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Welcome to the Nonprofit Mastermind podcast where we name what's really happening inside growing nonprofits and what it actually takes to design a high impact nonprofit the right way. I'm Brooke Richie Babbage, longtime nonprofit strategist and coach. Each week I unpack the systems, strategies and specific mindset shifts that help growing nonprofits get smart and intentional about growing their impact without burning out along the way. This show is about moving beyond grit and to design. It's about building organizations that have the systems, structures and leadership capacity to truly hold the weight of their mission. Welcome. There's a dominant story in this sector about what financial health is supposed to look like. Individual donors are at the top, ideally major donors. Foundation grants are a supplement, not a foundation, and earned revenue is a nice bonus. This is a persistent, low grade whisper kind of story. Another part of the story. If you're still quote unquote dependent on grants, it means you still haven't really figured it out. The script is everywhere. The story is pervasive in governance trainings, in conversations with funders, in boardrooms, in the recommendations of very well intentioned guides and coaches and consultants. But here's what this story produces. It's a very particular kind of pressure that we don't often shine a light on. And it happens way more often than I like to see. Well, I don't like to see it at all. It happens way more often, I think, than it than it should. It's that organizations that are genuinely excelling at one revenue source start draining energy away from that thing that's working. And it's not because they don't know it's working. It's because they've been told that they have to diversify and that diversification means one specific thing and that the thing they're doing isn't it. So the the part of their revenue engine that's actually producing starts getting starved of investment and energy while they chase a model that was never really right for them. The painful irony of this is that organizations that have something working but are killing themselves to diversify. Instead of building systems and infrastructure and organizational capacity around what's working, they're apologizing for it and they're underfunding it to chase this other model. I have a client who has retained 100% of her foundation funders for four consecutive years. Four years in a row. Her organization is right around 2 million. Her renewal rate is essentially unmatched, and her team has built real infrastructure around the relationships driving that. A well intentioned development consultant pushed back and implied that her individual donor program was a core crucial problem to solve. I want to be clear. They have an individual donor program. They have 167. I think there's a six and a seven in. There could be 76, 176 individual donors. This is not nothing. They brought in almost six figures from individuals last year. But because it wasn't as robust as the foundations, the consultant said they had a core problem. This is a borrowed script. Right. And it's not one that was serving them. Another example, there's another incredible leader that I work with who has a really robust earned revenue part of her revenue engine. It's working really well. She is leveraging. She and her team are leveraging a core aspect of their program model in just a brilliant way. With partnerships, there's just this sort of fueling itself flywheel that has been set up around earned revenue and it's working. And she also has some really amazing relationships with major donors. As she's thinking about planning for next year, she got advice from two people on her board who again, well meaning because of other boards they are on that they needed to scale back the earned revenue and put more energy into building major donor relationships. Major donor relationships are fantastic. All donor relationships are fantastic. But so is a really robust high leverage revenue engine that is working. And she was really stressed and feeling really bad like she was doing something wrong with her organization. And I said, let's look back at your last few years. Have you been stable? Well, yeah, we've been. We've actually been growing as your team felt ease in fundraising and doing the work that they're supposed to do. Yes to that as well. This was working. But she was carrying around again this borrowed script and it was so loud that she almost couldn't hear what her own data was telling her. So there's this article that I love. It came out. In 2009, the Stanford Social Innovation Review published a piece called 10 Nonprofit Funding Models. Researchers basically looked at these massive organizations, really large scale nonprofits that had grown past $50 million. And they mapped the through lines, the funding through lines, how they funded and fueled their scale, what their revenue models look like. And the finding I think should have changed the conversation for organizations at more sizes than just 50 million. I think there are definitely some special carve outs when you are just starting and when you're building sort of an early stage organization. But the, the folks that I primarily work with, they are scaling, they are locked in and doing well in terms of impact. They have actual institutions that they're now trying to optimize. And it should have at least changed the conversation for those organizations. Because what they found is, was that organizations that scaled sustainably did not succeed by random massive diversification in the traditional sense that so many growing organizations hear about it. What they found is that these organizations succeeded by identifying a dominant funding model, one way up the mountain that built on their other assets, skills that they have, other aspects of their theory of change allowed them to leverage their program model, the work that they did, their community model, their theory of change, and then building the infrastructure, the relationships and the systems to run in that lane up the mountain as well as possible. They didn't bring in revenue from 50 different types of sources. And to be clear, they didn't bring in revenue from one type. Right. These are not organizations that only have foundation grants or only have membership based funding. But there was a model that dominated that just worked best for them as they are trying to scale this mountain. If they stick to this lane, if they put most of their energy in this lane, they will get up the mountain faster and so much more easily and with so much more joy. The scaling came from depth in one model, not breadth across many every time. So I want to lift up this one caveat. These are massive organizations, but the lesson holds, the core lesson holds. They paid attention to what they were good at and what gave them real strategic leverage and they leaned in hard to that. They maximized the what was working not because it was the one right way up the mountain someone had taught them, but because they paid attention to the best strategy for them with all of the constellation of elements that were true for their organization. And they said, what are we best suited to do? Well, we're going to lean in there. If it's relationships, let's do that. If it's community, let's look at grassroots. If it's a program model that lends itself to partnerships, let's lean into that. Now, in a lot of ways, that's the opposite of what most of us have been taught. Definitely the opposite of what I was taught. When I was first starting out. I learned that diversification and it wasn't actually even word. Nobody said this out loud. It's just the gestalt of everything that you're learning and hearing and the water we're swimming in. Diversification is sophistication that reliance on any one source is across the board unreasonable