Posts Tagged ‘nonprofit business models’

Strategic planning: Is your board focusing on five external forces?

Strategic planning often gets a bad rap. And it’s easy to see why. Usually, we have a board retreat or take the staff off site and hold a big meeting. Much is said and brainstorming is vigorous, but little is written down and less is quantified. We return to the office on Monday, with few decisions made. The retreat or meeting didn’t help your organization change anything.

In order to be successful, organizations, teams and individuals must plan and set a defined course for change. How does planning focus energy, change outcomes and result in greater job satisfaction for the board and staff? In the end, the insights gained during planning should influence the hundreds or thousands of individual actions that take place in an organization on a daily basis. Sounds good, but how do you do this, and what does it look like in daily application?

A case study

Let’s assume you are the CEO of a large nonprofit with international operations scattered across the globe. Your staff and volunteers work with people who have enormous health, education and economic needs in some of the most challenging places on the planet. Information cascades into your organization daily—from the Web, news reports, donor feedback and field reports. Last year, you, your staff and your board worked hard on a five-year strategic plan. What difference is that plan making today on how you face challenges?

An effective planning process begins with rigorous advance preparation. The quality of the end product is directly correlated with the development of comprehensive external and internal scans. An external or internal scan represents a quick check by a planning team of trends in key areas of the environment.  All organizations risk losing touch with those key trends, internally or externally, that signal major changes ahead for the organization. These environmental scans create a context for the dialogue during the planning process. The process focuses the board’s attention on strategic thinking and the forces that are shaping the organization’s future. Which of the rapidly changing forces in this organization’s environment will have the most significant impact on the organizations results in the future? The outcomes of the strategic thinking dialogue are then used to define the organization’s strategic direction, goals, objectives and, ultimately, action plans and budgets. The key is to identify the right questions for the next business cycle of the organization.

The board of this nonprofit focused on the strengths, limitations, opportunities and threats in the external environment. Five forces of change were identified that warranted the board’s attention, not just during the planning retreat, but in ongoing discussions during board and committee meetings for years to come.

The five forces are:

Globalization
Demographic upheavals
Rising expectations
Explosion of new technologies
New forms of organizing work

Based on the deliberations of the board and staff during the retreat, the specific strategic drivers and key questions for this organization to address over the next five years were identified as:

The world is flat. How does globalization impact the structure of our organization? What new competitive forces will impact our ability to attract the talent and people we need in the regions we serve? How could we organize our work differently and employ technology more effectively to serve targeted populations? How do we, as a board and staff, stay informed and proactive in rapidly changing environments?
Security of operations. Security has the single greatest impact on effectiveness of global operations. There is no service to targeted populations if operations are removed or restricted. Security is an issue for the safety of an organization’s people, capital resources, equipment, programs and technology. How do we enhance our efforts to monitor and adapt quickly to changing security issues? Can our organization be more nimble?
Competition for support. Trends indicate that government support in all forms will be reduced for non-governmental organizations and all other nonprofit organizations in current and future years. This will result in greater competition for remaining government funds. How can this organization compete most successfully to sustain the largest percentage of government support possible, while simultaneously diversifying private support from individuals, corporations and foundations? What are the expectations of our existing and new donors?

The progression from a broad external scan to forces of change to key strategic drivers clarified for board and staff where they should be focusing their attention. Rivers of information are now sorted by how they impact the nonprofit’s structure, staffing, security and fundraising. There were many other worthy issues to focus on, but these priorities emerged as the key ones for this organization over the next five years. The CEO identified opportunities for board and staff to monitor these issues on an ongoing basis, in order to make decisions and take actions to positively impact the result this nonprofit strives to achieve.

Internal environmental scans focus on the core components that are essential to every organization. Regardless of its structure, stage of organizational development or field of activity, every organization consists of five essential components—without which it cannot come into being, sustain its existence or grow.

