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Exploring the Growth Cycles of
Community Foundations
Copyright @ 2004
Michael J. Rawl
Horizon Philanthropic Consulting
196 Shipcarpenter Street
Lewes, DE 19958
302-644-0107
I. Introduction
During the preparation of this document it became clear that, while there are many shared experiences among growing community foundations, there is no “typical” growth cycle pattern for all.
Community foundations differ significantly due to the size and type of communities that they serve. Growth experiences are very different among CFs that serve:
- Large, established cities
- Rural communities
- A mid-sized county with one primary urban area
- Multiple counties with several smaller urban areas
- Primarily resort areas
- An entire state
Further complicating any attempt to describe “typical” growth cycles are other factors relating to the nature of a community, including:
- A history of philanthropy, resulting in a community that understands and values charitable giving (or, perhaps, the opposite).
- The size of your population base combined with income diversity within the community, including families with the capacity to support a CF fund – or a paucity of such resources.
- Dominance in the community by a given corporation, religious influence, type of profession, military base, college / university,
or ethnic population.
- Existence of a reasonable number of “centers of influence” who can be
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easily reached and involved, vs diverse influencers, spread out over a large region.
- Economic growth experience of the community over the prior 10 or
20 years.
- Existence of strong private foundations in a region
- Age of the primary population base, ie: elderly retired vs large numbers of two-income families.
Finally, a third major influence results from the community foundation itself, including how soon after formation it was staffed; continued influence by long-term board members or staff; ingrained values and beliefs (right or wrong) that have permeated the foundation, and the presence (or absence) of appropriate leadership for each particular growth stage among the staff and board.
Also important is the evolving focus of the foundation, ie: program development; community leadership; non-profit support; emphasis on asset growth, etc. Obviously, strength of and commitment to development is critical. Also of particular importance is the board’s willingness and ability to raise adequate operational funds in order to invest in growth.
When one considers all of these complicating matters – community type and size, community make-up, and foundation make-up – it becomes clear that a wide combination of factors can significantly accelerate or impede the growth cycles of any given community foundation.
At the same time there are many similarities among all community foundations, particularly in the challenges that they face in addressing and moving through various cycles of growth.
The objective of this document is to identify those primary elements that most
typically influence the growth of community foundations. In doing so we hope to create a body of facts that can be helpful to the community foundation field in the following ways:
- Provide general data re: growth over time by which community foundations
can measure and compare their own progress, while taking into consideration
those differences that can accelerate or impede their particular growth;
2. Enable CEOs and Boards to anticipate and better prepare for the challenges
and management capabilities required during each new growth stage;
3. Help foundations that may be low-performing or “stuck” at a particular stage
of growth understand the reasons and take steps to improve their chances of
future success;
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4. Enable more community foundations to remain at “prime” levels of
performance.
Theoretical Framework
Work done by several knowledgeable individuals and organizations helped create the theoretical framework for this publication.
Research by Helmer Eckstrom and Karl Mathieson in the mid-1990s indicated certain common characteristics of small, medium and large community foundations that are referenced in this work.
Judith Sharken Simon’s excellent book, The 5 Life Stages of Nonprofit Organizations, written with J. Terence Donovan, was also extremely useful.
In particular, the work of Dr. Ichak Adizes, a specialist in organizational transformation who has assisted more than 1,000 organizations in 35 countries, was of great help. Dr. Adizes’ work in identifying four different management personality types – Producer, Administrator, Entrepreneur and Integrator –is particularly relevant to community foundations when combined with his 10 stages of corporate evolution. The further work of the Community Foundation of Ottawa in applying this to our field was exceptionally useful to this project.
II. Exploring Various Stages of Growth
Observers of nonprofits and community foundations have come up with various ways to look at typical stages of community foundation growth. Some models utilize three stages; others, five or ten.
For this particular discussion, we have chosen to use seven stages, supported with information and observations from various models, in particular those of Dr. Adizes.
