Each year in the U.S. nearly one million public charities provide $1.6 trillion of services in our economy, filling gaps in social services and elevating our culture, in addition to driving our economy. Today, nonprofit organizations are the backbone of every great city in America, and it is our responsibility to keep them strong and stable.
In recent years, nonprofits have faced serious challenges, and particularly as discretionary public budgets continue to shrink in real terms, the pressure on nonprofits will only increase. Fortunately, there are some straightforward steps nonprofit organizations can take to improve their performance for years to come.
Step #1: Get on Offense
In today’s nonprofit landscape, which is evolving and expanding faster than at any time in our country’s history, it’s time for nonprofits to get back on offense. After five years of reacting to market disruptions, resulting primarily from the Great Recession, it’s time to strengthen fiduciary and advisory boards and donor bases with new and different blood, increase focus on profitable core areas, and begin planting seeds in new revenue channels and relationships.
Despite our collegiality, the nonprofit world today is hyper-competitive. Every day, larger, slow-moving, established charities are being pressured by smaller, tech-savvy nonprofit and for-profit startups. More of the same won’t move the ball forward. It’s time to climb out from our recession bunkers, and face our new economic and social landscape head-on and find the new opportunities.
Step #2: Evaluate Your Value Proposition
With a dramatic increase in nonprofit sophistication, and more competition than ever before for limited resources, it’s critical for nonprofits to evaluate who they really are – not who, or what, they want to be. Being all things to all constituents is no longer an option. In order to carve out a strong place in the market and grow successfully, each charity must understand what is most valuable to its customers about the service it provides – and be open to the possibility that what has long been established internally may not be what constituents most value – or even believe they are receiving.
More than ever before, our consumers are savvy and value-oriented. It’s time for nonprofits to engage in real dialogue with customers, understand their needs and wants intimately and orient services, and messaging, accordingly.
Step #3: No Margin, No Mission
As nonprofits, our top priority is to deliver on our mission, but without a stable business model able to consistently drive a positive bottom line, we will not be around for the long run. At Devereux we are realistically able to cover 2 – 3% of our expenses from investment earnings from our endowment and 2 -3% from charitable support. Therefore, if we cover 97% from service revenues, we should have a bottom line of 1-3% each year. By carefully managing to this business model over the last 20 years, Devereux has been able to steadily build its balance sheet and keep focused on the long run.
The most effective business model for each nonprofit depends on its unique resources. Identifying that effective business model is the key to long-term success. In fact, if your organization is unable to articulate an achievable business model with a positive bottom line, you need to consider whether the increasing benefits of scale in areas such as information systems, regulatory compliance and risk management suggest a need to find partners to achieve necessary economics of scale.
Working for a nonprofit is extremely rewarding, but it also includes its share of challenges. If we aggressively find the opportunities in a fast-changing market, remain realistic about our value proposition and develop a clear business model, we can continue to positively impact not only the people we serve, our donors, employees, partners, and broader community, but ultimately advance our mission and reach.