The current environment
Regardless of the timeline for the U.S. economic recovery, emerging trends in competition, technology, demographics and consumer behavior are the major drivers of future opportunities for nonprofit organizations. These trends will shape a marketplace that is vastly different from the one that existed prior to the recession. These changes require a thoughtful examination of every aspect of your organization. The conversation begins with the organizationís business model. How does your organization create, deliver and capture economic, societal or other forms of value?
Why business models matter
501c3 organizations are created to address a societal need. The mission statement articulates both the societal need and the audiences to be served. However, it does not articulate the business model that will foster the consistent and replicable delivery of those results to that audience. The questions that prompt dialog around the business model include:
∑ Which results are we accountable for achieving?
∑ How will we achieve these results?
∑ What do these results cost and how will we fund them?
∑ How do we build the organization we need to deliver results?
Expectations for service delivery are high; quantified outcomes are the norm. Capital is scarce, and that is unlikely to change in the near future. Are the board, staff and primary stakeholders clear and in alignment on key results? How will outcomes be measured, and what are the resources required to achieve the desired outcomes?
Success spawns a challenge. Why should we change what is working? If we are unwilling to think critically about how our organizations currently operate, we are limiting the opportunity for future success. Often, its only when a model is obviously broken that we contemplate change. By then, we have missed opportunities to elevate service to the constituencies who depend on our organizations.
Successful, dynamic nonprofit boards and senior executives are routinely fostering two conversations:
- Do we understand our current business model and its critical components? Are we tracking the information necessary to understand if the environment for this model or the model itself is changing?
- What is changing, and are there competitive forces or new innovations in the market that require us to create an entirely new model?
In the corporate world, the business model discussion focuses on Customer Value Propositions. Nike can command a premium price for sneakers, because they are the market leader in innovation. Wal-Mart gives its customers everyday low pricing by creating efficient systems that take dollars out of traditional distribution systems. USAA routinely wins top customer service honors by utilizing technology and a deep understanding of its customers to promote incredible loyalty. Regardless of their models, each of these companies is exceptionally clear on what value it provides to its customers, and the importance they place on their services or products.
How do Value Propositions translate to the nonprofit sector? Nonprofit models are often more complex. There may be clarity on the results we seek to achieve (for example, providing dental care to children); however, frequently the recipient of that outcome is contributing little or nothing toward the cost of achieving those results. To create an organization that has the capacity to achieve and deliver the desired outcomes, funding is sought from multiple sources that may include government, foundations, corporations, individuals or others. Nonprofits need to understand the Client or Audience Value Proposition as well as the Donor or Funder Value Proposition. This requires two different alignment processes and outcomes. First, what societal need does our organizationís outcome address for the intended clients or audiences? Second, do our organizationís funders understand these needs, agree with the outcomes we hold ourselves accountable for providing, and understand the true costs of creating these results?
Has the current recession highlighted disconnects in how clients perceive the value of your service? Are funders questioning your organizationís Value Proposition from their perspective? Is there new traditional or nontraditional competition that is fundamentally changing results or perceived value? Are clients and/or funders behaving in new ways that cannot be accommodated in your organizationís current model?
How to build new models
Traditional wisdom assumes that organizations that have been successful with one model cannot innovate sufficiently to create a successful new model. Often we are just too invested in the skills, approaches and systems that brought rewards in the past. However, nonprofits have an edge in creating new models: We are experts in coming up with great ways to help people. The social significance of our missions adds energy to every aspect of the enterprise.
Whether you are examining your business model proactively or the current model is broken, there are a few questions that can prompt inquiry into new models:
- Do you really understand the current business model down to the most granular level?
- Start with the end in mind Ė do you have a clear, quantified outcome that has undeniable value for the intended customer or audience?
- Construct a sustainable funding formula that consistently delivers some resources to the organizationís bottom line. It takes capacity to deliver consistent results. Are you being realistic about what the intended outcomes cost?
- Are there funders who see value in providing the required resources to achieve the desired outcomes?
- How does this model compare to your current model? What capacity (human, financial, systems, etc.) will it require to implement this model? Can our current organization implement this outcome, at this cost, or do we need to reconsider our current platform?
Answering these questions will heighten awareness among board and staff of the realities facing both your organization and the people you service. This dialog also raises awareness of assumptions that may be at play in current relationships with funders and donors. Today and for the foreseeable future, nonprofit organizations are in an operating environment that challenges leaders to think critically and creatively about how limited capital will be deployed to create the most significant and sustainable outcomes.
By Raylene Decatur, a nonprofit strategic planning and executive search consultant.