The nonprofit lifecycle: A model for making smart decisionsKathy Keeley and Tommy Pearce
All nonprofit organizations have natural lifecycles, from a grassroots idea to peak vitality to a turnaround (or termination). For decades, books and research have focused on the lifecycle process as a way to describe different organizational opportunities and challenges.
By charting the lifecycle of the organization, leaders gain a frame of reference that helps them move away from missed opportunities and personality clashes. A clear understanding of your organization's “life stage” can help frame critical conversations, inform strategic decisions, and offer a starting point for capacity-building.
For instance, most organizations in transition – critical junctures in the lifecycle process – need a change in management strategy, and maybe even an intervention to understand how to navigate. One way to recognize you’re in a transition is if the organization feels especially chaotic and challenging. Lifecycle analysis can help by providing order, clarity, and a path forward.
In his classic Harvard Business Review article, “Evolution and Revolution as Organizations Grow,” Larry Greiner argues that “the future of an organization may be less determined by outside forces than it is by the organization’s history [and structure]” and that their growth reflects this. In her book Nonprofit Lifecycles: Stage-Based Wisdom for Nonprofit Capacity, Susan Kenny Stevens echoes Greiner’s sentiment that nonprofits operate and grow within predictable (though not always sequential) lifecycle stages, but where Greiner focuses on the deterministic aspects of life stages, Stevens illuminates its diagnostic value.
If the organization feels especially chaotic... lifecycle analysis can help by providing order, clarity, and a path forward.
In GCN’s Nonprofit Consulting Group, we find both to be true: Lifecycle analysis is one of the diagnostic tools we use to help an organization understand its challenges, and enable its success. Knowing where you are provides a lens through which the board and management can see the organization’s position in context, and a framework for more focused conversation and successful problem-solving.
Considering five organizational dimensions – programs, leadership, governance, financial resources, and administrative systems – one can gain an understanding of an organization’s life stage. Once identified, the information can be used as a starting point to build capacity in the most appropriate ways for your nonprofit.
Check out this chart for a visualization of the lifecycle process, and note the arrow that points back toward the early phases: All organizations can take steps when approaching the “terminal” end to build a path back to growth. GCN uses strategic planning as the process to build the bridge back to “growth.”
In Nonprofit Lifecycles, Stevens describes seven distinct lifecycle stages:
A solution or vision for a community need has been identified and developed, though a formal organization has not been established and programs are not well-defined. Supporters – service volunteers and funders – are heavily relied upon and are likely comprised of friends and family. Many groups do not move beyond the idea stage into the formal “start-up” stage. Most people use a “kitchen cabinet,” or small group of trusted friends, as advisors. This is the place for a feasibility study or a business plan to determine viability and start up steps.
Marked by high energy, limited funding, and a newly acquired 501c3 status, start-ups are out to prove their business case by experimenting with program design. Start-ups are typically led by a technical expert with a board comprised of close friends and trusted colleagues. In this stage, there is always more work than people, meaning everyone does everything: Think a hands-on, working board that’s very engaged in doing, rather than governing. This is the place for a business plan, with annual implementation plans, and a strong fundraising plan focused on implementation. Transitioning out of this phase requires a strategic plan to address growth, personnel and position descriptions, governance transition (from a working board to a governing board), and strong focus on fundraising to raise the money needed.
As the organization hits its stride, becoming a growth-stage operation, it focuses on standardizing and deepening programs to meet the needs of its constituents, and formalizing its structure and processes to ensure organizational vitality. Growth always outpaces capacity, systems, and cash. Communication can be an issue at this stage, as everyone can no longer know everything: Growth sees people seeking formal policies and procedures that are written out explicitly or new ways of doing business. This phase requires a strategic plan that focuses on governance, capacity, development, and systems. To run this organization, a CEO must change their style and up their skill level. Cash flow can be a challenge, prompting the need for larger, multi-year grants or contracts.
Mature organizations have a reputation among their constituents. They have established formal organizational structures and processes, managed by an executive leader and led by a governing board of directors. Programs are outcomes-based and are aligned with the strategic plan. Funding is diversified and supports the organization’s needs. This can be a happy place: Things work, systems are in place, and people know their jobs – however, they often begin the process of creating the problems found in the next phase. This transition calls for policies and procedures to be followed, and more upgrades in software for HR, data collection, development, and more. The CEO is often getting more involved in external community relations, including major donor fundraising. Life is good until you get too set in your ways: silos develop, policies feel rigid, and you begin avoiding risks. In the early part of this stage, mature groups need a strategic plan that focuses on managing the organization and deepening programs. In the later part, it needs to look at options or scenarios for changing up programs and integrating people, programs, and money. The board is governing, but they may also be moving toward a more limited sense of engagement, and feeling set in their ways.
Organizations in decline have settled into a prescribed way of doing things, subtly losing touch with clients and resisting the programmatic adaptations necessary to meet changing community needs. The formal systems and budgets that once spurred growth now hinder evolution. Decline often sets in through genuine or willful ignorance among leaders: This is the organization where the CEO may “retire in place,” and the board comes to meetings complacent and unengaged. Those that love the way things have always been done may be happy, but those asking questions probably do not stay long; this applies to the board as well, where a member who starts asking tough questions may be ostracized rather than listened to. This group need an organizational assessment and a crisis plan, or recommendations for changes in leadership, board, and programs. Organizations in decline will need to recognize and address their problems, and then build a crisis plan for addressing the issues.
This pivotal stage finds organizations in the process of regaining the market. Strong leadership and a committed board lead the restoration, in which programs are redesigned to meet community and constituent needs, budgets are cut to meet cash flow demands, and formal processes are simplified to enable the transformation. This phase is the bridge back to growth. It often involves the crisis plan referenced above to help define the bridge, and determine how to cross it. The next step is to develop a plan that repositions the organization for growth at the end of the bridge. This phase often requires a CEO that is willing to do very tough things with the organization, which could mean replacing the existing chief executive with a new or interim leader. This CEO needs to work closely with the board, and follow a turnaround plan which will inevitably cause waves, disrupting the organization’s culture and people.
When an organization has declined too far, a turnaround is unsuccessful, or a start-up never finds its place, an organization enters the terminal stage. Leadership has lost interest and motivation; funding and staff have dwindled. This organization faces three options: closing, merging, or giving programs to another nonprofit. Often, the board (with a limited number of members remaining) is left to keep the organization alive through the decision-making process. This phase requires an organizational assessment to frame the options and make recommendations to the board, which might involve a “soft” or “hard” close. It is best to take action prior to a forced bankruptcy.
GCN and our consultants have a lot of experience with organizational life cycles – we even developed a short quiz as a way to test your organization.
In our work, we often find that when an organization is experiencing internal conflict, this framework can help redirect the conversation by focusing strategic issues, defining opportunity, and illuminating your organization’s “normal.” Try out a dialogue about nonprofit life cycles among your colleagues – we’ll look forward to helping you advance that discussion.
Find out more about the nonprofit lifecycle, and what it means for your organization, by contacting our team at [email protected] or 678-916-3082.
Kathy Keeley is executive vice president of programs at GCN, and a senior consultant in GCN’s Nonprofit Consulting Group.
Tommy Pearce is the ED of Neighborhood Nexus and a former consultant in GCN’s Nonprofit Consulting Group.