Lions, zebras, and the law of the jungle: how markets matter to nonprofits
The mantra of the under achiever? To the contrary, this is the wisdom of a creature that has figured out what game it is playing–what the threats are, who its competitors are and (literally) what it must do to live to see another day. Likewise, the key for nonprofit survival is market awareness: knowing the larger environment, being aware of who else is competing for space and knowing what you need to do to position yourself to succeed.
Talk of markets among nonprofits often elicits slightly repulsive responses. “We are not about market dominance,” is the refrain. “We are about creating impact.”Markets, after all, are the domain of the McDonalds and Starbucks of the world, those companies in constant search for higher profits.
Fair enough. But without knowledge of the nature of your particular market and your place in it, you may spend unnecessary time and energy trying to outrun the lion instead of finding your survival spot within the herd.
What markets are
A market is the primary domain (defined as a field of action) within which your organization operates. Less formal is the notion of market as “the sandbox” within which your organization plays. In either sense, markets have two fundamental characteristics: a) they are closed and finite, and b) within those boundaries is the collective population of your clients and competitors. In simpler terms, your market is comprised of the people you wish to serve and the other organizations to whom they may go for similar service.
For some, the market is defined geographically, such as a community center whose mission is to serve a particular zip code or sector of town. Competitors in this market are the other sites in the same area that provide similar services, whether or not any one site provides all of them. For others, the market is defined demographically, as in an outreach program to low-achieving middle-school students across a school district. Its competitors are the range of youth programs offered by churches and youth-serving agencies.
Still yet, a market may be defined by the mandates of a specific industry, such as a government funded youth-service agency. While the organization exists to improve the lives of youth, what it actually does for the youth is determined by what the state is willing to pay for.
How markets matter
It should be obvious that markets do matter in the formulation of nonprofit strategy. But how do markets matter? First, it is impossible to develop a strategic position without an understanding of the type of market you are in. Second, it is difficult to assess your standing within your market without knowledge of those you are “trying to outrun.” That is, you can’t differentiate yourself within a market unless you know who your competitors are. And third, program shifts often unwittingly throw nonprofits into markets for which they are unprepared to compete. To illustrate, consider the case of Harvest Home, a residential facility for youth with behavioral health issues.
Harvest Home has been in the same location for over 100 years, doing basically the same thing for the same population. But it is not a “local” nonprofit. Why? Because its clients and its funding both come from
counties around the state. In fact, less than 10% of its clients come from its county of residence. Thus, it would be a strategic mistake for Harvest Home to strengthen its market position by trying to raise local awareness of its work. Instead, it has chosen to strengthen its market position within the behavioral health industry by demonstrating low-cost, relevant outcomes to the state agency that funds its work.
In recognition of its market, Harvest Home is left to deal with the reality of declining state support for residential treatment, its core strength. Its strategic response to these changing external conditions is two-fold. First, it adapted its treatment model so that it can be offered in non-residential settings, such as the family home. Second, and more to the issue at hand, Harvest Home decided to take its core expertise in the provision of intensive therapy and offer it to the general population.
What are the implications of this strategic move? The most significant is that it has now entered into a new market. Or, if you prefer, Harvest Home is now playing in someone else’s sandbox. To be successful, Harvest Home must be able to differentiate itself from. i.e., compete with, the numerous mental health centers, clinics and private therapists in the local community.
Indeed, Harvest Home has encountered a second lion.
The key to survival for the zebra is its ability to blend in with the herd. That is, its basic survival strategy is to confuse the predator through the absence of differentiation. And it is designed to do just that. Paradoxically, the exact opposite is true for nonprofits. But without recognition of its actual market and subsequent differentiation within it, nonprofits are unable to design a strategy that, in the long run, may be the difference between survival and extinction.