The Secret Behind High Growth Nonprofits

Nonprofit leaders constantly hear that diversifying revenue streams is the key to financial stability. But what if that advice isn't the whole story?

Research shows that 90% of high-growth nonprofits rely on a single dominant funding source. Does that mean nonprofits should double down on one funding stream—or is there a smarter way to approach fundraising?

In this episode, Eric and Jonathan break down the real reasons some nonprofits scale while others stay stuck, the risks and rewards of focusing on a single revenue source, and how to strike the right balance between specialization and financial security. If your organization has struggled to gain traction, this conversation is a must-listen.

Episode Highlights:

• [00:00] Introduction – The surprising secret behind high-growth nonprofits
• [02:06] Diversification vs. specialization – Why common advice might be flawed
• [04:52] The power of focus – How narrowing your fundraising can fuel growth
• [08:15] Case Study: American Kidney Fund – A nonprofit that 10X’d revenue by shifting its funding strategy
• [12:43] The scaling challenge – Why growing nonprofits struggle with funding transitions
• [15:59] The reality of small donor programs – Why they’re harder to scale than many expect
• [18:51] When to kill an experiment – How to know when a funding strategy isn’t working
• [24:09] Deep partnerships vs. shallow diversification – The value of transformational funders
  [26:54] Should you grow at all? – Rethinking what growth means for your nonprofit

Notable Quotes:

• “Ninety percent of high-growth nonprofits rely on one single dominant funding source and 90 percent of their funding comes from that one funding source.” — Eric Ressler [04:05]
• “One of the greatest gifts that a funder, when they partner with a leader to fuel your mission, one of those greatest gifts that they can give you is multi-year commitments.” — Jonathan Hicken [07:19]
• “You don’t have to chase every funding stream. In fact, that might be exactly what’s keeping you stuck.” — Eric Ressler [14:10]
• “Experimentation is good—but if you don’t know when to pull the kill switch, you risk losing money and time.” — Jonathan Hicken [21:36]

Resources:

• Article - SSIR - How Nonprofits Get Really Big
• Article - SSIR - Ten Nonprofit Funding Models
• Article - Why Social Impact Brands Struggle to Attract, Grow, and Retain Revenue
• Article - How to Create the Conditions for Sustainable Revenue
• Article - From Starvation to Sustainability: Rethinking Revenue in Social Impact
• American Kidney Fund
• Podcast - How to Stop Planning and Start Doing
• Article - Want Foundations to Fund Your Work? Speak Their Language. Here's How.

Transcript:
 

Eric Ressler [00:00]:

Jonathan, today we are talking about the secret behind high growth nonprofits. 

Jonathan Hicken:
Spicy. 

Eric Ressler:

90% of high growth nonprofits rely on one single dominant funding source and 90% of their funding comes from that one funding source. On one hand, I'm incredibly surprised. On another hand, it makes a ton of sense. How can you break through and get that traction? And is part of that solution narrowing and niching in on a particular approach to fundraising?

Jonathan Hicken [00:31]:

I keep coming back to this idea of being deeply partnered with a funder that can make transformational contributions.

Eric Ressler [00:39]:

Jonathan, today we are talking about the secret behind high growth nonprofits

Jonathan Hicken [00:54]:

Spicy.

Eric Ressler [00:55]:

So in preparation for this episode, I did a little bit of research about different fundraising approaches that nonprofits take, and I stumbled upon an article that I actually had read before and had forgotten about called How Nonprofits Get Really Big. It was published in SSIR or Stanford Social Innovation Review, and the authors are William Foster and Gale Fine. And this article had a lot of really interesting insights about how various nonprofits actually break through and scale. And one of the main themes and topics and kind of the framing behind our show here is really exploring how some social impact organizations are able to get traction and thrive and reach their missions when so many other social impact organizations can't get that traction, kind of fail to do so. And I think funding and revenue generation is a huge reason why a lot of nonprofits kind of spin out.

