Ever notice that nonprofits dedicate many hours (and many dollars) to developing their programmatic strategy? It’s a big change from 20 years ago – and it is usually time and money well spent. But, nonprofits rarely do the same for their revenue strategy. “Their what?”, you might say. Exactly.
Organizations spend too little time on revenue strategy – what they will raise, how they will raise it and why, with limited time and money. This was our big “ah-ha” towards the end of 2017. We don’t have to tell you revenue is a big issue; you tell us all the time. Somehow, every conversation comes around to revenue. It either starts there or it ends there. It’s inescapable.
Here’s a critical observation that will help us start to crack open the issue of “too little revenue, all the time”: Nonprofits are in (at least) two businesses. What does that mean? Why does it matter? And what does it have to do with revenue strategy? We’re so glad you asked.
Two businesses? What does that mean?
It’s tempting to think of your “business” as your programs. It’s what you exist to do: feed the hungry, teach the children, provide services to those who need them most. There is a set of activities (with associated costs) and a set of beneficiaries. Your program staff and all the people that make their work possible (IT, HR, Finance, Accounting) are part of this “business” that serves your clients.
But look around your organization and there are other people (and costs) that are not directly serving your beneficiaries. They are engaged in different activities: planning galas, developing relationships with donors, submitting grant applications and reports, advocating for public funding, and on and on. Their “customers” are different, too: individual donors, institutional funders, hosts and guests at your fundraising events. They aren’t soliciting your clients (unless you are a college, university or hospital); they are engaging with an entirely different population, including individuals, corporations, foundations and public funding sources.
The fact that they are doing different things (costs) for different people (customers) than your program staff means they are in a different business. Namely, raising money. So, yes, your program is your “business”, but it’s only one of your businesses. Raising money is also your business – your second business – and it’s an important one!
There is a handy 2×2 from Bain & Company that illustrates this business of two businesses. It is generally used in the for-profit context but it applies to nonprofits just as well. (Did you think the dawn of 2018 stripped us of our love of 2x2s??) High cost sharing and high customer sharing = one business. Low cost sharing and low customer sharing = two businesses.
Two different customers, two different sets of costs = two businesses. Why does it matter?
Different businesses have different goals, require different activities and resources. Knowing what it takes to run your programs and how to do it isn’t the same as knowing what it takes to raise money and how to do it. (In case you hadn’t noticed, this is why the ED job is so dang hard!) You’ve probably intuitively known you’re in two businesses for a long time. Being able to describe your businesses, you can start assessing their needs and results with greater clarity and efficiency. Instead of a two-headed monster, you can see you actually have two monsters! You can differentiate between an investment in one and an investment in the other and the return on those investments.
What does all this have to do with revenue strategy?
Strategic plans are all about allocating limited resources. They tell you what to focus on (and what not to). Organizations with programmatic strategic plans have a clear argument for resource investment on the program side.
Just like your program strategy, your revenue strategy clarifies what you are doing with limited time and resources, how and why – for your revenue business. Taking the time to develop a plan, including a good hard look at your philanthropic potential compared to your own performance and that of your peers, will help you decide where to invest, which activities to spend your time on and what to say “no” to. It will help you see if your goals are achievable and make the case for the resources you will need to achieve them. It gives critical context to your tactics, allowing you to justify the investment required to reach your goals. Now, doesn’t that sound dreamy?
We’ve been helping clients with organizational strategy for years. It’s all about programs and operations. More recently, we’ve been working with organizations on revenue strategy, within the context of growth or program strategy, but increasingly as a standalone issue. It has been eye-opening for us, and for them. So far, we’ve found investing in revenue strategy with the same diligence and rigor as a program or operating strategy yields a high return… staff, board and funders can more clearly articulate your mission, resources are allocated more efficiently, and oh yea, you raise more money.
If one of your businesses has a strategy and the other doesn’t, it’s not hard to imagine that goal-setting, resource allocation, and decision-making is going to be easier in one than the other – and the one without will suffer. Our hypothesis: We can’t escape the land of “too little revenue all the time” without addressing this imbalance – without a revenue strategy.
So, there you have it. Our ah-ha from 2017 and our early thinking about revenue in 2018. Next week, we’ll ask for your perspective. What do you think? Do you agree revenue strategy is important? Do you think we’re just plain crazy? Keep an eye out for a survey. This is too important to be a one-post topic!
Yours in pursuit of revenue,
The Room40 Group