How does a nonprofit like Iridescent grow?

I am super ambitious. My goal for Iridescent is that it becomes a nationwide program with strong sites in New York, Silicon Valley and Los Angeles. I also believe that it difficult to suddenly wake up one day and think big. If you want to grow and scale, every little daily decision has to be made with that goal in mind. For example, currently we have two core team members who train and observe the volunteering engineers. The core team members observe each session and give feedback to the engineers. Thus this past fall, we could only conduct about 8-10 courses as you can only be in one place at one time. This model would be fine if expansion wasn't one of our long-term goals. As it is, I am exploring different organization structures that will allow us to grow and maintain program quality. One option is to train a layer of "observers" (potentially Teach for America alumni) who would work part-time with Iridescent, observe 2-3 sessions a week and help the engineers improve their communication skills.

So expansion is always on my mind.

I came across this interesting article on how nonprofits raise enough money to grow really big and here are some of the key points as applied to Iridescent.

Key Findings

The study was conducted by the Bridgespan group and the article was published in the Stanford Social Review in 2007. The study explores how 144 of 200,000 US nonprofits started in the 1970s got big (reaching $50 million in annual revenue).

• They had a single dominant, highly specialized source of funding – such as government (Population Services International), individual donations (Habitat for Humanity), corporate gifts (Greater Boston Food Bank), niche groups like hunters (National Wild Turkey Federation). On average, that dominant funding source accounted for just over 90 percent of the organization’s total funding.
• They found a funding source that was a natural match to their mission and beneficiaries.
  

The first point is a bit disheartening to a young nonprofit like Iridescent as we don't really know which funding source will be a natural match and can support sustained growth. But the study goes onto say that only a few nonprofits knew from the start where they would find their most promising funding sources. But as these organizations pursued their growth, they realized which sources of funding seemed most promising and were willing to concentrate their efforts on that source, recruiting people and creating organizations that could best pursue that funding source.

Iridescent is at this very stage at the moment. We are trying to find organic, mission-aligned ways in which to generate funding. At first we were thinking we would do well to bring some experts onto the team who would be able to give us the magic formula. But the study also says that the core team is the best informed and qualified to come up with solutions. The key really is to develop ways that are mission-aligned, so all efforts push in the same direction.

Funding sources change from diverse to focused with growth

When nonprofits are small (like Iridescent), they often raise money from a wide variety of sources. That’s because there are many potential donors who are able to give small amounts of money, and because a particularly inspiring executive director can stand out from the crowd and convince these small donors to give. But when very large sums of money are involved, the picture changes. Sizable funding sources are fewer, and their goals are more developed. As a result, the funders’ interests matter more than does the executive director’s charisma.

There are distinct breakpoints during a nonprofit's growth at which the funding shifts dramatically from one revenue category to the next. After each of these breakpoints, both the average level of diversification and the mix of funding change. Take the examples of youth services and environmental advocacy. When nonprofits in these domains are small, they typically have a diverse set of funding sources, with a large percentage of the money coming from foundations. As these organizations grow between $3-$10 million they diversify their funding sources even more. But as they grow between $10-$50 million these organizations increasingly rely on a single funding source.

This concentration by funding source does not replace the need for diversification and risk management. Organizations achieved diversification and mitigated their funding risk by securing multiple payers of the same type to support their work. Youth Villages, for example, receives more than 90 percent of its funding from state government contracts, but it has minimized its risk by tapping a number of government departments in a number of states.

Sources of unrestricted funds are small but very crucial for long-term growth

Of the 101 organizations that have a dominant funding source, more than 20 percent have a secondary source that accounted for 10 percent or more of their revenue. The Metropolitan Boston Housing Partnership, for example, receives less than 1 percent of its funding from unrestricted foundation and corporate donations that allows it to try out ideas in an area not currently funded by government programs.

What to do next

Nonprofit leaders need to identify and target those funding sources that are most likely to be a natural match with their organizations. Far from being random, large funders’ interests often fall into distinct categories. Corporations almost always offer in-kind support focused on hunger or health issues. And individuals tend to give to issues that cross socioeconomic boundaries – like environmental advocacy – and to organizations that have clear, compelling, and simple messages. State and local governments are most likely to support human services, employment development, and education organizations.

Characteristics of funding sources

Program service fees (NOT EARNED INCOME) are the second most important source of funding for high-growth nonprofits, providing most of the money for 33 percent of the organizations in the study. Service fees are also the second most important source of funding in the nonprofit sector as a whole. Community health clinics, student loan providers, and employment agencies for the disabled are likely to depend on program service fees as their dominant source of funding. The 12 student and housing loan organizations in thestudy likewise rely on fees and interest income.

Contrary to the current buzz over social enterprises, free-market commercial ventures are not the major generators of program service fees for nonprofits in this study.

Corporate giving represents a relatively small share of total charitable giving in the nonprofit sector, but it is a prominent source of funding among these high-growth nonprofits. Corporations are the primary funders of 19 percent of the nonprofits we surveyed. The vast majority of corporate support is in-kind donations, not cash.

Individuals are the primary funders of only 6 percent of the high-growth nonprofits in our study. Interestingly, small gifts power all of the surveyed high-growth nonprofits in this category, even though major gifts account for a large majority of individual giving in the U.S. Although some organizations develop major donors as a significant secondary source of funds, small donations seem to fuel the broadest expansions. This may be because major gifts require greater personal involvement or because the kinds of techniques that generate smaller donations (direct mail and special events, for example) are easier to scale up.

