens of what I call breakthrough social startups. Despite doing important work, many operate in constant survival mode, scrambling for the money to make payroll every month. And yet, while for many nonprofits this has been an invigorating and transformative time, so many other nonprofits have struggled on the sidelines. As a social entrepreneur myself and a lecturer in the Program on Social Entrepreneurship at Stanford University, I have watched the launch of so many exciting innovations for good. I have had a front-row view of the boom under way in social entrepreneurship.