A POST TO EXPONENT PHILANTHROPY’S BLOG
5 Characteristics of Effective Nonprofits
March 27, 2024 Exponent Philanthropy / Impact and Evaluation, Leadership
Discovering effective nonprofits isn’t a matter of chance; it’s a journey of cultivation. As a donor, you can support and strengthen the nonprofits most aligned with your goals. Identifying the impact you want to make can help narrow the field of potential grantees to those that fit your values. This also opens opportunities to foster groups aligned with your interests, helping them accomplish the work you care about. So, what kinds of nonprofits do you most want to invest in?
These questions can help clarify your philanthropic interests & goals:
What are your values?
Being clear about your values can inform the kinds of organizations and approaches to change you’re most passionate about.
What do you want to achieve with your giving, volunteering, skills, and experience?
What is your desired impact? What difference do you want to see in your community or society?
At what level do you wish to make change?
When considering where to target your dollars and time, do you wish to impact individuals, organizations, networks, policies, or ideas?
5 Characteristics of Effective Nonprofits:
While discovering effective nonprofits isn’t a matter of chance, there are some characteristics effective nonprofits have in common.
1. Clear Mission & Purpose
The most fundamental quality of an effective nonprofit is clarity about its mission — both what it seeks to accomplish and why this purpose is important. The nonprofit should communicate its mission clearly to all its stakeholders—board, staff, donors, volunteers, partners, and the public—so that everyone understands its goals and works toward a common purpose. All the nonprofit’s programs and operations should align to advance its mission.
In addition, effective organizations document the need for their services and explain the value they add. For example, human services organizations should be able to explain how their services meet real demands and fill gaps. Arts and culture groups should be able to describe how their work enriches the community and specific audiences.
2. Ability to Perform Key Functions
Effective nonprofits can perform essential functions necessary to fulfill their missions. The authors of “How Effective Nonprofits Work” cite six essential functions:
- Communicate vision and mission
- Engage and seek stakeholders’ input in designing programs, including people who use its services, and serve its target community appropriately
- Achieve results and track impact against a few key measures, at least through basic means
- Manage an active and informed governance structure
- Secure resources appropriate to its needs
- Plan for the future
A seventh function is key to effectiveness: making it part of the organization’s culture to evolve its programs and operations as it learns from stakeholders, its assessment of impact, and new knowledge in its field. In short, the nonprofit should be a learning organization.
3. Strong Practices, Procedures & Policies
Effective nonprofits also follow good practices in three functional areas: finance, governance, and organizational and program development. (Thanks to “How Effective Nonprofits Work” for this framework.) As a donor, look for the following factors:
Financial
- Yearly audits are conducted and made available to you on request. (If a small nonprofit, it should provide you with a copy of its Internal Revenue Service Form 990, or you can look up 990s for any nonprofit at GuideStar)
- Financial statements are prepared quarterly, following a consistent format
- Solid fiscal management processes are in place. Good practices include a board finance committee, careful cash monitoring, and regular budgets monitored with monthly cash flow statements
- A diverse range of supports exists, such as individual donors at varying levels, foundations, and government or other institutional contributors
- Efforts are in place to establish and maintain a reserve fund, ideally equal to 3–6 months of operating expenses
Governance
- Strong leadership runs the organization
- An active process exists to properly handle governance issues
- A board nominations process and board term limits are in place
- Regular and ongoing evaluation of programs and fundraising plans takes place
- Board meetings are scheduled for the year
- Written policies set expectations, increase efficiency, and promote transparency and accountability in operations. Examples include policies for board term limits, personnel hiring and management, conflicts of interest, and investments
- The organization demonstrates flexibility to adjust to environmental shifts
Organizational & Program Development
- They have a strategic plan in place and use it. The organization reviews that plan annually and adjusts it, as necessary. Key staff members refer to it when talking to you
- They welcome regular client input and use it for continual program improvement. The organization can demonstrate involvement of constituents in planning and evaluation
- Other organizations doing similar work speak highly of the organization
- Staff can articulate key accomplishments, lessons learned, and future directions
- The organization is recognized as an institution; it is not identified solely with one or two individuals who work there
- The organization is able to demonstrate measurable outcomes
If you are thinking of supporting a new or younger organization whose work you admire, recognize that it may not yet have in place all of the previously mentioned practices, procedures, and policies.
4. Good People
Above all, nonprofits depend on one key resource to fulfill their missions: qualified, skilled, and talented board members, staff, and volunteers. Boards should be diverse, talent rich, informed, responsible about stewardship, dedicated to the nonprofit and not their self-interest, and, above all, engaged. When nonprofits lack the resources and know-how to recruit and train effective board members, their governance, oversight, and leadership suffer accordingly. In addition, the effectiveness of a nonprofit largely depends on employing an appropriate number of staff members who are talented, adequately trained, and properly supported and compensated.
Because people are key to performance, look for nonprofits that invest in their human resources. Recognize that recruiting, training, and supporting board, staff, and volunteers requires substantial investment. In addition, realize that measures of nonprofit efficiency—the ratio of program expenses to total expenses, for example—might only tell one small part of a much bigger story.
See Exponent’s “Investing in Nonprofit Leaders” Primer »
5. Ability to Mobilize Others
The ability to mobilize and engage volunteers, other nonprofits, businesses, and government agencies is an essential skill for nonprofits seeking to address the root causes of problems and bring about long-term change. Building awareness and support among key audiences and bringing more people and resources to the table are essential to change. If change is part of your goals, look for nonprofits that have the following characteristics or develop them in your favorite organizations:
- Staff skilled in working with government or advocating for policy change
- A willingness to partner with businesses to stretch their influence
- The capacity to inspire and engage volunteers and constituents or members as passionate partners and spokespersons
- A willingness to partner with other nonprofits working to address the same issues and to regard those groups as allies not competitors
- A commitment to sharing leadership with staff, volunteers, and constituents or members to empower more people to make impact
Above all, your commitment to finding effective nonprofits and lending the support they need will pay off in greater results and greater satisfaction as a donor.