These five components and their definitions are:

Market. Anyone who uses, or has the potential to use or fund the programs, products and/or services created, distributed or funded by this organization.
Program. The content and methodology an organization creates and distributes through products and services to define audiences.
Organization. The network of structures and systems through which an organization creates and distributes programs, products and services to its market.
People. The human resources available to an organization to create and deliver programs, products and services to its market.
Capital. The non-human resources available to an organization to create and deliver programs, products and services to its market.

Growth comes when an organization energizes one or two of these components. Sustained capacity building depends on an organization’s effort to balance the development of every component. Organizational stress is a signal that the development of one or more components is lagging behind the development of the most energized component. Alignment among and between components can propel an organization to the next stage of its organizational lifestyle (i.e. from start up to growth mode), or a lack of alignment can stymie an organization’s development for years. This analysis of internal capacity must be measured against the challenges this organization will face to achieve success, however success is defined.

Based on an internal scan of this nonprofit, the following key opportunities were identified:

Cultivate new donors while retaining existing donors to raise net contributions and diversify funding sources.
Build development/fundraising/outreach/communications functions and systems to cultivate lasting relationships with funders and collaborators, while raising more money to support the mission.
Coach, develop and grow capacities and skills of the executive management team to build the capacity to deliver on its mission and support the work of the organization.
Clarify goals and quantify objectives for vice presidents to further develop their skills as self-directed managers.

The board and staff identified many ways that this organization could improve performance on the five components. The four opportunities sited above are the ones that are central to the growth and development of this organization during the current business cycle.

The three drivers resulting from the external scan and the four drivers resulting from the internal scan formed the basis of a Statement of Strategic Direction, which captured the seven priorities for this organization over the next five years. There were other worthy priorities, but these seven were critical to the organization’s future growth, development and ongoing success.

The staff took the next step and crafted five-year goals, supported by quantified objectives. The board reviewed and approved these goals and objectives. The staff writes annual detailed action plans to support the outcomes defined in the objectives. The action plan development dovetails with the creation of an annual budget.  The systems are in place to support the desired outcomes.

The key issues are clear: Every board of directors’ meeting must include time for discussions about security, competition for support, growing the capacity of staff, or how the systems support the desired outcomes in donor relations. The board has a greater awareness of and growing knowledge of the most important strategic issues. The staff feels empowered to sort the incredible amounts of information that bombard them daily and use the most relevant information to address the core issues for their organization. Most importantly, the CEO, in conjunction with the board and staff, fosters the ability of the staff, volunteers and key stakeholders to see what truly exists today and, perhaps more importantly, fosters the capacity to see what will exist tomorrow.

See also:

The Nonprofit Strategy Revolution

Nonprofit Strategic Positioning

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

Image credits: positive-shift-co.com, mothereseblog.com, optimumorg.com, oaktree-asia.com, megahdscreen.com

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Find out what’s missing in your funder conversations

Words can inform our mind, thrill our spirit or destroy our self confidence. Some call language a “tool of transformation.” No matter the intent behind your words, leading nonprofit thinkers agree the power of language is evident in every aspect of the sector. The influence of language couldn’t be more obvious than in the article introduced by Foster, Kim and Christiansen, coauthors of “Ten Nonprofit Funding Models.”

Foster, Kim and Christiansen argue nonprofit leaders face greater financial challenges due to the lack of nomenclature surrounding recognized nonprofit business models. In their Stanford Social Innovation Review article, the coauthors researched and identified the 10 most common funding models because they felt this framework was necessary to facilitate increased understanding between the nonprofit leader and funder.  As a result, CEOs and boards would have an easier time explaining their model and instilling more immediate confidence in a recognized model to potential donors.

The nonprofit equivalent to “corporate speak”

The corporate world has long benefited from this common language in that securing investors is made easier due to the fact that a shared awareness of successful strategies such as “low-cost provider” or “fast follower” already exists. Foster, Kim and Christiansen created the nonprofit equivalent to the corporate business models by grouping these funding models according to the dominant type of funder. I’ve synthesized their taxonomy in the following list:

Heartfelt connectors resonate with existing concerns of a large donor audience. Examples are Make-A-Wish Foundation and the Komen Foundation.

