This is part two of the interview with Mr. Eddy. We left off with what he does for his clients to help differentiate them.
BE: For my clients I write a new business plan every year. A SWOT is a keystone of that. In the past nonprofits were just given money so they really never had to think about “getting” customers, how they were doing or what they needed to do better next year. They figured they would just out and get another grant, same old same old….
In fact, there are a number of prognosticators that have written that 100,000+ nonprofits will go out of business next year (Paul Light, NYU). There are about 1 million right now. Thus, near 10% of those will fail because there are too many players trying to go after the same funding dollars. Therefore, the competition is intense, and will increase as more compete for the same shrinking donor pool and foundations dollars.
DB: Do you believe more marketing will come into play, because of this coming shake out?
BE: Most nonprofits are PROGRAM and operational driven, and need to become much more MARKET driven organizations I believe that nonprofits are the last untapped area for marketing to get in. Innovative nonprofits are putting marketing strategies and business plans into place already. They are using the downturn to refocus and attack. The complacent ones will be the ones in trouble because they will wake up and realize they need to do something different too far down the line..
I also believe that there are more marketing people and consultancies that are starting to focus on this sector. Because they are looking for opportunities and this is a green field which will be forced to react sooner or later there is probably a lot of opportunity for consultancies to go after.
DB: interesting. Do you have any idea how you would differentiate nonprofits?
BE: Absolutely! There are three different kinds of nonprofits in the market today:
A. Those which make things happen
B. Those which wait for things to happen
C. Those that wonder what happened
DB (laughing): That sounds like a for profit perspective!
BE: Agreed. Many nonprofits want to solve all their problems internally. That doesn’t work because you have the same, well intentioned people looking at the same problems and coming up with the same nonworking solutions. This is often brought on by a fear of others telling them they are doing their job wrong or losing their jobs. This is a real fear that needs to be overcome for success to be bred into the nonprofit culture.
Nonprofits must diversify their revenue streams in order to succeed because there is only so much cost cutting that they can do. In fact I look at it as cut, cut, cut isn’t a strategy it is an “action” that can only be done so many times. They never had to have the business mentality to survive and therefore it is a problem. Bottom line: no money= no mission. They have to have a business mentality to survive in the coming fallout.
DB: How should they diversify their revenue streams, are their major buckets they should be aware of?
BE: Social enterprise ventures – for profit driven but have dual role of fulfilling social mission as well – Such as a Church having a pre-school / nursery school.
Social enterprise Charter school – fee based, commercial vs. tied to “earned income” not government money.
Looking for funding dollars that are not government grants.
There are 4-5 different revenue streams that they could go after. However, many Private Equity firms are funding social enterprise ventures – like Bill & Melinda Gates foundation – focused on certain causes / enterprises.
DB: I’m familiar with the Gates foundation simply because of Bill Gates and the dollars that are behind it. How would a nonprofit go about finding relevant ones, would it be a traditional market research endeavor?
BE: If you have the personal on staff yes. However there are also lots of intermediaries that help nonprofits apply for and find them. Ones such company is the Bridgespan Group which was an offshoot of Bain Consulting and Bridgespan is now one of the main knowledge players in this space for non-profits.
DB: Interesting. Are most of the consultancies besides Bridgespan of the small mom & pop variety or are they big organizations that believe there is a niche they can exploit?
BE: Bridgespan has some 150 nonprofit clients which range in size from small community based nonprofits to the large national footprint nonprofits, i.e. Boys town, etc. They help nonprofits focus on areas to get clarity on impact, theory of change, and scale. Like marketing, many non-profits have not been great at strategic planning, and getting to the root of the issues. Thus, many have no clue on what a value-proposition is nor how to just focus on their true core competencies. One case study they have done is called The Nonprofit Starvation Cycle. Like products, organizations go through lifecycles, and the next cycle for nonprofits will prove to be the most challenging they have ever encountered. The tsunami is on the horizon. The real question is your nonprofit organization prepared & properly positioned to weather this storm?
DB: That is a good question. Where would you begin if you’re a NP that hasn’t done anything yet?
BE: I would start with a SWOT analysis (if they have done one in the past it is time to dust it off and start again). Look at the core competencies of the organization as compared to what the organizational mission is. Do the activities of the organization directly correlate with the NP mission (mission centric)? Next would be mission related. Third would be mission unrelated. They need to look at those three core items to understand where they stand vs. where they should be. This is a broad way of looking at program alignment vs. Mission. Many NP’s get into what is called “Mission Drift” or they have gotten away from what they were created to accomplish. This can get a company into the 990 issue we talked about previously where they can lose their non-profit status if a significant amount of their program dollars go in a direction that is not what they have registered for.
DB: So now we have completed the SWOT and know where we stand what is our next step?
BE: Lets back up a minute. 99% of the NP’s use an old standard NP process that can take 9-12 months to develop and while they are doing this they lose time – this type of planning comes from the 70’s and 80’s. They thought wow this works and it did for quite awhile but business has moved on and they are way behind and need to respond differently. They move to slow and there is a total disconnect between the planning and the doing.
They have to supply all their planning to all their employees and the board. Which just takes too long. Too many people involved in the process which slows everything down and creates a big lag between strategic thinking and doing. They are not as nimble as they need to be and it is really difficult for a NP to get a social impact because of all the hoops they need to go through.
DB: You paint a picture that is rather gloomy. What is the best way to make the NP better?
BE: You’re only as good as the system you operate within. The current NP strategic planning cycle is broken and needs to change.
DB: Okay, can you elaborate?
BE: Empowerment is a key buzzword in this space. Where are the reporting lines? Non-traditional reporting / decision making must be deployed in these organizations – creating at a flatter hierarchy. This will allow increased marketplace agility and better alignment. Marketing often sees what is happening much sooner than the rest of their organization because that is my job. The challenge is translating what I see into action. For example many of these NP’s are looking at 70%+ government funding. We all know the government has to reduce this as we continue to spend more than they have. So, NP’s need to look at different funding sources to complete their mission.
So, where am I going with all this? You need an ongoing market research mentality / mindset to dedicate internal resources to gather market data and find the funding niches before others in the NP space do. This is more of a for profit perspective – chasing the dollars – vs. chasing the funding. NP’s as a rule never had to be innovative until now. Now they need to be much more pro-active to get to different funding mechanisms if they want to survive.
DB: Understood. So, when will you be opening your own consultancy?
BE: When I grow some hair (laughs)! There is an inherent need for new skills / consulting in this space. One of the biggest requirements is marketing and business development across the board. Someone who is reading this probably has a good picture of what the problems in this space are and what can be done. However, as stated previously in this interview there will be doers and those that will live with the status quo and slowly fail.
DB: Any last thoughts to share with our readers?
The reality is, a new model must be formed, as the traditional nonprofit model is a dinosaur. However, the culture in many NPO’s do not embrace change and in many cases it prohibits change. Why not do things like we always have done? In business, it’s execute or be executed. (they get it) However, with NPO’s this type of mindset and urgency is just not there…yet.
The ideal solution is to create a separate operating division with the key change agents, and pilot and refine new processes. They do this in manufacturing, with cell models, and gather data to create best practices to yield better results going forward. This helps with the buy-in, and this new approach slowly gets rolled out into other areas of the organization.
At the end of day, market forces will prevail. As with any situation in the “real business world”, when you have too many companies chasing too few customers, you get consolidation. Thus, NPO’s that have a clear value proposition, show clearly how their service/solution offerings differ, and produce sustainable social impact, will be left standing.
DB: Thanks for your time today Mr. Eddy. You have brought up some really interesting points and I can see why and where this space has tremendous opportunity to improve.
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