Mark S A Smith
When you operate your nonprofit as if it’s a for-profit business, you’ll always find more success. Many fail because they miss the basics of operating a business. Nonprofit is a tax status, not a business plan.
Business acumen isn’t easy, but it is simple. I’ve identified seven critical business pillars that uphold a sustainable and scalable organization, defining the seven areas of business acumen. When you understand the strategies for each pillar and how to measure success in each area, you can delegate responsibility to direct an organization, small or complex, without having to do everything yourself or, worse, perform poorly in a number of the pillars.
Expect problems in your organization when an executive abdicates responsibility for any of these pillars to someone without understanding the key performance indicators (KPIs), without knowing what questions to ask to understand desired outcomes, or lacking the skills to provide strategic direction.
Tip: An executive will never agree to a project that they don’t know how to manage.
While it’s appropriate and sane to delegate sequence and tactics, the executive must be responsible for setting strategy and managing KPIs, timelines, and milestones. Consider these seven fundamental aspects of every business.
1. Products that Create Unique Value for the Target Market
The product is anything that an organization produces, services they deliver, or environment that they organize. For nonprofits, it’s your mission, whether it’s religious guidance, improving your members’ business, or cultivating your community. Every organization must have a clearly defined market that identifies with them and their offering.
Tip: When your offering is for everybody, you’ll find you’re attracting nobody.
The key take-away: organizations must target members who identify with what they offer. You do this by aligning with customer values, tuning the offering message directly to them by speaking their language, providing unique value, connecting with them the way that they want to communicate, and delivering their desired outcomes.
Members select offerings that reflect their personal identity. Never has this been truer than today, as illustrated by the vast array of goods and services available from many different organizations.
This concept of identity also comes into play for government and education organizations. City and state governments choose business rules – tax incentives, mandates, technology, environment, and outreach – to encourage certain types of citizens and businesses to choose their locations. This is how they define community culture, which is their product. To be a viable nonprofit means understanding your members better than anyone else and delivering what they want.
Key performance indicators of success include market penetration, speed of market adoption, level of disruption, maintaining organization revenues over time, etc. Virtually every organization demands a well thought out product development plan, fundamental to pivoting your business model as your membership changes.
Ask yourself: On a scale of one to ten, how well does your organization deliver the products and services your members want?
2. Marketing that Triggers Relevant Conversations
Marketing is everything that you do before you have a meaningful prospective member conversation. It takes them on the journey from being unaware to aware, to interested, to asking for a conversation.
If your marketing doesn’t trigger a relevant conversation, it’s not marketing; it’s a waste of money.
Relevance is the key. I can get you conversations all day long: “$100 gift card when you contact us!” That probably won’t attract the people you want in your organization.
The best marketing provides prospects with outcome-based education. It teaches customers how to get involved and benefit from what you offer.
Every sustainable, scalable nonprofit has a formal marketing plan. These plans demand I.T. to implement, track, mine, and manage prospect data. A word of caution: don’t let an implementation expert drive your marketing objectives. Many an organization has wasted massive sums asking a so-called social media expert to run their marketing.
Tip: You reap in membership what you sow in marketing.
Marketing KPIs include the number of conversations generated, the quality of the conversation (are those enquiring qualified?), and the signup cycle time (where members are in their personal journey when they ask for a conversation).
Ask yourself: On a scale of one to ten, how effective is your marketing? If you don’t have a formal marketing plan, give yourself one.
3. Sales that Facilitate Mutually Profitable Transactions
Yes, sales. Even though you’re a nonprofit, you must make sales. If you’re struggling, you probably don’t have enough sales or your organization has an aversion to the concept of sales. Even if you’re a religious organization, you must have a sales function, although you may call it something different, such as membership coordinator.
Sales are the member-centered conversations that fill in the information gaps, organize the details, eliminate their concerns, and make sure that you are the only desirable choice.
Sales is based on understanding prospective member motivation, mapping that to your offering, and building a trusted relationship. (More about this in a future article.)
I use the word facilitate because the notion of closing sales is false and narcissistic. Unless you have signature authority on your member’s bank account, there is only facilitation.
Transactions must be mutually profitable, or someone is getting robbed and the relationship isn’t sustainable. Your members want you to be successful. They want you to stay in business because you are an important part of their life. While they don’t want to be gouged, they’re willing to pay you for a fair return and expect you to cover your expenses (and then some, for expansion) on every project you undertake.
Every sustainable and scalable organization has a formal sales strategy, complete with a well-defined culture, formal sales methodology, sales management system, and on-going sales reviews. Sales KPIs include conversation to conversion ratios, and member purchase depth of the organization’s offerings.
Ask yourself: On a scale of one to ten, how effective is your sales culture? If you don’t have a defined sales culture, give yourself a one.
4. Service that Earns Member Loyalty
Until your members experience you, there is no loyalty. When members believe that they got what they paid for and nothing more, there is no loyalty; it was simply a fair exchange.
It’s when members feel that they got more than they paid for, usually in insight and a better lifestyle, that they feel like they hit the jackpot.
Tip: Until you deliver beyond what a member expects and paid for, there is no loyalty.
Member service is the investment that you make in the next membership renewal or return visit. You might consider it to be marketing to existing members, a worthwhile investment because you’ll make more money on the second transaction than you will on the first.
Member service drives the most desirable of marketing activity: referrals. Yet, referrals are earned. Teach and motivate your member services people to harvest referrals and they’ll become one of the most profitable parts of your member acquisition system. Service KPIs include percentage of members that repeat purchase or renew membership, member satisfaction scores, and the number of referrals generated.