Jonathan Hicken [01:49]:

Yeah, I mean this is also making me think of another SSIR article called the 10 Nonprofit Funding Models. And so I'm really curious to see if we can figure out if there are any themes that can be pulled for these different kinds of models here.

Eric Ressler [02:06]:

So have you heard advice before out there as an executive director or a major donor fundraiser that goes something along the lines of we've got to diversify our revenue streams?

Jonathan Hicken [02:16]:

Yeah, in fact, it's something that I'm working on currently at the Seymour Center is we've been working on trying to level up our grant fundraising and we've been unsuccessful. And part of the thinking from my point of view is multiple points of failure. So if one funding source fails, you at least have other legs of the stool to prop the organization up. So it's something I think about regularly.

Eric Ressler [02:39]:

And to be honest, this is something that we've talked about with our clients a lot is that, and I think because we've actually seen some of our clients who have relied too much on one revenue stream, particularly one or two major donors or funders, and then something goes wrong and all of a sudden there's a huge hole in their revenue, they have to lay people off and oftentimes they might even go under completely. So it seems like solid advice, but this article actually has some contradictory insights that are worth digging into. So let's start with a couple of stats. So actually a question for you of some of the biggest nonprofits, let's just say in America, what would you guess is the kind of average date that they were founded?

Jonathan Hicken [03:25]:

Ooh, I would say 1960.

Eric Ressler [03:29]:

So the average founding year of the 10 largest US nonprofits is 1903. So this is like these nonprofits have been around for a while and 90% of high growth nonprofits rely on one single dominant funding source and 90% of their funding comes from that one funding source. When I saw that, I was really surprised because I'd been hearing in the space diversified, diversified, diversified revenue don't over rely on any one channel. However, the largest nonprofits and the highest growth nonprofits in America statistically are largely funded by one source.

Jonathan Hicken [04:05]:

On one hand, I'm incredibly surprised. On another hand it makes a ton of sense. On the one hand I'm like, oh my gosh, the leaders of those organizations must have totally de-risked putting that many eggs in one basket. There must been a level of assurance that they could go all in with this funder or this approach before they went all in. And I'm wondering where that confidence came from or what kind of conversations were happening. On the other hand, I'm like, yeah, of course that makes sense because there must be such alignment between the funder's outcomes and vision with the nonprofits particular mission and vision. The alignment must be so perfect that it gives the nonprofit leaders an ability to focus. Frankly.

Eric Ressler [04:52]:

I think that last part is the key, which is focus. Because really what it comes down to is getting really good at any funding model is hard. Whether that's major donor fundraising or individual giving or government grants to get really good at finding and developing and nurturing relationships with those different channels in and of itself is a big project. So to try and do that for multiple different revenue streams at the same time or revenue sources or funding sources, especially if you're a small and growing nonprofit is really hard. And so I think one of the key insights from this that I'm really interested to just explore with you today is if you aren't one of these high growth nonprofits yet, but you want to be, maybe you don't want to be 50 million a year, but you've been constantly stuck at two or five or 10 or whatever it is, how can you break through and get that traction? And is part of that solution narrowing and niching in on a particular approach to fundraising? And is there a way to do that while still diversifying? I think that's really the key because you can still diversify fundraising within any one fundraising channel or approach.

Jonathan Hicken [06:04]:

My mind is spinning right now thinking about how I would apply this thinking to the Seymour Center, and we have some really strong earned income revenue sources, our goods and our services are bringing in more than half of our budget. But when it comes to the philanthropic side of things, we work with major donors and we work with grants and we work with smaller and mid-level giving. And I'm going through the process, the practice right now of asking myself, if I were to go all in on one of these sources, which source what I go all in on? And at the moment, and actually in reality, probably 70% of my time is being spent with major donors. And so I'm doing this thought experiment of what would happen if we spent a hundred percent of my time and of our fundraising time in on major donors. And where my mind goes with that is one of the greatest gifts that a funder, when they partner with a leader to fuel your mission, one of those greatest gifts that they can give you is multi-year commitments. And to me, these a hundred year nonprofits, I mean to me it's almost like, yeah, a hundred year commitment. Now I'm sure that's not actually how it played out, but what that tells me is that that organization didn't have to spend so many cycles on fundraising. They could spend all of their brainpower and all of their creativity on delivering impact.

