Twelve Elements of a Nonprofit’s Business Model

 A posting by James V. Toscano

What are the various elements of a nonprofit’s business model? Most nonprofit executives answer “What business model?”

Nonprofits don’t often think about business models. If we probe, we hear about Mission and Vision, perhaps the elevator speech. And, maybe, that’s one of the problems.

Yet, we really need to start thinking about business models, especially if we wish to have the resources we need now to do our jobs well.

We need to stretch, to find alternative revenue sources to join our diminishing traditional sources, to become more efficient, more “business-like.” Analysis of our implicit or explicit business model is in order.

I distinguish between a business model and “business.” One is useful; the other is an array of practices and people, which are sometimes remarkable in getting things done and others which are utterly dreadful.

Often, we in the nonprofit sector are urged to be more “business-like,” and we grit our teeth and want to talk about Enron, Madoff and other classic failures of the business world.

Yet, we need to capture the essential elements, the dynamic processes and methods of what we need to know to progress our institutions. And a business model is one place to start.

There’s an abundance of such information available. I like the outline developed by the Business Model Foundry and have used their complimentary online outline as a rough guide to my ideas of essential elements of a nonprofit business model, an important step in analysis and preparation of a plan, strategic or otherwise, to lead us out of this valley of resource despair. This is an example of the excellent work of the Business Model Foundry.

I have also added two additional elements (11 and 12) suggested by Kate Barr, head of the Nonprofit Assistance Fund and one of the top experts in nonprofit finance.

Twelve Elements

Analyze the nonprofit using the following elements for the first descriptive and analytic step in a process to ensure a successful future for the organization:

1. Unique expertise. Does the organization have something– intellectual property,  a process, an insight, a tool– that no one else has? What makes it special?  How is it used?  Are results from this significant? Can it be scaled upward? Can it be legally protected through copyright or patent? As we sometimes say, “Can it be bottled?”  Can we license it, sell it, up-scale it or launch another business around it?

2.     Value proposition. What do we do better than any other group? What is it that our constituencies feel they get from us that is better than others?  What is our strategy in pleasing our customers, clients, donors and others? What value do we deliver?

3.     Constituencies. What, where are our markets? Who are our constituencies? What are their value systems? Are they all similar, or must we segment them into various groups of customers, clients, donors, other supporters, and publics? How can we grow each segment? 

4.     Services, products.  What are our services? Our products? Would our constituencies agree? Are there intervening ones? Unanticipated ones? How do we deliver them? Are there other ways to deliver what we produce to constituencies? 

5.     Stewardship.  How strong are our relationships with our constituencies? Do they feel we respect and cherish their business, their interactions, their donations with/to us? What are our retention rates? How do we maintain these relationships? What systematic stewardship programs are ongoing? Do we continuously measure these? How do we deepen and strengthen these relationships?

6.     Key players. One in ten persons are opinion leaders: do we have our fair share of those positively related to us? Is our board representative of the key players in the community representing the various elements of our constituencies? Are our executives part of community leadership? Are we a key player in our area of work? If not, how can we achieve that status?

7.     Collaborations. Are we, or are we aligned with, the market leaders and the market makers in our field? Are we affiliated with other supplementary or complementary groups? Are our relationships the basis for increased market share and resources?

8.     Growth potential. What is our potential for additional growth? What key resources and/or unique activities do we have that can be expanded? Do we have potential for for-profit subsidiaries? What risks are we willing to undertake?

9.     Cost structure. How can we be more efficient? Beyond all of those already mentioned, can we measure our results, then improve them? May we learn from others? Are our principal expenses in line with others? Are they defensible? Can they be maintained in face of the necessity to continuously reduce overhead costs for more effective and efficient operations?

10.  Increased revenue. Are we maximizing our markets? Are there new markets? Are we retaining customers, clients, donors? Is expansion to new markets– geographic, ethnic, SES– viable? Do we need to do new things? Following up on the previous nine elements, what can we do to increase resources and revenues for significant benefit to society?

11.  Infrastructure. Do we have the infrastructure and capacity needed to maintain, support, and adapt? Do our employees have the tools and systems needed to do thier jobs efficiently and well? Are systems in place to measure results, to achieve continuous quality improvement?

12. Capitalization. Do we have, or have access to, the capital structure that will support the delivery of quality services and stability of the organization? Do we have, or have access to the resources needed for replacement of capital items and for required growth?

Baseline

What emerges is the substantial baseline we need to plan our future direction, the areas we seek to improve, those we will expand, those we may decide to drop, the new markets we need for resources, and a whole range of other elements necessary for significant success in the future.

There is no guarantee that any single nonprofit organization will survive. As the number of organizations continues to grow, and traditional sources of revenue plateau, if not decline, we will be faced with very difficult choices. The business plan analysis is the first step in the making of these choices in a way that is advantaged, intelligent, and, hopefully, predictive. The time is now to begin this process.

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