As you read and think about these stages, consider where your foundation may currently be. At each cycle of growth, there are opportunities for your organization to regress or move forward. Also, unique organizational and environmental circumstances can cause your foundation to move through stages faster or slower. Thus, your foundation’s chronological age may not necessarily correspond to where it currently exists in any given growth cycle.
Usually, significant events occur in each stage that are necessary for a foundation to move forward in its development. You are in the best position to determine at which stage your particular community foundation currently “fits.”
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III. The Seven Stages of Growth – from Concept to Renewal
Challenge: How to remain at “Prime”
- Imagine and Inspire
This is the vision, or idea stage, where the community foundation has not
yet formalized, and where imagination and inspiration abound. This stage
may take from six months to two years. Collaborations may be considered. The primary question is: can the dream for this foundation be realized? Characteristics at this stage are enthusiasm, energy and creativity, usually driven by two or three people including one charismatic leader.
CharacteristicsChallenges
CF concept is often newCost, time to research other start-ups
Mission: unclearDetermine community needs
Frequent meetingsConsider long-term funding requirements
Founder in controlStaff vs volunteer leadership
Determine geographical boundaries
Averages
Asset growth: $50-$150,000
Time required this cycle: 1-2 years
- Founding and Framework
This is the start-up phase of the foundation when it incorporates, creates its bylaws, receives non-profit status from the IRS, files with the state and recruits its first board. High energy and creativity continue, with a more focused imperative on how to raise the funding needed. An office is established and the first printed materials developed.
CharacteristicsChallenges
Board follows leadership of chairScramble for operating support
Low-cost, loaned or shared spaceIntroduce CF to your community
Rush to grow size of boardNeed to form relationships carefully
Urgent need for resultsTemptation to “try everything”
Averages
Asset growth: $150K to $5 millionTotal funds: 7-25
Grants: $25-50,000Annual asset growth: $650,000
Avg. new fund size: $30,000New known bequests: -0-
Time required this cycle: 3-4 years
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- Ground and Grow
The overriding question during the third period is “How can we build this community foundation to be viable?” Serious questions are raised about the “business” of the foundation and how that will generate the fees needed for self-sufficiency. Organizational systems are created for accountability. The need for
growth on multiple fronts requires staff to wear many different hats, leading to possible burn-out. There are many enticing choices, some of which may not be as productive as others.
CharacteristicsChallenges
CEO – “happy juggler”Convince community of permanence
Pursue many opportunitiesBlind alleys, lack of focus can waste time
Safe investments w/ local banksHigh investment fees
Fear of competing w/ non-profitsAvoid efforts that don’t generate fees
Move to own officesBegin to work with attorneys, CPAs
Produce first WEB site, begin PROperating income a major concern
Averages
Asset growth: $5- $10 millionTotal funds: 25-75
Grants: $50,000-250,000Annual asset growth: $1-$1.5 million
Avg. new fund size: $50,000New known bequests: 2-5
Time required this cycle: 3-5 years
- Produce and Sustain
This is the maturing stage of the community foundation, when it is experiencing steady growth. The questions now become how to continue momentum; how to transition from old leadership and more narrow purpose to new, more traditional style; and how to make best use of finite resources. Administrative systems with professional staffing are put into place and long-range planning undertaken. Assets from bequests begin to arrive. Control issues w/ founders may surface and can lead to senior staff turn-over and board self-examination.
