Riding the Wave of Abundance

(Illustration by iStock/Vik_Y)

Since 2020, many progressive nonprofits in the United States have experienced something unprecedented: unplanned, rapid, substantial growth. A combination of unexpected funding, including pandemic relief and a rise in mega-donors, and intensified calls for change in response to events like the murder of George Floyd by Minneapolis police and the systematic targeting of human rights have led to a boom for numerous racial and social justice organizations. Some have seen increases of more than 200 percent.

But while sudden outpourings of support bring great opportunity, they also bring risks. In our work with rapidly growing nonprofits, through our BUILDing for Growth program and other strategy development work at La Piana Consulting, we have identified two particularly acute risk types. The first is performance failure, where an organization can’t effectively put the additional funds to good use, account for them, stay responsive to funders and beneficiaries, and get things done. The second is sustainability, where an organization struggles when the influx of new money ends. As one nonprofit leader astutely identified, “I know we are a trending topic now, and I also am aware that tomorrow, this is likely to shift, but our mission will still be as relevant and important to social justice.”

With the right mindset and careful planning, however, nonprofit leaders can safeguard their organizations against performance and sustainability risks while seeding future success.

Performance Risk

Underlying nonprofit performance risk is the fact that programmatic expenses tend to increase continuously, while the infrastructure needed to support them tends to grow by leaps. Available infrastructure seldom matches perfectly to program needs.

A good example is managing people. An organization can generally manage a handful of people through direct contact in a collegial, non-hierarchical manner, but managing 20 people usually requires delegation of decision-making and a clearer management structure. As one leader described it, “It used to feel like we discussed and made decisions around a kitchen table, but now we’re in an auditorium, and we have to change our methods and reevaluate our structures.” As programs grow, organizations need more-sophisticated routines and systems, processes, and procedures across the board. Even mid-size organizations that already have 20-40 staff when rapid growth begins may need to redesign systems that are no longer up to the task.

Programmatic expenses for nonprofits tend to increase continuously, while infrastructure tends to grow by leaps. (Image by Beverly Snow)

In the early 2000s, the American Civil Liberties Union, a stalwart defender of individual rights and liberties, committed to reducing performance risk by creating a new department and dedicating substantial resources to strengthening the organizational capacity of its affiliates. Prioritizing the financial sustainability of affiliates in important battleground states, the organization is a valuable example of how to purposefully instill the capacity for sustainable growth.

The consequences of overstressed systems can be wide-ranging. They can include minor annoyances such as difficulty getting timely data, morale busters due to payroll errors, and potentially catastrophic problems such as an inability to account for funds received or expended. Organizations experiencing rapid growth are drawn to exciting new opportunities, developing promising strategies to advance the mission, starting or expanding existing programs, and hiring staff. But an inadequate or heavy-handed bureaucracy, inattention to financial and people management, low board engagement, or a weakened organizational culture can lead to poor performance, ethical (or even legal) lapses, and reputational harm.

Sustainability Risk

A lack of attention to systems contributes to the second major type of risk, organizational sustainability. When nonprofits receive a short-term infusion of new funding—say, a three-year grant—they regularly need to stop and ask, “What will we do in year four?” Recipients of large, one-time infusions—such as an eight-figure MacKenzie Scott grant—must face additional questions: How much should we spend on program activities and infrastructure support, or raise compensation? Over what time frame? How much should we invest in long-term sustainability?

While it’s essential to ask these questions, there are no easy answers. Some organizations yield to internal pressures to spend everything immediately—on salary augmentation, new programs, or building improvements. Others take a conservative approach, retaining unrestricted dollars for the long term while leaving some immediate needs unmet. Indeed, many leaders find that everyone in their organization has a different proposal for how to use the money.

If organizations don’t answer these questions, the inevitable end of a high-growth era can lead to an existential crisis. Some years ago, for example, we worked with a counseling center that won a five-year federal grant to improve its treatment outcomes by raising its therapists’ salaries. The grant ended, and with no replacement funding, the organization found itself needing to dramatically reduce those salaries. While the therapists had grudgingly accepted poor compensation five years earlier, once their salaries were higher, no one was willing to go back. The staff resigned in droves, and the organization ultimately closed.

Five Tips for Navigating Risk

Recently, we asked 60-plus leaders of rapid-growth organizations what they would recommend to other leaders who received large, unrestricted gifts. Five clear themes emerged.

1. Take a deep breath and pace yourself.

Windfall funding can create a feeling of urgency, pressuring leaders to act hastily. Instead of resourcing projects that can seed new growth, for example, they may be inclined to fund areas that are top of mind or business as usual.

When Reinvestment Fund, an organization that delivers targeted community investments, received a substantial, one-time gift in 2020, the board encouraged leaders Don Hinkle-Brown and Amanda High to fight the urge to act fast, and instead move slowly and purposefully. This relieved the pressure of having to put the funding to use immediately, and gave them time to align their hopes and expectations with the organization’s existing strategy. It also gave them time and space to educate staff on the business model so that employees fully understand issues related to the funding, such as the fixed and variable costs related to new initiatives.

In the words of leaders who have navigated these moments: Take sufficient time to understand what the windfall means for your nonprofit. Create alignment across the entire organization. Pace yourself—this is a marathon, not a sprint. Celebrate what got your organization to this point. Reflect on your mission and purpose, and incorporate that reflection into every aspect of your process.