Ask yourself: On a scale of one to ten, how effective is your membership service?
5. Operations that Scale with Economic Cycles
We’ve just gone through an era where organizations crashed and burned because of an economic downturn. Many failed because they couldn’t downsize fast enough. This was a case where efficiency failed and flexibility had real value. We see this in the number of churches closing as members opt to worship with alternative methods in alternative locations.
Tip: You can thrive during good times and bad if you can flexibly scale with varying demand.
Members are willing to pay slightly more for flexibility, including the ability to change how much they consume, what they consume, and when they consume it.
Savvy execs attempt to outsource as much of their production as they can, converting much of their fixed capital costs to variable operating expense. Operations KPIs reflect the ability to make rapid changes, plus efficiency of the processes.
Ask yourself: On a scale of one to ten, how flexible is your operational infrastructure?
6. Finance that Controls Cash Flow and Funds the Future
Cash flow is king, as the old business mantra goes. Without a solid cash flow and working capital management system in place, including tying expenses to operations, a nonprofit operates with a risky business model.
This includes government and education organizations because they have to match cash outflow with tax or tuition revenue inflows. If they can’t, they must borrow money, bringing a whole new set of complexities, because the source of funds determines the business model.
Tip: Cash flow is king. If you want full control of your destiny, you’ve got to self-fund your operation.
A common long-term business challenge is declining margins over time as organizations cut pricing in an attempt to compete with new market entrants. Many successful organizations have crashed and burned when revenues and margins eroded and replacement services weren’t ready. Helping your members identify the next generation of services they want from you, tied to cash flow and funding management, can substantially increase the probability of your long-term success. Financial KPIs include cash flow levels and velocity, and operating capital levels and velocity.
Ask yourself: On a scale of one to ten, how solid is your cash management and growth funding plan?
7. Culture that Upholds a Unique Brand Experience
Many organizations underestimate the power of culture. Culture is the unspoken or codified rules of conduct that define how the organizational team behaves, how they treat each other, and ultimately how they treat members.
Tip: Culture determines how we treat each other: employees, prospects, and members.
Culture overrules everything, whether it’s defined, allowed, or tolerated. No matter what the mission statement or business rules, culture dominates the organization.
Most entrepreneurial non-profits start out with the founder’s personal culture being the organization’s culture. As they grow, the founder hires people they know and so easily align with that unspoken culture. When the organization grows beyond the founder’s family and friends, they inadvertently hire people who don’t share their same culture, and the organization starts to deviate as these new people begin to hire and manage to their personal culture.
The only way to keep this from happening is to define culture and have it reflected in the business model and business rules.
What is Branding?
Culture ultimately defines the organization’s brand. Let’s explore the concept of brand for a moment. Branding is not a logo, color palate, or any other design element. Branding is the member’s expectation of a certain experience.
The history of branding goes back to the days when cattle ran free in the open range of the United States. Cattle owners would mark their herd with a hot branding iron. When the cowboys drove the livestock to market, buyers over time could identify which cattle had better pasture, better care, better water, and therefore would taste superior. They would say that they want that brand.
Tip: Branding delivers the promise of a certain experience, therefore reducing purchase risk.
Branding is a member experience
1. That they are willing to pay for.
2. That they want to repeat.
3. For which you’re the sole source, they can’t get it anywhere else.
4. That they’ll tell others about.
If any of these elements are missing, it’s not a sustainable, scalable brand. Brand experience happens at every touchpoint a member has with the organization’s environment, products, and people.
KPIs for culture can include member satisfaction scores (yes, this is where this belongs), member alignment with stated target member goals, employee satisfaction scores, and personal satisfaction of the executive team.
Ask yourself: On a scale of one to ten, how aligned is your daily culture with your stated culture?
How All This Fits Together
Identify the business pillars that you and your team need to improve with knowledge and skills. It can be as easy as reading a book, taking a course, or hiring a business coach or consultant to fill in the blanks, identify your blind spots, and develop KPIs to monitor, manage, and improve your business. When you routinely pay attention to the seven business pillars, you’ll have a sustainable and scalable non-profit organization.
Mark S A Smith works with leaders to predictably grow their organization through upgraded executive skills and effective customer acquisition systems. He hosts the periodic Executive Strategy Summit in Denver. If you want to up-level your business and executive acumen, plan to attend and leave with a Monday-ready business plan for your organization. www.ExecutiveStrategySummit.com Connect with Mark at www.MarksOnLinkedIn.com.
This article is reprinted from Issue #10 of Nonprofit Performance Magazine. Subscribe today so that you won’t miss other actionable articles that will help you run your nonprofit organization with less pain and more gain!
Join Hugh Ballou and Russell Dennis and their guests on our weekly Tuesday afternoon Nonprofit Exchange at 2 pm Eastern time.
If you already have a nonprofit or are thinking of starting one, this will be very helpful. Put it on your calendar NOW! It’s a session that you don’t want to miss! Discover what’s blocking your success!
The Nonprofit Exchange on Tuesdays at 2 pm ET has been quite beneficial for many participants and we have enjoyed sharing thoughts and tips for moving past the stuck places we all find in leading an organization to achieving its mission.
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As the famous British Composer and Conductor Ralph Vaughan Williams once said, “Music does not reveal all of its secrets to just one person.” If you replace the word “Music” with the word “Leadership” or “Team” or “Strategy” etc., then we all give and receive value from others. That’s the spirit of the Tuesday afternoon Nonprofit Exchange encounters, sponsored by SynerVision Leadership Foundation’s “Community for Community Builders.”
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