A clear message also helps build a strong brand that resonates with individual donors, as in the case of Habitat for Humanity.

Foundations The least frequent source of funding for highgrowth nonprofits is foundations, which are the primary funders for only two of the organizations in the study, or 2 percent of the high-growth nonprofits. In general, foundations seem to be more focused on their traditional role of starting new programs rather than supporting them at scale.

This last piece of information is intriguing and could change Iridescent's fundraising strategies for 2009 as we have been spending a lot of our efforts on writing proposals to small foundations. I need to look more into this and see if the finding has enough substantiating data.

What has your fundraising experience taught you?

You don't need a balanced life when work becomes play.

I work very intensely. When I was in grad school I thought I was working super hard. When I was not working on my research, I was either running, painting or doing taekwondo. And I always had this feeling of guilt that I wasn't working on my research.

Then I started Iridescent and working hard took on a whole different meaning. 14-hour days, 7-day weeks, 12 months a year. There is no distinction between "work" or "play"anymore, because I love it all! In grad school, I was a big advocate of "balance" and having hobbies, but it was because I didn't know what it was like to work at something that fulfills ALL your interests. Now I live and breathe for my nonprofit. I constantly think about how to improve Iridescent, grow, expand, try new things, make it powerful. I even dream about it at night and sometimes get cool crazy ideas that I try when I wake up! I process everything I read or hear with the lens of "how can I use this information to improve Iridescent". For example, I was reading Obama's "Dreams from my father" and was impressed by his account of working with churches. I have been thinking about working with churches for a while, but maybe now is the time. It can be part of our cool Urban School Needs project (more on that later) through which we can quickly map and find nearby churches to our target schools.

I don't know of any other job that incorporates analytical thinking, learning about the coolest research in science and technology, being artistic and creative, managing people, teams, being an entrepreneur, making an immediate impact and LEARNING new things constantly.

I am amazed at how much you can learn from books -if you can test it fast enough to cement the learning. In November I started teaching myself about advertising and writing copy.
Now I can only think in copy - intriguing, short sentences that educate and interest :)
This month I am learning all about social media marketing. Next month I think I am going to learn about information visualization, maybe get ideas from Density Design Lab's works .

Life is awesome!

Iridescent's 2008 - IN PICTURES

I have been thinking about a way to show the range of supporting activities that enable our core program (the hands-on science courses). So I made the above sketch.

I was inspired by Tufte, but I have a long way to go. I realized that especially after I came across the graphics from this amazing lab in Milan called Density Design.

The plan for the new year is to graphically report on our monthly activities, trials and accomplishments.

The illustrated monthly report would also be a way to increase accountability and transparency for donors and sponsors.

And lastly, I was toying with the idea of using the illustrated report to get some feedback from the public. Maybe potential donors could use the graph to make a more informed decision of where they would like their funds to be used (research, increasing public mindshare, recruiting, training or the courses). Then we could directly report on the use of their funds the next month.

I wonder how powerful or chaotic this strategy would be.

Powered by Volunteers

Lately, I have been tallying our numbers to see what we did over the year and it has been exciting to see the graphs.
It has also been awe-inspiring. Awe-inspiring to see so many people can come together to spend hours of thought, time, effort and sweat for the good of someone in need. I have heard many end-of-the-year speeches by CEO's and it usually sounds very cliched when they say that they alone couldn't have done so much, etc etc. I am now on the other side and want to say the same cliched things. But I also want to stress how genuine my gratitude, humility and hope is.
Operationally, the program runs only because of our volunteers: hundreds of volunteering engineers who develop and teach the curricula, bilingual speakers who translate all our materials (some of whom have never even met us like Avril Soto and Yvette Johnson), volunteering researchers (who help us evaluate our impact like Robyn Hightower) and teachers and school administrators who volunteer their time to provide the best education for their students.
But I feel the most important thing volunteers bring to Iridescent is their belief in us. It is not easy to take on the problem of inspiring inner-city children to aim to be engineers . It is not easy to develop an innovative program that addresses a need in the community. Its even harder to run such a program on little or no money. That is when every kind word and statement of support becomes solid fuel boosting our engines. Every time we hit a wall (when we get a letter of rejection from a funding agency or talk to people with little imagination and risk-taking abilities) , some volunteer comes along and says how neat our program is and that they would like to support it with their time and effort. We would have crumpled up and died long time ago if it wasn't for every such individual volunteer.

And so we continue - powerful and sustained.

Thank you for believing in us.

And we had a little faith - and we worked on.

I think one, perhaps, is to present science as it is, as something dazzling, as something tremendously exciting, as something eliciting feelings of reverence and awe, as something that our lives depend upon. If it isn’t presented that way, if it’s presented in very dull textbook fashion, then of course people will be turned off. If the chemistry teacher is the basketball coach, if the school boards are unable to get support for the new bond issue, if science teachers’ salaries are very low, if very little is demanded of our students in terms of homework and original class time, if virtually every newspaper in the country has a daily astrology column and hardly any of them has a weekly science column, if the Sunday morning pundit shows never discuss science, if every one of the commercial television networks has somebody designated as science reporter but he/she never presents any science (it’s all technology and medicine), if an intelligent remark on science never has been uttered in living memory by a president of the United States, if in all of television there are no action-adventure series in which the hero or heroine is someone devoted to finding out how the universe works, if spiffy jackets attractive to the opposite sex are given to students who do well in football, basketball, and baseball but none are given in chemistry, physics, and mathematics, if we do all of that, then it is not surprising that a lot of people come out of the American educational system turned off, or having never experienced science.

Carl Sagan