Why Business Models Matter

501c3 organizations are created to address a societal need.  The mission statement articulates both the societal need and the audiences to be served.  However, it does not articulate the business model that will foster the consistent and replicatable delivery of those results to that audience.  The questions that prompt dialog around the business model include:

Which results are we accountable for achieving?

How will we achieve these results?

What do these results cost and how will we fund them?

How do we build the organization we need to deliver results?

Expectations for service delivery are high, quantified outcomes are the norm. Capital is scarce and that is unlikely to change in the near future. Are the Board, staff and primary stakeholders clear and in alignment on key results? How outcomes will be measured, and the resources required to achieve the desired outcomes?

The Conversation

Success spawns a challenge.  Why should we change what is working? If we are unwilling to think critically about how our organizations currently operate, we are limiting the opportunity for future success.  Often, its only when a model is obviously broken, that we contemplate change.  By then, we have missed opportunities to elevate serve to the constituencies who depend on our organizations.

Successful, dynamic nonprofit Boards and senior executives are routinely fostering two conversations:

  1. Do we understand our current business model and its critical components?  Are we tracking the information necessary to understand if the environment for this model or the mode itself is changing?
  2. What is changing and are there competitive forces or new innovations in the market, which require us to create an entirely new model?

How to Build New Models

Traditional wisdom assumes that organizations that have been successful with one model, cannot innovate sufficiently to create a successful new model.  Often we are just too invested in the skills, approaches and systems that brought rewards in the past.  However, nonprofits have an edge in creating new models; since we are experts in coming up with great ways to help people.  The social significance of our missions adds energy to every aspect of the enterprise. 

Whether you are examining your business model proactively or the current model is broken, there are a few questions that can prompt inquiry into new models:

  1. Do you really understand the current business model down to the most granular level?
  2. Start with the end in mind; do you have a clear, quantified outcome that has undeniable value for the intended customer or audience?
  3. Construct a sustainable funding formula that consistently delivers some resources to the organizations bottom-line.  It takes capacity to deliver consistent results, are we being realistic about what the intended outcomes cost?
  4. Are their funders who see value in providing the required resources to achieve the desired outcomes?
  5. How does this model compare to our current model? What capacity (human, financial, systems, etc) will it require to implement this model? Can our current organization implement this outcome, at this cost, or do we need to reconsider our current platform?

Answering these questions will heighten awareness among Board and staff of the realities facing both your organization and the people you service.  This dialog also raises awareness of assumptions that may be at play in current relationships with funder, and donors.  Nonprofit organizations are in an operating environment today, and for the foreseeable future, that challenges leadership to think critically and creatively about how  capital will be deployed, to create the most significant and sustainable outcomes.

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