Beneficiary builders rely on donors and funders who have benefited in the past from services. Examples of this model are universities and hospitals.

Member motivators compel donors to give to the issues that are integral to their lives. Churches and associations are good examples of this model.

Big bettors have a primary donor who’s often the founder and tackles a deeply personal issue. This model is evident in many nonprofit types.

Public providers offer service delivery or outsourcing for the government funder. Examples are Success for All Foundation, Head Start, and Texas Migrant Council.

Policy innovators address social issues that are not clearly compatible with government programs. Youth Villages and HELP USA are nonprofits that use this model.

Beneficiary brokers compete to deliver government-funded services to beneficiaries who pay for them. The Iowa Student Loan Liquidity Corporation and the Metropolitan Boston Housing Partnership are examples of this model.

Resource recyclers collect in-kind donations and distribute goods to needy recipients. Goodwill, food banks, and product recyclers are all examples of this funding model.

Market makers generate fees or donations directly linked to their activities. Nonprofits that facilitate organ donations are an example of this funding model.

Local nationalizers have grown large by creating a national network of locally based operations. Big Brothers Big Sisters is a local nationalizer.

Nonprofit leaders considering one of these funding models should be sure to visit this article and look at the questions you can ask yourselves under each type to determine if the financial framework is a fit.

One tax status, multiple strategies

Nonprofits that model corporations’ use of shared language when discussing business models has distinct advantages. Though nonprofits file under one tax status, nonprofit leaders have the multi-faceted challenge of addressing the nonprofit’s diversified funding model as well as its business model (cost structure and value proposition). The leader’s focus is twofold-one is on the funders while the other is on the beneficiaries of the charity’s services. Creating an overall plan that acknowledges these focal points while furthering the mission captures nonprofit executives’ constant attention. What’s more, ruminating over programs and services is a comfort zone for most boards and CEOs while looking at these elements in relation to funding, cost structure and value proposition is less so.

The authors of this article assure nonprofit leaders that if they learn to adopt this shared language and an understanding of how peer organizations leverage the same model, conversations about financial matters may come easier at board meetings, with stakeholders and fundraising prospects. As the CEO of a finance and accounting firm, I’m an advocate of any measure that makes talking about the financials easier, and I applaud the effort to give each model a name. Let the power of language work for us.

See also:

The Nonprofit Business Plan: The Leader’s Guide to Creating a Successful Business Model

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

Relationship Fundraising: A Donor-Based Approach to the Business of Raising Money, 2nd Ed.

image credits: sheezaredhead.wordpress.com, www.lawfunder.com

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Minimize your “big idea” risks by asking 4 questions

Have you ever loved a new idea so much you’re willing to forgive the nagging uncertainty of its financial viability? I’ve been there. You’ve already created the catchy name, bought the URL and outlined the program details. To ease your conscience, you tell yourself you’ll just work harder at selling it.

The authors of Blue Ocean Strategy would say a great idea isn’t enough. They’d put you through what they call a strategic sequence of questions.

Blue Ocean Strategy (BOS) emphasizes a focus on blue oceans of uncontested market space. In contrast, red oceans or existing market space get crowded as more compete for a greater share of existing demand. Cutthroat competition turns the ocean red. Blue oceans consist of untapped market space where there is opportunity for highly profitable growth and where competition is rendered irrelevant. As nonprofits more frequently turn to alternative funding sources, they don’t have the luxury of crashing and burning on a bad idea. That’s why the BOS methodology is essential for nonprofits during any form of planning/forecasting.

An integral part of BOS approach is creating a business model that is viable and makes a healthy profit in the blue ocean. If you follow the correct strategic sequence and test your blue ocean ideas against criteria in that sequence, you can minimize your risk. The sequence stems from the authors asking the following questions.

If you answer “no” to any question, your blue ocean potential stops.

