The Nonprofit Lifecycle: A Model for Making Smart Decisions

In Nonprofit Lifecycles, Stevens describes seven distinct lifecycle stages.

Idea: 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. In addition:

• 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.

Start-Up: 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. In addition:

• Start-ups are typically led by a technical expert, with a board comprised of close friends and trusted colleagues. 
• There is always more work than people in this stage, 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 a strong focus on fundraising to secure the money needed.

Growth: 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, as well as formalizing its structure and processes to ensure organizational vitality. Growth always outpaces capacity, systems, and cash, so keep in mind:

• Communication can be an issue at this stage, as everyone can no longer know everything.
• Growth sees people seeking either 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. 
• When reaching this phase, 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.

Maturity: 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. The CEO is often getting more involved in external community relations, including major donor fundraising. 

This can be a happy place, but complacency must be avoided: 

• 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. 
• Organizations can get too set in their ways, developing silos, becoming rigid in their policies, and putting a stop to risk-taking. 
• Though the board is governing, they may also be feeling more set in their ways and more limited in their sense of engagement.
• In the early part of this stage, organizations need a strategic plan that focuses on managing the organization and deepening programs. In the latter part, it must examine options for changing up programs and integrating people, programs, and money. 

Decline: 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. In particular: 

• 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. 
• Organizations in this stage need an organizational assessment and a crisis plan, or recommendations for changes in leadership, board, and programs. 
• Those in charge will need to recognize and address the organization’s problems, and then build a crisis plan for addressing the issues.

Turnaround: 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. As the bridge back to “growth,” this stage often involves: 

• The crisis plan referenced above, which helps define the bridge and determine how to cross it. 
• A subsequent plan that repositions the organization for growth at the end of the bridge.
• A chief executive who is willing to do very tough things with the organization, up to and including replacing the existing chief executive (themselves) with a new or interim leader. 
• A board ready to work closely with the chief executive and follow a turnaround plan that will inevitably cause waves, disrupting the organization’s culture and people.

Terminal: 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. Once leadership has lost interest and motivation, and 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. To keep in mind: 

• This stage requires an organizational assessment to frame the options and make recommendations to the board.
• Options might include a “soft” or “hard” close. 
• It is best to take action prior to a forced bankruptcy.