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The nonprofit life cycle explained

Cape Cod SCORE

Question: Commercial businesses use the life cycle concept when planning their future strategic moves. As a nonprofit executive director, do I need to be aware of where our agency is in its life cycle?

Answer: Knowing where you are in your life cycle will help you and your board chairman with insights to drive your board development, fundraising and organizational development strategic. Research has shown that for-profit and nonprofit organizations move through predictable life cycle stages and development milestones. This is important because there are significant events at each stage that are crucial for its sustainability.

The key factors that influence where an organization is in its life cycle: how long the organization has been in existence; the size of the organization; the style of the founder or primary leader; the rate of growth; and the external environment in which it is operating. At key transition points in an organization’s life cycle, organizations need to shift, expand, or change leadership, staffing, governance model, funding strategies or administrative systems. Most often it is different aspects of an organization that need to pivot rather than the entire organization. (Varga Group) It all starts with answering the key organizational questions: Where are we today? Where do we want to be tomorrow or where are we going? And, how are we going to get there? This type of thinking helps in a number of ways. It helps diagnose where you are so you have a starting point. It allows you to set realistic expectations based on what typical organizations are doing in each of the life cycle stages. Know where you and where you should be allows you to create strategies based on the understanding of the key components of the stage. By using this method of evaluation, an organization can focus of building capacity in a less threatening manner. When outsiders see this approach, then new candidates with the type of skills sought makes recruiting more effective and efficient.

The typical nonprofit organization life cycle looks like this: idea, start-up, adolescent, mature, renewal, terminal.

The IDEA stage is marked by inspiration and imagination. The central question is: Can this dream be realized? The main focus is developing a concept with program ideas, testing the concept with others and determining whether funding is possible. The challenges are focusing to avoid confusion and raising launch funding. But there are opportunities for creativity and energy to create a team. In this stage, programs and services are informal and community awareness is not a priority. The leadership is vested in the visionary entrepreneur with an all-volunteer staff. Board governance is not an issue in this stage. Organizational operations and administration is not of concern in this launch phase.

The START-UP phase is all about answering the question: Can we pull this off? It entails getting things going, offering initial programs, getting volunteers and initial staff, bring on a board and applying for 501c3 status. The organization starts to emerge with the visionary founder as the decision-maker and there is little in the way of governance. There is some confusion in this stage with organization, sustaining enthusiasm and maintaining focus. But the funders are excited because of the charismatic leader of the nonprofit group. Programs and services are simple, but there is a strong commitment to delivery. This stage has little to no external communications where word-of-mouth referrals and marketing is the extent of PR. In the start-up stage, the organization still has a small and dedicated


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volunteer staff with a small, passionate and homogeneous board. There are limited financial resources with a small budget and the organization is dependent on a few funders. Operations are agile and flexible with few formal systems in place.

The ADOLESCENT stage is all about growing and answering the question: How can we build this into a viable organization? There is an absence of systems and accountability, but a sense of accomplishment with the board and staff supplying fresh and new ideas. Programs will begin to become established in the community it serves. At this stage, demand is more than capacity. This is the stage where the first official external communications are created and disseminated. Word-of-mouth is still the dominant marketing tool. Organization development begins with division of labor, and the potential for adding an executive director to support the visionary founder. The board begins to expand beyond the founder appointed to a systematic needs assessment and board recruitment to address growth needs. Key funders become the foundation for fundraising and sustainability, and operating systems are adopted.

The MATURE stage is marked by formalizing and institutionalizing. A wellconceived organization is in place and operating smoothly. At this point, risktaking is avoided and there tends to be conflict between what was and what can be.

The organization is secure with adequate resources and trying something new is questioned. Long-range planning takes place with the core programs as the pillar of sustainability. Formal marketing with extensive internal and external communications is part of the norm. This may be the time when the Founder is replaced by a strong ED. The Board may increase in size and diversity with the main function of policy development and oversight. When in this stage, funding from reliable and diverse funding streams. Systems, policies and procedures are in place with integration of technology to maximize operational oversight.

RENEWAL or TERMINAL are marked by review and renew or decline and dissolve. These two stages are marked by insufficient cash reserves and the inability to generate adequate funding to sustain day-to-day operations. The near- and long-term planning begins to break down and systems and internal controls begin to be ignored. Examination of what wrong and engaging constituents and funders in an open dialogue are options available. With operations in somewhat disarray and a lack of clarity about purpose of the organization, serious review for future viability takes place. The organization resists change with financial conditions deteriorating. Looking to strategic partnerships, a “graceful sunset” or merger are all on the table. At this point there is a loss of credibility of the organization and its mission. It becomes reactive to community negative pushback. During the renewal stage, board turnover is high and engagement is extremely reduced or minimal. No new board members are recruited and splits in board commitment and organizational direction are evident. Big decisions are made to renew or dissolve.

Just as with the for-profit community, nonprofit organizations have to be aware of where they are in the life cycle of their organization. What is needed is leadership throughout the six stages — leadership that is energetic, people-focused, willing to challenge the status quo, take charge, be rational and be good listeners.

Contributed by Marc L. Goldberg, certified mentor. Source: Nonprofit Organizational Life Cycles, The Varga Group, www.thevargagroup. com. For free and confidential mentoring for board development, ED mentoring or strategic plan facilitation, contact SCORE Cape Cod & the Islands at capecodscore. org, or 508-775-4884.

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