A New Year and a New Business Model

A New Year and a New Business Model

It’s no coincidence our sector is looking at redefining its business models when 88% of nonprofits in 2012 were faced with increases in the demand for their services despite 57% barely having enough cash on hand to last them three months.

In “ Pride & Prejudice: (What) Can Nonprofits Learn From the For-Profit World ?” by Richard Dare last May in the Huffington Post, I was intrigued by his challenge to fellow nonprofits to reexamine their business models and consider several ideas he’s observed and read about over the years:

1) side-ventures to supplement traditional fundraising (gift shops, space rental, cafeterias),
2) innovative partnerships that exchange value (see www.MissionMeasurement.com by Jason Saul),
3) new money from your core operations (create a model that serves other party’s interests beyond your own).

Don’t wait to consider new options. Increased demand for services and the diminishing ability to maintain three months of cash reserves is a chronic scenario we diagnose when we’re in the field working with Execute Now! clients. Financial strain in the midst of high service demand has no bias— both large and small, as well as seasoned and
start-up nonprofits, struggle with this challenge. We also see increasing competition for individual donors and grantmakers within the sector and within specific causes. “There are over 1.4 million nonprofits in the U.S., more than 500,000 of which have been created in the last ten years! Yet according to the Urban Institute, there are only 1,100 different ‘types’ of nonprofit programs. Simple math tells us that, on average, there are over one thousand nonprofits for each type of problem,” states Jason Saul in The End of Fundraising .

Diversify your revenue stream. All three of Richard Dare’s suggestions have a common theme that involves depending less on donated income and more on the exchange of value, either directly with your constituency or with peers who share an interest in your constituency. We spend a fair amount of time helping our clients forecast cash flow so they can accommodate lengthy grant cycles and cultivate large donors. Imagine how those projections might be boosted by alternative revenue arrangements.

Look at fulfilling your mission in new ways. Above all, our most successful clients are those who look for new ways to implement their mission in every strategy they explore. Each new venture enhances their business model and is scrutinized for relevancy and financial sustainability. Additionally, these nonprofit leaders constantly look at the value they provide not only to their clients, but also to their stakeholders. Who are your stakeholders? Jason Saul says they have a vested interest in the social outcomes you produce. Look at your nonprofit community and reexamine who your stakeholders might be. We will discuss how strategy and financial sustainability are one in the same when we explore Blue Ocean Strategy in our next blog.

Learn more about our nonprofit services or download an assessment form to determine your nonprofit’s financial assistance needs. By Erica McGeachy Crenshaw, President/CEO of Execute Now!

1: Nonprofit Finance Fund 2012 Survey Results

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