The events of the of the last several years—a global pandemic, a racial reckoning, administration changes and new legislation as a result—have had a dramatic influence on what nonprofits do and how they do it. In our 2020 Stanford Social Innovation Review article Three Things Nonprofits Should Prioritize in the Wake of COVID-19, we offered advice to leaders as they faced immediate concerns about sustaining their work. Four years later, we are seeing an uptick in nonprofit organizations wanting to explore what sustainability will look like going forward, leveraging the lessons learned from the pivots they made during the last few years of uncertainty and responding to recent shifts in the contexts in which they are working.
For many nonprofit leaders the impact they want to have is clear, but the path to getting there is keeping them up at night. In some cases, leaders are now seeing new opportunities, and in other cases they are seeing issues that need to be addressed. Here are a few examples:
- A nonprofit with a fee-for-service model has seen a shift in buyers’ willingness to pay for what it has to offer. During the pandemic, the organization had an opportunity to secure significant philanthropic funding to support its work, but leaders are concerned that this funding isn’t sustainable. Leaders are wondering what the sustainable model is going forward and how they can leverage the best of what both revenue streams have to offer.
- Another organization experimented with virtual programming during the pandemic. Not only did this allow them to continue vital programming, it also inspired thinking about opportunities to reach new audiences. Leaders are wondering how the organization could deliver both in-person and virtual programming going forward and what revenue model would sustain these programs.
- A third organization doubled down on its racial equity commitment after the killing of George Floyd. With renewed energy around this commitment, the organization is rethinking its priority audiences, what their needs are, what they want, and how to deliver and sustain that.
The questions these organizations are asking are all business model questions.
What’s a business model anyway?
In the nonprofit sector, we’re all familiar with strategic planning. Strategic planning often focuses on helping an organization clarify what it is trying to achieve—its purpose and goals. Sometimes, however, strategic planning stops short and doesn’t get to the business model that is needed to support the strategy. The business model is about how the organization works and sustains itself financially to achieve the impact it aspires to. The business model is a series of strategic choices about what an organization will deliver, to whom, and how it will create value or impact. As seen in the diagram below, it starts with being clear about the people you want to serve, what their aspirations and needs are, and designing programs, products or services that will meet those needs and/or help them achieve their aspirations. After an organization has answered these questions, it’s important to clarify the resources, structures and processes that will be needed to deliver, what they will cost, and what will drive revenue, whether contributed, earned, or a combination of both. (If you are considering earned revenue (ex., fee for services, product sales, or membership dues) as part of your business model, read our field guide for more recommendations on developing earned revenue strategies.)
Tips for Evolving Your Business Model
We want to offer a few tips we’ve learned from our work helping organizations navigate these moments of evolution, and in some cases, reinvention of their business models. The first step is to recognize if your business model might need to change. Is there an opportunity that you want to capture that will require shifting an aspect of your business model? Or, are you experiencing a pain point that needs to be addressed? If you decide change is needed, here are three tips:
- Make sure you know what your current model is. Consider taking the business model diagram and writing down what is happening today. What is your value proposition? What are the key resources, structures and processes that are critical to your delivery of value or impact? What are the costs of these, and how will you fund these costs? (For more guidance on assessing financial health, visit Nonprofit Finance Fund’s Financial Self-Assessment.)
- Alignment is key. Once you decide upon change to one aspect of the model, discuss what other aspects of the model need to change to bring everything into alignment. For example, if you decide to pursue new sources of revenue, you may need to also develop new resources, structures, or processes.
- Be intentional about managing the change. Start by having a compelling vision or explanation for why an aspect of your business model needs to change and identify champions inside the organization who can help you make that change. Create an action plan, outlining key milestones on the path to change, immediate next steps, and owners and deadlines for each step. Make sure you have someone who is monitoring the action plan to track progress and troubleshoot when challenges arise.
As nonprofits evolve to stay resilient and deepen impact amid an ever-changing environment, checking in on the organization’s business model is important. If you have aspirations to evolve your nonprofit’s business model and want to explore how we might be able to help, please don’t hesitate to reach out to us at Community Wealth Partners by emailing me at acelep(at)communitywealth.com.