vulnerability, that a healthy balance sheet spreads risks equally across grants and individuals and government and earned revenue in roughly equal measure. And if you look at a fundraising plan and it's missing, you know, government money, or it's missing huge multi year foundation grants, or it doesn't have as many as you think it should, then there's something wrong with that funding model. That's the message that I got, that a lot of the leaders that I work with, that's the story they're hearing. But the research doesn't support that story. Not for organizations that are seven figures, right? Early seven figures. The research isn't saying you should only have one revenue source. That is not a vulnerability that you want that over reliance. What the research shows is that organizations scale sustainably by knowing which revenue model they're building around and then building around it intentionally. Building a revenue engine isn't a wish list. It's not hedging your bets by, you know, trying to walk up five different paths up the mountain. It's not who can get there the fastest. Building a revenue engine that helps you scale sustainably is architecture. It's design, it's intentionality. It's looking strategically at what assets you have, what resources you have, what skills you have, what you do well, and then saying, what does that mean? What are the implications of that for how we bring in revenue? You cannot architect around something you haven't actually decided to build. And that is CEO level work. That is high leverage work. That question of which funding model, which revenue engine you're going to, which part of your revenue engine you're going to lean into, which model your organization is really designed to run, it shapes every decision downstream, right? Who you hire, who you get on your board, where you spend your fundraising time. So I want to offer three questions to help you find your way up the mountain, or not find, but just center in on, right? Begin to have this, this revenue engine design conversation. Before you can build the right revenue engine, you have to do the honest work of identifying which mountain you're actually on. And it's not the one someone told you to be on. It's not the one you wish you were on. It's the one where your data shows you've actually made progress consistently. This is a different question than it sounds like, because most of us have been so embedded in the borrowed script in the story about what diversification means that we've stopped reading our own results and trusting them. So first question, over the last three years, what revenue source have we retained or grown most consistently? And it's not necessarily the one that gets the most attention in your board meetings, right? It's the one that's actually produced results. So you're going to want to look at your data year over year. That's your mountain. So we're going to start there, right? That's your mountain. And that gives you an indication of what your path up the mountain might be. So the first thing is you ask this question, and I just want to offer a little piece of advice. We don't want to apologize for what your data shows you. Right? It is an asset. It is insight. Okay, Second question. Where have we invested significant time and resources and seen limited return on our investment? And where have we invested significant time and resources and seen outsized return on our investment? Right. So now we're looking at leverage. Okay. This is really important because it doesn't. It means not necessarily that your team isn't working hard enough. Right. Or you don't have the right people. When you see the limited return on investment, it is an indication that a model, the way you're trying to bring in money perhaps doesn't fit how your organization is structured, who your network is, how your mission resonates. It's not a failure. It is sometimes right. It is information, and it is sometimes information that tells us we're on the wrong path. We do not think need to be leaning into this way of bringing in money. It doesn't work for us. Conversely, where you're seeing outsized return on investment, this is further indication of what the path up the mountain might be. Oh, this is not just producing results, results year after year, but when we invest in this, when we spend our time and our money and our energy doing this, it works better than anything else works when we put in similar time and energy. So then the third question is, and this is the one that can really shift things. If you designed your revenue engine intentionally around the funding model you're actually in, the one that actually works, what might change in the coming year? What would you stop doing? What would you invest in more deeply? How might you shift how you allocate your team's time? What would you ask your board to. To do differently? What kinds of conversations would you be having that are different? What would you automate or systematize because you're leaning into this specific part of your revenue engine? Right. That design question is where your strategy starts. And it's a really, I think, exciting way to think about finance and financial infrastructure and financial health, because it both removes the guilt around, oh, we're not doing what those organizations over there are doing. Right? You stop playing that game and it allows you to feel empowered about using your data to maximize what you're doing right, what you're doing well. So this type of design deficit analysis and sort of high level funding strategy work that we just did, this is what it looks like to illuminate a design deficit and begin to think about, okay, what do we do structurally to fix it? And when we see this design deficit in our funding strategy, it's usually not that you have the wrong revenue mix, it's often that you have no intentional mix. Right. That you need to add a layer of strategic analysis, insight and intentionality to building your revenue model. A lot of organizations that I work with, they are, you know, 1 million, 2 million, 3 million, $4 million organizations that still have essentially a collection of fundraising activities that along the way different people have told them they're supposed to be doing what we actually work to get them is a clear eyed answer to which mountain they should actually be climbing and how. Right? So for you, as you're listening, knowing your mountain, knowing your path up that mountain is clarifying and knowing is not the same as building. So if this episode landed for you, if this kind of organizational assessment and design work is something that you're like, yep, that's where we are with funding, with your board. This is what we do inside the next level nonprofit mastermind. We don't prescribe a specific way up the mountain. What we do is help you identify which model fits your organization. Fundraising model, board model, staffing model strategy, and strategic growth communications. It's all the same question, what is the best way up the mountain for our organization? And when you are a seven figure organization, that level of design and architecture is critical. It is the difference between growing and scaling sustainably. My building engines allow you to scale sustainably. So if you're leading an organization with a budget of a million dollars or above, go to Brooke Ritchie babbage.com fitcheck let's a clarity call and learn more about how the Mastermind might be able to help you. That's it for this week. I hope this was helpful and I will see you back here next week for more Mastermind. Thanks for listening. If this episode resonated, leave a review. I read them and they do matter and make sure you're subscribed so that you never miss a deep dive into building your resilient nonprofit. And finally, if you're ready to move from grit to good design, head to Brook Rich. You better strong to take the 90 second quiz and find out where to start.