2. Build a thoughtful, visionary plan.

Plans for deploying new resources will necessarily differ from organization to organization. In our conversations with leaders, the only clear overlap in approach was ensuring that spending aligned with their organizations’ strategy. Make sure that internal and external stakeholders have a voice in planning; focus on impact and capacity; and clearly define outcomes, timelines, and contributors.

Reinvestment Fund, for example, invited all staff to a Shark Tank-inspired session, where everyone had a chance to pitch their wish list items. Its leaders used this experience to surface bold ideas, maintain an authentic conversation with staff about what was and wasn’t on the table, and manage expectations accordingly.

For Hispanics in Philanthropy (HIP), a transnational fundraising and grantmaking organization, windfall funding arrived at the height of the pandemic, when it felt an urgency to act in response to anti-immigrant sentiment, COVID-19 relief, and natural disasters across the Americas. The organization’s internal needs had grown as rapidly as the needs of Latinx communities. As Jazmín Chávez, vice president of innovation, equity, and communications, described it, “We were like firefighters working at an international level.” To act nimbly, leadership met with its board to gather ideas, identified gaps and internal processes that needed support, and allocated resources accordingly. Unrestricted windfall funding allowed HIP to align and expedite work on its priorities, and innovate with the comfort of a strong safety net of support.

3. Make purposeful internal investments.

Operational needs are the least sexy funding area for donors, but they’re fundamental to a nonprofit’s success. Using unrestricted funds to fully support programmatic growth increases organizational resilience and sustainability. Doing it well requires that leaders communicate closely with staff about how the funding and corresponding work will impact them, and the major infrastructure gaps that need filling.

HIP used a large unrestricted gift in 2020 to fortify its cybersecurity. As with other leading-edge organizations, greater visibility generates more malicious cyber-attacks. The effects of these threats were palpable for HIP, where a previous attack briefly took down its website. Unrestricted funding enabled the organization to assess and fortify its IT systems to better protect data. It also invested in a proprietary crowdfunding platform, HIPGive, which helps HIP safely and efficiently channel funding from individual donors to nonprofit projects across the Americas, as well as use big data to increase its competitive advantage in online giving.

4. Develop messaging that brings others along.

Some nonprofits fear that donors who hear of their windfall may think they no longer need support or may see its use of funding (such as for paying off debt) as not advancing the organization’s mission. But funders love success, and everyone appreciates being part of a winning team. Crafting transparent and inspiring external and internal statements after developing a plan will help bring them along.

The community arts center Self Help Graphics, for example, has put part of its unrestricted windfall funding toward messaging that features the organization’s process and people, and that links its day-to-day work to both local and far-reaching communities. By highlighting news, exhibits, staff stories, and youth programming opportunities on social media, the center gives people an opportunity to connect with its work, which boosts visibility and support, and when stories include details about large gifts or media recognition, people are curious about how the organization will respond and want to hear more.

Windfall funding can also have a multiplier effect on giving. At Self Help Graphics, Executive Director Betty Ávila noted that unrestricted funding from the Ford Foundation opened many doors, giving the organization access to other big-name donors that further strengthened its financial position over time. The trust underlying unrestricted funding has also helped affirm Self Help’s value and led additional funders to it. This multiplier effect is significant, as many nonprofits vividly remember the funding challenges of the 2008 financial crisis and look toward the future with trepidation. As Ávila observed, having an abundance of resources can still feel precarious, because the hardship experienced during the recession still feels very tangible to those who lived through it. 

Internal communication is just as important. Staff might expect the organization to allocate funds to their specific work area or to improve their compensation. Carefully explain your decisions and decision-making process. Communicate the balancing act needed to advance the mission while strengthening organizational sustainability. Staff will be among the first to know about the gift and will be eager to hear about next steps, even if that means a period of pausing and planning.

5. Plan for financial sustainability.

No funding boom lasts forever, so it’s important to manage the influx effectively, keeping a keen focus on long-term sustainability. Leaders should make sure their internal systems and staffing can handle large sums. If relevant, consider creating a reserve with a portion of the new money. On the program side, it’s important to build on current successes and ensure that any new programs have a future. The same goes for people. A unique challenge for organizations navigating abundance is knowing who and when to hire. A funding surge is an opportunity to grow and invest in people power, but it’s important to build a secure future for new staff.

Michelle Ramos, executive director of Alternate ROOTS, an arts service organization with experience receiving windfall funding in both 2020 and 2021, noted how valuable it was to have a board member with investment experience who could provide guidance on socially conscious investing. This internal expertise allowed the organization to invest its new funds in a way that aligned with its values as a progressive, leaderful organization.

Windfall funding also allowed Alternate ROOTS to grow its staff and operations from a place of abundance. It knew that it could bring new people on board with a significant runway that allowed them time and space to diversify into new funding. But, as Ramos cautioned, more people don’t immediately translate to more efficient work. Organizations also need to invest in onboarding and developing talent as they grow.

Evolving Funding Practices

In terms of social justice, Ramos highlighted, “The idea of a large, one-time investment is fantastic, and it doesn’t solve the historic disinvestment of BIPOC communities from centuries and decades.” The recent wave of new funding in support of the work of racial and social justice organizations has enabled organizations to dramatically expand their work, while highlighting the need to build a solid, enduring infrastructure for the long term.

As new norms evolve around trust-based philanthropy and individual giving continues to mobilize to defend against targeted human rights violations and other social issues, more nonprofits will have the opportunity to navigate the risks and challenges that come with a rapid, unplanned wave of abundance. Nonprofit leaders who embrace these recommendations will be better equipped to develop a visionary, collaborative, and intentional process that results in sustainable growth.

Read more stories by Humberto Camarena.