CharacteristicsChallenges
Donors dominate grant makingFounder(s) may resist succession
Search for new operating $ sourcesNeed to achieve self-sufficiency
Paperwork, accounting crisesInvest in new systems, personnel
Confused operating proceduresArticulate policies, establish controls
Begin to “staff up”Hire new staff, create personnel policies
New investment relationshipsSelect best investment partner(s)
Board, committee growthBoard evolves from insiders to independent
First strategic plan createdFounder(s) may insist on their own vision/
Large % of income comes from purpose & create a leadership crisis
deposits to existing funds
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Averages
Asset growth: $10 - $20 millionTotal funds: 75-150
Grants: $250-$750,000Annual asset growth: $2.5 - $4.5 million
Avg. new fund: $75,000New known bequests: 5-10
Time required this cycle: 3-4 years
5.Reaching “Prime”
This is the stage at which the community foundation achieves a reasonable comfort level in operations. Fees and endowment are generating adequate income and enable higher levels of professional staffing; sometimes coinciding with a change in senior leadership (staff and board). The foundation is known and appreciated as a community leader. The organization can be both systematic and nimble, still young and vital – and perhaps a bit smug. Board seats are coveted.
CharacteristicsChallenges
Looked to for leadershipNeed to grow unrestricted fund
Staff capabilities upgradedMerge different management styles
More staff size, specialized (ieGreater emphasis on human resources
separate development staff)Transfer relationships from CEO to staff
Diverse investmentsCliques, political issues, board control
Growth thru fund roll-over,Technology challenges, expenses
regional expansion, bequestsBalancing asset growth w/ programs for
Planned giving expertise clients, non-profits, community
Averages
Asset growth: $20-$50 millionTotal funds: 150-300
Grants: $750K-$2.5 millionAnnual asset growth: $4.5-$6.5 million
Avg. new fund: $100,000New known bequests: 10-15
Time required this cycle: 4-6 years
6. Beware Turning Inward
By this stage, unrestricted assets have grown to the point that CFs can begin to
explore specific community needs with their grant making, in addition to the usual broad range of grants made by donor-advised funds. The addition of a supporting organization, private foundation roll-over, or a large designated fund may occur as well.
At this point CFs must be careful not to turn inward. Symptoms are when the CFbegins to feel like an exclusive club and the internal hierarchy of policies and office politics supports a self congratulatory elite. Clients and grant recipients may be resented because they divert time and attention from senior staff’s
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service on committees, boards of national organizations. Smaller donors may be de-valued or even discouraged.
CharacteristicsChallenges
Operating surplusesBack-stabbing, infighting among staff
“Don’t make waves” attitudeBlame assigned rather than fixing the
Growth rate of new funds slows basic problem(s)
Inflexible policies & systemsClients find it hard to be heard
Major new grant initiatives &Bequests give appearance of growth
collaborationsGrants efforts become divided
First supporting organizationAdmin vs entrepreneurial issues
Averages
Asset growth: $50-$100 millionTotal funds: 300-500
Grants: $2.5-$5 millionAnnual asset growth: $6.5-$10 million
Avg. new fund: $150,000New bequests: 20-30
Time required this cycle: 4-6 years
7. Review and Renew
During this stage some larger community foundations may need to re-invent themselves in order to avoid becoming stagnant. The primary question is “What do we need to do to redesign?” Redesign may be needed to re-energize, reorient and resolve staff-board conflicts. It can be a tool to provide new direction to an organization that has become overly self-important – to replace elitism with a renewed focus on the core responsibilities of a community foundation to its donors and communities.
CharacteristicsChallenges
Staff turnover increasesRenew enthusiasm, creativity
CF becomes exclusive, bureaucraticNeed to re-focus on clients Board becomes inactive, elitist Revitalize, shake-up board, staff
CEO involved in major issues, nationalShift priority from assets to catalyst-
initiatives convener-connector
Event/person provides impetus for change Re-introduce CF to community
Someone – often new chair—takes on Return as community leader
responsibility for re-design
Averages:
Asset growth: $100-$250 millionTotal funds: 500-800
Grants: $5-$10 millionAnnual asset growth: $10-$20 million
Avg. new fund: $250,000New bequests: 30-50
Time required this cycle: 5-8 years
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The challenge for any community foundation is how to remain at the “Prime”
state of organizational evolution and efficiency. Answers to that will be found in the following sections.
