Joshua Tripp is a man who thinks a lot about what it means for an organization to be sustainable. He is the chief financial officer of Grameen Foundation USA, a nonprofit organization founded in 1997 by friends of Grameen Bank to help microfinance practitioners and spread the Grameen philosophy worldwide, sharing the ideas of 2006 Nobel Peace Laureate Muhammad Yunus. Its mission is to help the world’s poorest people lift themselves out of poverty through access to information, small loans, and viable business opportunities. In other words: helping them achieve self-sufficiency or sustainability. http://www.grameenfoundation.org/about/. (A transparency note: I serve on the Grameen Foundation USA board of directors.)
So if it can happen with the world’s poorest people and the many micro-finance organizations that loan them money out in the field , how can a large nonprofit organization supporting this work also become self-sustaining?
Joshua has been working with the management and board to develop a sustainability plan. I wanted to share two insights from a recent board paper he presented. The first is that becoming a high performing organization, with true scale and impact, isn’t possible unless an organization becomes sustainable. Without it, one is destined to live a life of pilot tests, seed grants, and ultimately little impact.
As Joshua puts it: “Philanthropic funding does not exist in enough magnitude or foresight to bring effective solutions to scale. Most of the scalable social innovations of the past have had sustainable models: vaccines, hospitals, microfinance, bednets, City Year, etc. Without a creative, innovative way to engage the market, true scale is rarely possible. A business model is required. Philanthropic money can be used to develop and innovate, but the market is almost always required for scale.
Joshua’s second insight is that nonprofits need to take more time to understand the lifecycles of their products and services – and plan their funding models accordingly.
As Joshua explains, “Grameen Foundation relies heavily on innovation to develop solutions to improve the lives of the poor and poorest. These solutions are often cutting edge and unproven in their early stage. These are the ones that require the most philanthropic support , as ideas and strategies are being tested. As a product or service evolves in its lifecycle, its product or service must show an ROI (or SROI) that makes it worth continuing. To the extent that this value can be proven to “clients” they will be more willing to pay for it. It is impractical to think that enough philanthropic resources can be mobilized to achieve this massive scale. Program revenue, government funding, or other large-scale sustainable funding must be found in order to bring proven programs to scale.
One can think of program lifecycle in two phases, funded by different sources. Phase 1 is start-up, where initial expenses to develop, launch, and prove the program are funded through grants (dotted lines above). Phase 2 is the operational phase, where ongoing costs to deliver the product or services are covered by earned revenue (solid lines above). In the theoretical example above, a product could reach full sustainability after five years of operations, eliminating its reliance on philanthropic subsidies.
This by the way is the approach that GuideStar has taken. Our expenses in our early years were almost totally covered by foundation grants. As we have matured, sales of products and services have developed to the point that they covered 90 percent of our expenses in 2010, while foundation grants were used for special project and opportunities.
How about your organization? How are you thinking about service lifecycles and the phases of revenue? Are you ready to make the tough choice to terminate a program that appear unlikely to reach scale and sustainability?
The preceding is a guest post by Bob Ottenhoff, Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.