Naming and claiming the nonprofit business model

What’s this I hear?

Over the years, I’ve observed executives tend to view their organizations by function. Staff departments and board committees are organized in a similar fashion–programs, finance, fundraising and marketing. Nonprofits also frequently track and report their results in silos. It’s easy to organize our work and solve problems this way when we are not accustomed to an alternative.

As organizational stewards, boards of directors need to focus on the whole organization as well as its strategic direction. They want to focus at that level but often struggle to do so. Why? They don’t understand their nonprofit’s business model. For many, their subject matter or industry expertise doesn’t necessarily relate to the organization overall or even to the nonprofit sector. So, they find themselves drilling down into the tactics.

The end result? Boards struggle to understand how their organizations really work and where their expertise can aid in setting direction and ensuring sustainability. Executive directors and staff members find themselves frustrated, and board members become less engaged than desired or needed. People go back to doing what they know how to do–approach organizational challenges and opportunities from a functional perspective.

Nonprofits and for-profits alike have business models–a means by which they deliver goods and services to customers and earn revenue in the process. Ultimately, companies and nonprofits seek to achieve sustainable advantage in the marketplace. Business model design is one tool to achieve that goal.

The challenge for many nonprofits in particular is a lack of awareness of their unique business models. Without widespread understanding among the executive staff and board of directors, it is difficult to create a more sustainable business model.

The time has come for a business model framework specifically designed for nonprofits. Why? Sustainable nonprofit organizations are designed upon a fundamental premise–a business model that works.

What can we learn from the research?

In a recent study published by the IESE Business School on the business model concept, researchers found the term “business model” became more widely used in academic and practitioner-oriented journals with the advent of the Internet in the mid 1990s, and its use increased exponentially between 1995 and 2009. The IESE research on business model literature revealed several interesting findings. It discovered scholars do not agree on what defines a business model–there is no singular definition or framework that is widely accepted as the definition or framework. Nonetheless, common ground is surfacing, most notably:

The business model serves as a new unit of analysis.

The business model provides a system-level, holistic approach toward explaining how organizations do business.

The business model seeks to understand how an organization creates and captures value.

What can we conclude? Clearly there is strong interest in business models, especially among practitioners. For executives striving to improve their business models and consultants guiding them in that work, a “holistic unit of analysis” provides a tool for identifying and testing adaptations and innovation potential. But it does something even more important. It provides a common language and framework. From common language, an organization can develop a collective understanding of how it really functions and more importantly, where untapped potential lies.

How can we think about the business model of nonprofits?

A business model serves as an essential framework for understanding and analyzing a nonprofit. It provides a comprehensive organizational description of how a nonprofit does business. Central to the business model is the concept of value creation–what a nonprofit does to create and capture value for its customers and stakeholders.

Definition of the nonprofit business model–What an organization does as summarized by: program development, financial resources and community engagement.

Time for a new paradigm

The 21st century calls for a new paradigm in nonprofit business models. Based on years of experience in the sector, I created the Synergistic Business Model™ framework to assist nonprofits in building stronger, more unique, and more sustainable business models. Two features make the Synergistic Business Model™ innovative. First, it fully incorporates community engagement as a component of equal stature with programs and funding. Second, it is designed to help nonprofits achieve true synergies within their business models.

Introducing Corona Insights’ Synergistic Business Model™

The business model framework has three interrelated components:

Program development: Achieving the mission with intention and results–A set of programs collectively designed to achieve the mission with clear outcomes and the data to back them up. An overarching philosophy summarizes the nonprofit’s approach to programs, referred to as the Agency’s Way. Programs leverage core competencies. Partnerships and collaborations are well defined.

Community engagement: Engaging the community with the mission–A comprehensive approach to engaging the community with the nonprofit to elevate visibility, engage with the brand and invite participation. Nonprofits take a holistic view of their constituents and foster deep interaction with volunteers, board members, funders and the community at-large.

Financial resources: Creating financial resources to advance the mission–Includes funding for annual operations as well as long-term growth and sustainability. Annual operations are funded by contributed and earned income. Strategic growth is fueled by working capital, funds available to invest in new or improved services and infrastructure. Fundraising and financial management are tightly integrated.

The relevance and strength of the Synergistic Business Model™ have been confirmed by a study of and reflection on business models by scholars and fellow practitioners. Corona’s framework was designed to serve as a unit of analysis at the organizational level. It emphasizes comprehensive, system-level thinking about how the nonprofit works and it can be enhanced for strategic relevance and sustainability. Corona’s model addresses ideas raised by fellow nonprofit consultants, in particular the recognition that the components are interdependent and that each element must be solid for the business model to function effectively.

Too many nonprofits have business models that are not optimal for sustainability given today’s realities, demands and opportunities.

What do you think? Learn how to use the Synergistic Business Model™.

Acknowledgements

Our overarching goal is to create a helpful tool that advances the nonprofit sector.

Karla Raines would like to acknowledge the contributions of the following organizations, colleagues and entities for guiding the design and development of this framework: Susan Kenny Stevens, PhD; Patricia Sterner; Kimberley Sherwood; Rose Community Foundation and the BOOST Initiative; Rebuilding Together Metro Denver; Qualistar Colorado; CWEE; The Women’s Foundation of Colorado; and South Metro Health Alliance. Karla expresses her gratitude to all of Corona’s customers who have shaped her thinking on nonprofit business models and to her fellow consultants and peers who have encouraged her along the way.

References

Bell, Jeanne. “Beyond Financial Oversight: Expanding the Board’s Role in the Pursuit of Sustainability.” The Nonprofit Quarterly (Spring 2011): 10-15.

Stevens, Susan Kenny., and Lisa M. Anderson. All the Way to the Bank: Smart Money Management for Tomorrow’s Nonprofit. St. Paul, MN: Stevens Group, 1997.

Zott, Christoph, Raphael Amit, and Lorenzo Massa. The Business Model: Theoretical Roots, Recent Developments, and Future Research. Working paper no. 862. Madrid, Spain: IESE Business School, 2010.

See also:

The Nonprofit Business Plan

Nonprofit Sustainability

Building Nonprofit Capacity

 

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