Eric Ressler [07:19]:

Yeah, exactly. And I think let's break down. There's actually a couple of case studies in this article that I found particularly interesting that might explain a couple of these different transitions. So the first case study is the American Kidney Fund, A KF. They were founded in 1971 and they were helping low income people with kidney disease and they actually were forced to switch their fundraising model. They had been kind of stuck around 6 million a year in revenue until about the mid 1990s, and they were pretty diverse with their funding. But then there was a federal law that changed in 1996 that actually made it for them to, it made it illegal for medical providers to subsidize dialysis costs. So they were basically forced to reinvent and rethink their fundraising. And what they actually did is they shifted their fundraising strategy 100% to corporate giving. And because they did that, they were able to grow pretty rapidly.

[08:15]:

So they grew to 20 million a year by 2000 and then up to nearly 70 million a year by 2004. So I mean, we're talking about literally over 10 xing their revenue and largely the CFO of the organization said that switching their emphasis to corporate partners was really the turning point or the unlock for them. And I find that to be so interesting because they were diverse in their funding and by many examples, pretty successful. 6 million a year is nothing to scoff at for a nonprofit, but it was holding them back. And I almost wonder, were they stuck without realizing it? Did they think they were doing pretty well and would they have ever made this shift if this law hadn't been an inflection point for them to do so? This is one example of an organization that was kind of stuck, whether or not they realized it. And then because of a forcing function outside of their control, they somehow made the choice to move into corporate giving as their main model. And then they took that and they were able to scale rapidly because they focused on that. They got really good at navigating that fundraising approach and building a skillset and workflows around doing that really, really well.

Jonathan Hicken [09:29]:

I wonder what the corporations had to gain by partnering so closely with this particular nonprofit, going back to this point of the alignment between the mission and the interests of the funder. What was it about corporations in the 1990s that made them really want to support kidney services? I don't even know where to begin answering that question. My guess is something around public perception or public good, but there must have been some alignment that this nonprofit was aware of before they made that switch and had some level of confidence. My guess is their CEO or their executive director had a good relationship with a CEO of one of these corporate partners, and there were conversations about what that was going to look like. And I have to imagine that was a partnership between the nonprofit and the corporations before they made this big switch.

Eric Ressler [10:25]:

And a lot of corporations these days have both CSR arms or even impact funds that they've spun up. Some of our clients are getting grants from impact funds from these corporations. And it really comes down to value alignment. There's a shared vision, a shared mission that aligns well with the goals of this impact fund. And oftentimes these grants are unrestricted, or if they are restricted, they're less restricted than to a particular program, but they're sometimes to a particular geography or location. So they're kind of like hybrid restricted grants. Sometimes they're general operating grants. So corporate partnerships can be a really good strategy. We've had some clients who have gone maybe not all in, but pretty heavily on that with some success. And so it's just interesting because it seems really counterintuitive that a kidney focused nonprofit or kidney health focused nonprofit would be able to grow to 70 million a year from corporate partnerships, but they did it right. So I find that interesting.

[11:31]:

Another interesting takeaway that I found from this article was talking about this inflection point in a growth stage of a nonprofit that I found really interesting. And what it talks about is that there's a certain stage in a nonprofit's growth where you basically need to hire a whole new caliber of outsiders to bring into your team to do expertise driven work oftentimes around management focused positions or marketing and communications. Whereas in the early days of a nonprofit, you're kind of often growing pretty organically. Everything's kind of focused around programs mostly. And oftentimes programs staff is taking on a lot of that kind of work and sometimes being elevated, but in this inflection point where you're growing as an organization and it's time to bring in some fresh blood from the marketplace, that can be really hard to fund that transition. And so there's this kind of chicken egg that happens, this chicken egg situation that happens where it's like, well, we need the money to be able to bring in the next level of employees and staff to get us to the next level, but we don't have that funding yet, and this work would help us get that funding.

