do you prepare to scale a program that works?
Legal Outreach is a New York City nonprofit that uses legal
education and afterschool support to prepare kids for college. Like many nonprofits, they want to meet the
increasing demand for their services in an economic climate that makes growth
funding scarce. We sat down with Legal
Outreach’s Executive Director, James O’Neal, to discuss how the organization approached
the process of planning for growth and the financial challenges that come with
Unlike in many other
businesses, nonprofits often have to strike a balance in their programming
decisions between need and demand: The needs
of the community who take advantage of the programs nonprofits provide, but
often don’t pay for them, at least not enough to cover the full cost, and the demand from the funders who pay to keep
those programs coming. It is essential that leaders not only assess whether
community need is pushing for additional services, but also whether there is
demand from funders willing to pay for expanded programs.
NFF: Many nonprofits are
struggling in this economy but also seeing an increase in need. What did you consider in deciding that now
was the right time for Legal Outreach to grow?
O’Neal: Our programs begin with a five-week
Summer Law Institute that we conduct in partnership with six law schools for 120
students about to enter their freshman year.
At the end of that program, we invite students to apply to our College
Bound program and every year we get 85% of those 120 students applying for the
four-year program. But because of
financial concerns, we’ve only been able to take in half of those. Not
accepting applicants is one of the hardest decisions we have to make every year
because these are always young people who have proven that they’re willing to
make the sacrifices necessary to achieve their goals. So, the agony of having
to turn students away every year is something that led us to look seriously at
An external factor was a push from our
funders, who have seen that we’ve been very successful at helping students not
only complete the College Bound program, but graduate from high school and
matriculate at some very competitive colleges.
So from an external standpoint, funders are looking at those results and
asking us whether it’s possible for us to take on even more students.
Even when the call
for more services is clear from the community and from funders, organizations
face a number of challenging financial questions before they can get
started. Failing to plan adequately for
growth endangers the organization’s financial viability, ultimately undermining
its ability to deliver programmatic outcomes.
NFF: What kinds of financial
concerns did Legal Outreach take into account in the planning process?
O’Neal: One thing we were not willing to do
was to sacrifice the quality of what we were doing in order to serve a larger
number of students. So we started to think systematically about all the
components of the programs we run and specifically about how the success of our
programs was tied to the ratio of teachers to students. We had to consider expanded staff members to
support additional students and the implication for how many additional
students we could take on per year.
When you’re talking about growing programs,
it’s not just an issue of growing the programmatic part of the
organization. You also have to talk
about the administrative side of what you’re doing. What does growth mean in terms of back office
functions like accounting and bookkeeping?
What does it mean in terms of your fundraising capacity? What does it
mean in terms of how often our facility is going to be open? There were lots of factors that we had to
reconcile in order to figure out not only what kind of growth was really
possible for us but sustainable. We needed NFF to come in and help us get a
sense of what our numbers would look like from year to year, and then formulate
a plan that we could first present to our board and staff and then to funders
so that they know what they’re buying into.
We’ve often found
that, when nonprofit organizations grow, operating expenses grow faster than
revenue, and many will experience a deficit during the growth period. Leaders need to know how long it will take
the revenue and expenses to balance out again and what resources will be needed
to plug budget gaps during the growth period.
This is in addition to those one-time investments specific to scaling up
O’Neal: Especially in the current economy,
nobody wants to live on a shoestring budget where you’re struggling from month
to month to pay your bills. So we had to
do an analysis of our present structure, looking at the resources we have,
asking whether we had a cushion that would allow us to expand our programs
without putting a strain on the organization… [W]e had to think about how much
of our resources we could invest in the process of growing our program and how
much we would need from funders.
NFF worked with Legal
Outreach to build a multi-year projection model detailing increases in direct
and indirect costs and the effect these additional costs will have over time on
Legal Outreach’s operating results and balance sheet health. With a multi-year projection in hand, Legal
Outreach then had to consider how much of the larger budget could be covered
each year by growth in annual fundraising, what could be funded through one-time capacity investments, and what would need to be covered by the organization
drawing down on its own reserves.
O’Neal: There is always a question, when you’re
considering growth, of what resources you have on hand to effect that
growth…The hope is that you do get continuous funding [from external
stakeholders], but we wanted to be very much up front as to what we’re seeking
to do, how we’re seeking do it, what kind of commitment we’re willing to make,
and what kind of commitment we’ll need from [funders] in order to make the
whole plan work well.
Ultimately, undertaking a detailed planning process facilitated Legal
Outreach’s ability to make some critical projections and develop a common set
of data-based assumptions regarding how to proceed: The full range of costs associated with
delivering more results, how long it might take annual fundraising to catch up
with a bigger expense budget, which organizational resources would be depleted,
and where contingency plans could be built into the process.
NFF: What would you say to other organizations preparing to scale up?
O’Neal: Many of us in the
nonprofit sector had this idea, particularly before the 2008 financial crisis,
that you just “go for it.” We have been
idealists and have been of the mindset that if you just [do more programming] particularly
when the needs are great, the resources will follow. What this process has shown me and what the
financial crisis has taught me is that you really have to be systematic and
methodical in how you go about planning for growth. Even though we’re not for profit, we’re
really operating businesses as well and we have to look at all the factors that
will impact our ability to achieve consistently good results. Numbers are always eye-opening. You’re not just saying “here’s what I think
it’s going to take” - you’re actually seeing a model that tells you what you will
actually need to get to where you want to go.