Buyer utility—Is there exceptional buyer utility in your business idea?
Price—Is your price easily accessible to the mass of buyers?
Cost—Can you attain your cost target to profit at your strategic price?
Adoption—What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?

We asked our interview guest, Heather Gowdy, and coauthor of The Nonprofit Business Plan: A Leader’s Guide to Creating a Successful Business Model (2012), to discuss the merits of the strategic sequence in light of her unique perspective on business planning.

CausePlanet: The strategic sequence (on page six of the Page to Practice™ summary) reinforces a closer look at the financial aspects of a potential blue ocean. We know from The Nonprofit Business Plan, you would endorse thoroughly understanding the financial aspects of any potential strategy. Will you comment on the importance of questions like these in the strategic sequence?

Gowdy: It is absolutely critical to understand the financial implications of a potential strategy—just as it is important to understand the implications for mission advancement. Many nonprofits excel at doing both, but just as many struggle with aspects of business model analysis. Which is understandable: doing so can be even more complex in the nonprofit sector than in the business sector. A nonprofit organization’s “buyers” or customers are not just the individuals and groups availing themselves of a particular product or service. Given that those customers typically do not pay market rate for what they receive, the nonprofit must make up the difference with funding from other sources. Those third-party payers are also customers (buyers) although they may not receive anything directly in return. Nonprofits must continually consider, attract and satisfy both types of customer. The price versus cost question can be equally challenging. Nonprofits can, do and often must provide services that do not in and of themselves generate a financial profit. The question becomes, does the mission value of doing so warrant moving forward, and if so, what other aspect of the business model will support that? Jumping to implementation without having clear answers to these questions is risky at best.

When you’ve considered launching a new idea, have you asked yourself questions similar to these contained in the authors’ strategic sequence? If you answered “no” to any of the questions, did you still carry on with the plan or make adjustments?

See also:

Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant

The Nonprofit Business Plan: The Leader’s Guide to Creating a Successful Business Model

Which comes first: the partnership or the plan?” by Heather Gowdy

Image credit: newmediaandmarketing.com

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Business planning is the new black

In our monthly Management Café discussion, I was reminded about our current Page to Practice™ feature because the executives on the call were discussing how they constantly evaluate the financial impact (earning power or appeal to donors) of their programs.

This month’s Page to Practice™ feature of The Nonprofit Business Plan: A Leader’s Guide to Creating a Successful Business Model underscores the discussion of financial impact by addressing the economic logic of your nonprofit business model. In other words, business planning is the new black. Authors David La Piana, Heather Gowdy, Lester Olmstead-Rose and Brent Copen argue that business planning is not strategic planning. Rather, it’s the next step after strategic planning—a way to test the economic viability of your strategies. I asked Nonprofit Business Plan coauthor, Lester Olmstead-Rose, to discuss the difference between strategic planning and business planning as well as how they interact. Here’s what he had to say:

CausePlanet: Your book discusses the difference between strategic planning and business planning. Can you briefly touch on this?

Olmstead-Rose: Strategic planning is focused on articulating a strategy or creating a response to an organizational opportunity or threat, which is something organizations need to do all the time. A strategic planning process might identify a business model that isn’t working, such as where the mission impact is low or the organization is not able to pay for its work. But the emphasis in strategic planning is on how you will coordinate your activities and coordinate them to what end.

Business planning specifically tests the operational and economic viability of a major change. It is true that a business plan may pick up where the strategic plan leaves off. Your strategic plan might say, “We need to develop sources of earned revenue.” You can then use the business planning process to identify and test options for doing this. The value of a business plan is in the rigor of the process you go through to test the proposition that a particular undertaking–a program, partnership, new venture, growth strategy, or the entity as a whole–is economically and operationally viable.

CausePlanet subscribers: Don’t forget to register for next month’s live author interview via webcast with Lester Olmstead-Rose about this book.

See also:

Rippling: How Social Entrepreneurs Spread Innovation Throughout the World

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

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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. It is important that if you start a nonprofit organization that you start by obtaining a 501c3.

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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