Four Key Indicators of Nonprofit Success

PhilanTopic is on vacation this week. While we're away, we'll be sharing some of our favorite posts from the last year or three. This post was originally published in September 2014. Enjoy.

Have you ever "ghost dialed" someone? You know, when the phone in your purse or pocket accidentally dials a number? Well, that recently happened to me with a board member of a human services nonprofit. We were surprised to be talking to each other but continued. The organization was well known in its community and had been successful, but our conversation ended up being pretty depressing: the nonprofit was in the process of shutting down.

I did some research and discovered that the organization's budget grew from $5 million to $10 million in just five years. Then a crisis came, they lost a major source of revenue, and there followed a painful five-year decline.

Why did this happen? A little more research and some reflection on others' experience suggests that four key conditions need to be met in order to survive a crisis like the loss of a major funder:

1. Sustainability isn't just about dollars. A nonprofit's programs need to be relevant today, not for situations or problems that are five or ten years in the past. The human services group above offered only housing, even as other agencies in the area began to provide services such as day care to low-income people, enabling them to keep their jobs (and pay the rent).

2. Programs have to make a lasting difference. I know an agency that helps people with disabilities navigate serious problems like a major health crisis. Its activities make an immediate difference, but the same people keep coming back for help and the lack of any lasting change is beginning to cost them funding dollars.  

 3. Nonprofits need to be able to adapt. You need to have people on staff who have the time and skill to look and plan ahead, as well as people who can build new relationships and innovate new programs. You also need to be able to pay them and have sufficient reserves on hand to make sure they won't be diverted from their mission-critical work by a crisis. Throughout its "growth" phase, the now-defunct human services agency employed a single untrained part-time bookkeeper as its financial "manager" and never succeeded in building up a cash reserve.

4. The key to achieving relevance and lasting impact is strong, strategic leadership. The board and executive director of any nonprofit need to regularly reflect on how relevant and impactful the organization's programs are and what they need to do to make sure that that continues to be the case.

These aren't merely talking points. At about the same time as the human service agency I mentioned was entering its terminal decline, a substance abuse nonprofit in the same community was growing rapidly. Then it, too, hit a major stumbling block. The key difference between the two organizations was that the latter had developed and maintained a strong management team and managed to build up its financial reserves. When its crisis hit, the organization lost $2 million in revenue (from a projected total of $8 million), but  managed to survive and, eventually, began to grow again. Indeed, its services for people with substance abuse problems today achieve greater impact then was the case before the crisis, and the organization is more secure as a result.

Richard Brewster is sole proprietor of Nonprofit Leadership, which offers consulting and training services to the boards and leaders of nonprofit organizations, and is executive director of the National Center on Nonprofit Enterprise (NCNE).