[12:43]:

So I think that this is another reason to figure out how might we simplify our fundraising approach and focus it so that we're not getting too pulled in too many directions. One thing I find interesting about this is that often when clients come to us, they do have a primary focus around a certain type of fundraising. A common example is a nonprofit that's largely funded by foundations or institutional funders, and they always want to figure out how to court individual donors. And then the organizations that come to us who are largely funded by individuals, small or large, they're always like, we need grant funding. So everyone's on this kind of trajectory to try and expand and explore new areas of fundraising. And I don't think that we should discourage organizations from doing that, but this article and other conversations in this space have made me kind of pause and think about is that really the right strategy? And if not totally diversifying, could we at least to use the Seymour Center as an example, you've got a good amount of your revenue coming in from earned services and membership. Do you get rid of that and completely pursue a grant funded approach or do you figure out how to balance that and have some diversification, but not just go chasing every potential revenue source out there?

Jonathan Hicken [14:10]:

I'm all for experimentation, right? Go out, especially for nonprofits who are exploring different funding models right now, go out and experiment, attempt to go after that grant attempt to get those smaller donors or a major donor, whatever that experiment looks like to you, experiment. The risk though is that you stay with that experiment too long. And so I think if you're going to attempt to go after new revenue streams or diversify your funding model, you need to know where the kill switch is or when to pull that kill switch. Otherwise the return on the time that you're putting in to pursue these new kinds of funds may quickly start to actually lose you money. And that would be the worst thing for your impact to your business. So yes, I think it's worth it for most nonprofits, especially small and medium sized ones, it's worth putting some time and experimentation in, but be ready to kill it.

Eric Ressler [15:06]:

Yeah, and I think you have to figure out, going back to I think episode one in season three, the MVS framework, one of the pieces of advice that you brought to my framework which really resonated with me is to set those kill switches before starting because otherwise you get in so deep and you have cost sunk bias that can kind of start to creep in. So really establishing that. I think the challenge there though is how do you know when to scale up and how long to run these experiments? So as an example or a counterpoint to that, sometimes people come to us and say, let's say an organization is largely grant funded, and they're like, we really want to look at how we can increase donations on our website. And I think people underestimate how big of a program that is to really meaningfully at scale build out revenue from online giving.

[15:59]:

It's a big deal, and it's not just optimizations to the website that are going to make that happen. Those can have a big impact. Certainly how you ask for gifts, how you frame that, the user experience, the way that you design for conversion, all of that can definitely have a meaningful impact, but it also has to be powered by so much more than that, right? Awareness activation, actually having dollars and energy put behind that in a concerted effort because you're not just going to convert people who you haven't built any trust with or you don't have any relationship with to just give to your cause all of a sudden that will happen sometimes if you get a big news feature and you get on the front page of the New York Times and all of a sudden you get a million hits to your website and it's just a numbers game.

[16:46]:

Even if you only convert 1.5% of website visitors and it's a million people, you're doing pretty well. But if your traffic is like most nonprofits websites in the small thousands per week or so, that's just not enough volume. And even so everyone is vying for those dollars. Everyone's trying to activate this kind of small donor pool. And so we are getting bombarded by appeals. So I think that in that case, how do you run a small experiment? I really, it's a genuine question that sometimes clients ask us, and we can do some small things there, but at some level there's a certain amount of just foundational emphasis and time that needs to happen to be able to build out a proper small donor program, whether that's recurring or one time gifts or membership or some kind of combination of that, that frankly takes years to really build up in a solid, predictable way.