IV. Typical Community Foundation Growth Experiences
Time & Resources Required to Reach $100 Million
Growth Cycle Years RequiredStaff SizeAnnual BudgetBoard Size
-0- to $5 million 3-41-3$50-$150K5-7
$5 to $10 million 3-52-4$150-250K7-9
$10 to $20 million 3-43-5$250-$400K12-17
$20 to $50 million 4-64-6$400-$600K17-25
$50 to $100 million 4-66-12$600-$850K15-19
$100 to $250 million 5-8 12-20$850-$2.5 MM12-17
22-33 yrs.
Review Board Comments:
Some smaller community foundations, in my opinion, are over-staffed. Still, there is a need to invest up front as soon as possible – banks without tellers can’t accept deposits.
Consider expanding your service area and increasing the full set of services offered to all – this enabled us to continue growing by learning and working with new communities. We transitioned from a local to a regional community foundation
The number of funds, percentage of living vs past donors, and even the age of the foundation can all influence staff size and operating budget.
One trend today: be small, but act big. Internet technology, WEB-based marketing, PC-based design services, EMAIL communications can all help.
Not all boards get bigger as a foundation grows. As professional staff are added, the board should concentrate more on vision and governance, which does not require larger boards.
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In my experience, board size doesn’t mirror asset growth and, in fact, many
boards get smaller and the number of committees shrink as the assets grow. There is
even a theory that new, small foundations should start with large numbers (ie, 35-40) of board members, and then decrease over time.
Perhaps the field could measure a CF’s success vs community potential by using a “Per capita $ under management” or “Grants per capita” approach. This might help to better measure a region’s capacity, rather than total asset growth.
V. The “Ideal” Community Foundation Environment
Achieving these typical growth stages may not be possible for all community foundations, particularly those that do not exist in an “ideal” environment.
Although community foundations can thrive in a variety of regions, an ideal environment for a community foundation today would be a large enough region (say 250,000+ people) with one thriving urban center where most decision-makers for the region can be identified and reached.
The region should be suitably diverse, including a university and hospital, and its economy supported by a healthy mix of industry (including large, home-based corporations) and white collar professions. The population base should go back generations, and be well versed in the importance of “giving back” to their community. There should be six-to-ten supportive private foundations in the region.
The ideal community foundation will have excellent representation from the region’s most respected leaders on its board. Those leaders will have set aside or guaranteed adequate resources to pay for the foundation’s operational expenses until it reaches $35 or $50 million in size; they will have invested in competent, full-time staffing for the foundation, and they will play an active role in introducing foundation staff to all those who should know of it within their region.
As it grows, the ideal community foundation will develop a strong, respected institutional presence in its region, based upon the quality of leadership it has shown. It will have mutually supportive relationships with the region’s top nonprofit organizations and private foundations, and excellent relations with the top estate planning attorneys and CPAs in its region. It will enjoy excellent media relations and coverage.
The board leadership of this foundation will excel in planning, board involvement, decisive, proactive grant making and investment management. There will be a significant focus on human resources through constant training and retreats for both board and staff members. Succession plans will be put in place for senior staff and board members, ensuring a continual flow of qualified new leaders and challenging new ideas.
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The community foundation staff will be sized appropriately for its budget, and will reflect the various types of leadership skills needed for a well-rounded organization.
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Chances are, while any given community foundation environment will have many of these characteristics, it will not have them all. Therefore achieving the “typical” growth cycle results shown here may simply not be possible or reasonable for all community foundations.
Review Board Comments:
Many CFs are in smaller communities under 150,000 –they should not feel that they have not been successful if they do not reach the growth cycles indicated by the number of years stated. Some may never get to $100 million in size. We should increasingly question the value of measuring growth by “asset size.” More and more large grant making programs are done under contracts for other entities that hold the assets and CFs get a fee to administer them. The real value is in what is getting done for the community.