Demystifying Scaling: Part 4

So far, I have discussed four approaches to nonprofit scaling for impact versus size, including Service Enterprise, Technology-Driven, Train-the-trainer, and Advocacy. There are two others that make up this framework: Scaling Operations and Earned Income.

Scaled Operations

 

The Scaled Operations model is similar to what might be thought of as traditional scaling. Organizations develop a replicable model that enables them to effectively scale their operations across geographies. In doing so, they can spread the costs of the core infrastructure across the program sites, making the model more economically viable. This practice helps organizations scale because it decreases the cost of intervention by amortizing infrastructure costs over more units of service delivery. Simply put, organizations can significantly reduce fixed costs by spreading the burden across multiple offices. This enables them to serve a larger community while providing economies of scale for operations, delivery, and revenue generation. Organizations adept at building codified programs that are easily replicated are in the best position to implement the Scaled Operations model. For this to work effectively, quality control is critical, and the organization needs to possess very strong competencies in the areas of human resources, operations, and programs.

The Center for Employment Opportunities (CEO) exemplifies an organization that has successfully executed a Scaled Operations strategy. CEO is dedicated to providing immediate, effective, and comprehensive employment services to men and women with recent criminal convictions. For the first fifteen years, the organization operated exclusively in New York City, providing core services such as job readiness training and placement services, paid transitional work, and post-placement support. It spent a significant portion of its time codifying its programs, which made them easy to replicate in satellite offices. CEO recently opened offices in Upstate New York, as well as the San Francisco Bay Area and Oklahoma. The cost of operating in a single location was an identified challenge for CEO as it began thinking about expanding its services, since the investment in collecting data, designing services, and developing new trainings left little capacity for increased programming, but opening multiple locations allowed for both scale and offsetting of costs.

Earned Income

 

Organizations that use an Earned Income model can expand a fee-for-service program to decrease dependency on traditional funding sources. Tactics include charging clients, generating government contracts, providing services to companies, or selling goods and services to consumers. Earned income supports scaling by increasing revenue that is more reliable than philanthropy. Transaction fees are also more scalable, as they can be generated more easily at a large volume. Organizations that provide goods or services as a by-product of their core operations (think Goodwill) are ideal candidates for the Earned Income approach to scaling. Such organizations should have strong competencies in the areas of customer service, finance, human resource, legal, marketing, and operations.

DonorsChoose.org allows public school teachers to post classroom project requests online, and then donors choose the project they wish to support. The DonorsChoose business model is focused on sustainability. In particular, it gives every donor the option to dedicate 18 percent of their gift to general operating expenses, which more than 90 percent of donors choose to do. Part of the success of DonorsChoose comes from the fact that donors can actually see the person and project that they are sponsoring, rather than making a donation to an organization to use as it will (which is the case for most public charities). By promoting the general operations function on its site, DonorsChoose can capitalize on the same transparency that makes it successful for project funding. Donors know exactly what percentage of their donation goes to programming and what percentage goes to the organization’s operating costs. In this way, donations are analogous to commission-based sales, an effective earned revenue model.

Like Bet Tzedek, City Year, and other organizations discussed in this series so far, CEO and DonorsChoose.org have been able to dramatically scale their impact without a parallel increase in their budget, operations, and infrastructure. CEO did so by enhancing its own capacity through systematized processes, bringing its cost-effective programs to new locations by sharing operations costs across all locations. DonorsChoose achieved this by focusing on earned income to invest in its tech platform and infrastructure.

In my concluding post, I will talk about how the nonprofit and philanthropy communities can best leverage these models to invest wisely in scaling models, ensuring that community impact has the ability to grow beyond organizational limitations.

Read more stories by Aaron Hurst.