Jonathan Hicken [17:43]:

And you're looking at running a deficit also for a certain period of time for those programs to really take off. I mean, this is Silicon Valley investing 1 0 1, these VCs, they put a bunch of money in knowing that that company is going to run out of loss, but with the belief that at a certain point that's going to turn, and I think it's no different for nonprofit fundraising in particular. You're going to put a couple of years and you could put a lot of money into building, for example, a great website conversion experience, but you're going to lose a lot of money for those first couple of years. So do you have the reserves to be able to do that? Can you de-risk that time enough to where you can keep pouring fuel on that? Another thing that comes to mind as a leader is there's probably multiple steps with multiple kill switches. So it's like, Hey, what's the easiest way we can validate if we're getting enough people to our website? What's the easiest? Okay, we're getting enough people to our website. What's the easiest way to test whether or not we convert them? Okay, we're able to do that. Let's ladder this. Let's build this step by step with each step having a kill switch.

Eric Ressler [18:51]:

Yeah, I think that's a good point. The other thing I think about a lot when people ask us this question is what does your list size look like? Which is kind of a broad way of saying how much of a following and a platform are we starting from? Because if you already have 20,000 engaged people on a list and a big social following and healthy metrics on your email, this is a lot more doable if you're starting from low thousands. It's just a numbers game at a certain level. And it's not to say you can't do it. I've seen it done even with those smaller list sizes, but it requires a much more human curated, relationship based, nurturing based approach where you're really spending a lot of time listening to donors understanding what they care about, understanding their priorities. And that's a balance, right? Because you don't want to be so donor-centric that you have no vision as an organization, you don't have your own mission and you get captured by your donors.

[19:49]:

That can happen. I think that's actually a problem too. There's an art and a science to that, but I think people tend to actually lean a little bit more on the former situation where they don't have a clear understanding of who their donors are at the level they need to be able to nurture them to build these relationships, build the trust necessary to get them to donate through the website or to join some kind of membership program. I mean, you have a membership program at the Seymour Center and you have the, I don't want to say luxury, but you have the position to be able to interact with these folks in the real world and to build relationships that way. And still, I think it's probably pretty hard.

Jonathan Hicken [20:30]:

Our membership acquisition is strong. It's really our retention where we struggle with our membership metrics, and that's just an artifact of being a science center slash aquarium. We can get into those challenges another day, but I will share an example of a kill switch that I pulled recently, which was really on this grant program. So we went in and we were like, okay, here's an opportunity to earn a lot of some funds that we really haven't attempted as an organization historically. And we were like, okay, we're going to go after 10. We're going to go after 10 grants and we're going to try a couple of different tactics and we're going to try a couple of different funder types. And we were generally unsuccessful, and we can get into the reasons for that, but we learned a ton about our programs and whether or not we were aligned with different funders missions and their own visions that we've been able to be more selective about what grants we go after now and how we're going after them. So we did pull the kill switch on going after grants as a standard element of our fundraising strategy,

[21:36]:

But we know enough now where we can be hyper-targeted when we do go after that really choice grant opportunity. We're ready for it.

Eric Ressler [21:44]:

And I think also if you come from the individual donor world, the allure of grants is tantalizing, right? Because it's like, wow, if we could just get 1, 2, 3, 5, 10 of these grants a year, like our organization is funded, that seems so much easier than having to court thousands or even hundreds of thousands of donors for a national organization. But I think those opportunities are, everyone's vying for them and funders I think are improving a lot of their practices. But some of the funder practices kind of suck, right? It feels kind of like a dog and pony show. You have to do a ton of work to submit the grant. There's sometimes arduous reporting and evaluation metrics assigned to those grants. Sometimes they're highly restricted. There's a whole list of downsides to some grants and funding opportunities in that way. There's a big movement around better practices around fundraising that's more based in trust and general operating grants and unrestricted funds, but it's not an easy walk in the park to get these grants either.

