Contrary to traditional thinking, asset growth in young community foundations may actually threaten sustainability, says a new report.
Instead of focusing on growth alone, community foundations should seek dynamic growth strategies that maximize community impact while ensuring sustainability, says “Growing Smarter: Achieving Sustainability in Emerging Community Foundations,” published by Boston-based FSG Social Impact Advisors.
Over half of American community foundations, a special type of public charity that makes grants to a variety of local causes with funds created by from individuals and corporations, are less than a decade old, and two in three have less than $25 million in assets.
Such emerging groups benefit from energy and flexibility that often fades in well-established organizations, and their asset growth often is exponential.
From1995 to 2005, community foundations with assets less than $5 million experienced an average annual growth rate of 20 percent, the report says.
Yet even in the midst of seemingly unbounded growth, these organizations must learn to choose their assets wisely and understand that “not every fund is a good fund,” the study warns.
The report identifies three prevailing approaches that lead to sustainable growth.
A controlled approach involves close management of expansion, in which maintenance of a stable infrastructure is key.
Community foundations that prefer “an activist angle” in soliciting community involvement follow an engaged approach that helps establish a broad set of stakeholders for whom the organization is relevant.
Finally, a leveraged approach entails expanding geographic, knowledge, and financial-support bases by partnering with regional affiliates in a variety of fields.
These management approaches must be combined with fiscal discipline, and must take into consideration four key economic drivers, according to FSG’s report.
Foundations should have clear product and fund priorities, align pricing with cost drivers and donor incentives, diversify revenue sources to achieve consistent income and manage cost bases.
A greater focus on approach and fiscal discipline need not limit community impact, the report concludes, but instead ensure that a foundation’s mission is sustainable for years to come.
FSG Social Impact Advisors, formerly the Foundation Strategy Group, is a nonprofit organization that builds infrastructure for social progress through consulting, research and innovative initiatives.