Narrow fundraising focus fuels growth

Contrary to conventional wisdom, high-growth nonprofits have fueled their expansions not by diversifying their funding bases, but by specializing in a single type of funding, says a new article in Stanford Social Innovation Review.

In analyzing 110 nonprofits that have grown to $50 million in revenue since their founding in or after 1970, the Bridgespan Group found that nine in 10 of them rely heavily on only one of five distinct types of funding — government, service fees, corporations, individuals and foundations.

For those groups, an average of almost nine in 10 of their revenue dollars came from their primary funding source.

And of those that have a so-called dominant funding source, more than two in three specialize within those areas, the study says, and one in five have a secondary source that makes up a tenth or more of their revenue.

Key to high growth is finding the type of funding source that best fits with a nonprofit’s mission or focus, the study says.

The federal government is the most important source of funds for four in 10 of the groups surveyed, with the federal government funding groups focused on medical research, food and foreign affairs.

State and local governments are more likely to fund human services, job development and education groups, the study says.

Service fees are the primary funding source for one in three groups surveyed, and tend to be critical for community health clinics, student-loan providers and groups that help disabled people find jobs.

One in two groups, including food banks and international development nonprofits, rely on corporations for funding, with most of that coming in the form of in-kind contributions.

About 6 percent of high-growth nonprofits relied primarily on individual contributions, the study says, while foundations were the dominant funding source for only 2 percent of groups surveyed.

The article cautions that high growth might not be a goal for all nonprofits, and noted that the groups analyzed by Bridgespan represent less than one-tenth of 1 percent of the nonprofits founded since 1970.

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