Jonathan Hicken [22:54]:

I keep coming back to this idea of being deeply partnered with a funder that can make transformational contributions

[23:02]:

And having that depth of a relationship, kind of going back to the kidney health nonprofit, whatever relationship they had with their first corporate funder, they must have had a level of trust with that corporation that was so unique that they could go all in, or maybe it was a handful. I mean, this is just me imagining what it must have been like to make such a major pivot. And I start to think who of my funders could I sit down with or my donors and be like, Hey, here's where we're headed and it's going to take a level of trust here, and some time are you with me to go on this journey? And it might take a while for us to deliver this vision or this impact. And so I just keep coming back to the importance of developing that level of trust with whether it's a major donor or a grant or a government office, whomever, that you as an organization or as an executive director are developing that depth of partnership with your funders.

Eric Ressler [24:09]:

Before we wrap up, I think there's one other important point we should cover, which is, should you even grow at all? Because I think we talk a lot about growth, and we use that word to mean a lot of different things. I think largely people have this kind of unequivocal coupling of growth and revenue, and I think that makes sense. That's a good reason why, but you might not actually need to grow your revenue to reach your mission. Or maybe you can size your mission based on the current budget and the current capabilities that you have, or maybe you can even niche in even further and bite off a smaller chunk, but really go deep with your impact in that niche that you're focusing on. So how do you think about growth as an executive director of a small nonprofit? I know you're exploring niche and differentiation and kind of the next chapter for the Seymour Center. How do you think about growth in terms of revenue and just growth in other ways of measuring growth?

Jonathan Hicken [25:13]:

So great question. I don't think about growth as a necessary ingredient to deliver the impact that we seek. And when I use the word growth in that context, I'm talking about dollars in dollars out. I'm talking about bodies through the door. I'm talking about youth served in these programs. We don't necessarily need to go huge, nor do I necessarily think we have the market to go huge. For me, a lot of it is about the quality of the experience that people are having when they come through the door or when they read our content online. For me, growth really has to do with the kinds of stories we're telling and being adaptable to what's happening in the moment. I think the challenge with a lot of nonprofits, particularly science centers and other educational institutions, is they get really good at something and they stay there where the world around them changes and they're not necessarily keeping up with what the conversations are that are most relevant to the community that they serve. So that's how I think about growth. Are we growing with or are we adapting to the kinds of scientific conversations and the kinds of science that are happening and the kinds of education and the nature of education in 2024 and beyond. So that's where I think we really need to adapt. Now, granted, we will grow because expenses are growing and personnel, everything is our budget by necessity, must grow

[26:41]:

Even to deliver the status level of impact that we are today. But no, I do not think we need to double, triple, quadruple our budget to deliver the quality of impact that we seek today.

Eric Ressler [26:54]:

And I think that's a really healthy way to think about growth. And as I reflect on how I think about growth at Cosmic, I think we're pretty aligned there. And I think maybe our modern culture is so focused on growth, especially when it comes to tech and startups and a lot of just business culture in general, talking about growth, growth, growth. And that's kind of built into our general culture. And I think we really need to stop and pause and think about what are we measuring when we talk about growth and is it just revenue or is revenue really just the fuel that allows us to grow? And can we instead measure growth based on actual impact delivered? And not even necessarily scaling that and duplicating that, but really looking at deepening that and ensuring that the impact we are creating is real, that it has lasting value, that it's not just surface level or some kind of varnish that we're putting onto a problem, but actually really deeply uncovering that problem, getting really curious about it, deconstructing it, and figuring out how to solve it deeply and in a sustainable way, even if we don't grow revenue to be able to do that.

[28:03]:

So I think although this conversation has been largely focused on revenue growth and fundraising, and of course that is a really important element to the ability to deliver impact as an organization, and so many organizations are under-resourced and don't have the revenue that they need to fully fund the true costs of doing their work. I think we also have to balance that by being careful about how we think about growth in this space and not have it be focused just on revenue in and dollars in and dollars out. So an interesting conversation today, Jonathan, I enjoyed it. So thank you for having it. 

Jonathan Hicken:

Thank you, Eric.