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Competitive strategy


WHAT THE BEST NONPROFITS KNOW ABOUT STRATEGY

It goes way beyond tax exemption.
by
 * Kevin Barenblat

by
 * Kevin Barenblat

August 09, 2018
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Summary.    The nonprofit model has a strategic edge beyond tax exemption, and
the best nonprofit leaders learn to leverage it. Customers need to be segmented
differently, products are built on openness rather than secrecy, marketing can
rely more on partnerships, and...more
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After years of working in tech startups, which strive to transform underdog
status into competitive advantage, I dove into the nonprofit world. The contrast
was striking: Too few nonprofits use the advantages of their nonprofit status.
In doing so, they miss out on a huge opportunity. The nonprofit model has a
strategic edge beyond tax exemption, and the best nonprofit leaders learn to
leverage it.

I call this approach nonprofit judo, a reference to the martial art that
emphasizes how an apparently disadvantaged player can succeed through a strategy
that turns weaknesses into strengths.

My experiences with nonprofit entrepreneurs have revealed patterns in the
strategic choices that successful leaders make. Many of these nonprofits use
technology, but the way they transform perceived weaknesses into strengths —
nonprofit judo — can inspire any social venture.


CUSTOMERS: SEGMENT THEM DIFFERENTLY.

While most for-profit companies start with product and then subsequently segment
customers based on profit potential (higher lifetime value and lower acquisition
costs), the most successful nonprofits commit first to reaching an underserved
population, which often includes higher acquisition costs and lower lifetime
value. This unwavering focus on an underserved market segment, even when there
are others who could benefit from the nonprofit’s programs, drives all aspects
of the organization’s strategy, pushing successful nonprofits to design the best
solutions for that customer’s situation.

Consider TalkingPoints, a nonprofit with a mission to increase student
achievement by meaningfully connecting teachers and families through mobile
technology. Other companies provide parent engagement tools, but they are
largely designed for higher-income customers. Founder Heejae Lim wanted to focus
on the needs of low-income families of color. While a for-profit would face
investor pressure to pursue the most profitable market segment,
TalkingPoints focuses on under-resourced teachers, leading to a product strategy
that prioritizes translation in 20 languages and doesn’t require a smartphone.
TalkingPoints’ focus on underserved customers positions the organization to
dramatically increase parental engagement in high-needs schools, cultivate a
loyal user base, and acquire partners who share these priorities.


PRODUCT: BUILD ON OPENNESS, GOODWILL, AND THE WISDOM OF CROWDS.

Compared with for-profit products and services, which are often proprietary and
protected with secrecy, nonprofits frequently share data, processes, and ideas
in ways that spark multiplier effects for the greater good. Open-source and
volunteer models can be interpreted as weaknesses, but sophisticated nonprofit
entrepreneurs turn this to their advantage.

Crisis Text Line provides free text-messaging crisis intervention 24 hours a day
throughout the United States. Founded by experienced nonprofit entrepreneur
Nancy Lublin, the organization designed its product strategy around a squad of
unpaid counselors who volunteer 200+ hours a year to the service. The product
remains free thanks to product integrations with Verizon, Sprint, T-Mobile, and
AT&T, which waive charges for messages sent to the hotline. This arrangement
wouldn’t be possible as a for-profit. Moreover, the mobile carriers omit texts
to the hotline from billing records, protecting hotline users from alerting
abusive family members. The volunteer counselors and corporate product
contributions are Crisis Text Line’s nonprofit judo, saving hundreds of
thousands of dollars in costs and enabling the exchange of more than 75 million
messages with people in crises.

Crisis Text Line also created crisistrends.org, which aggregates anonymous
text-message data into the largest open-source database of youth crisis behavior
in the country. This open approach to product strategy builds influence in the
field and generates ripple effects of value in the broader ecosystem, as Crisis
Text Line helps to shape the national dialogue and spur research into crisis
prevention and treatment.


MARKETING: FORGE ALIGNED PARTNERSHIPS.

Salesforce spends about $4 billion a year, half of its $8 billion budget, on
sales and marketing. No nonprofit comes close to that marketing spend, but the
best nonprofits pursue unique sales and marketing opportunities not available to
their for-profit peers, creating tremendous value without spending billions of
dollars.

The College Board, the nonprofit that administers the SAT test, faced criticism
that admissions tests favored students from wealthier families, who are able to
pay for costly prep classes and materials. Given this criticism, the College
Board was averse to forging partnerships with for-profits that would exacerbate
the situation, despite years of persistent inquiries from test-prep leaders like
Kaplan and Princeton Review.

Eventually, the College Board partnered with Khan Academy, the nonprofit
committed to providing a free, world-class education to anyone, anywhere.
Together they launched Official SAT Practice, a set of free, personalized tools
that allow any student to prepare for the SAT and college-level courses. Khan
Academy’s nonprofit mission catalyzed the partnership. Today more than half of
SAT test takers in the United States, across income levels and backgrounds, use
Official SAT Practice to prepare for the exam, giving Khan Academy access to
students that might otherwise be hard to reach.


REVENUE: EMBRACE A UNIQUE PATH TO FINANCIAL SUSTAINABILITY.

For-profits embrace selling as an important aspect of financial sustainability.
Nonprofits often view fundraising with dread, wanting instead to focus on
fulfilling their mission. However, the most successful nonprofits think of
fundraising like sales: They’re as thoughtful about the benefits to the funder
as about those to the beneficiaries they serve, often creating mission-aligned
products or experiences tailored to a specific type of funder. This is hard to
do. Most for-profits are lucky if they can find product-market fit, and
nonprofits need to find that fit for every new source of capital, without
drifting from their mission. When done well, finding a sustainable funding
source enables mission-minded leaders to focus on impact rather than an exit.

Careervillage.org crowdsources career advice for low-income students. After
years of separately fundraising and recruiting volunteers to provide
high-quality answers to student questions, founder Jared Chung identified an
aligned opportunity to turn his reliance on volunteers into a strength:
leveraging the volunteers’ employers into partnerships for careervillage.org. By
connecting Fortune 500 companies with accessible digital volunteering,
careervillage.org found a sustainable revenue model. This nonprofit judo has
become a major driver of the website’s rapid growth and provides more benefit to
the organization than would be possible in a for-profit model that sells only to
schools.

When markets function optimally, for-profit companies can achieve great things.
In cases where the commercialization of products or services aligns with the
creation of social value, all the better. However, market forces often fail to
solve (and in some cases have caused or worsened) the world’s biggest problems,
in areas from health care to education to human rights.

We need more leaders and organizations that are equipped to leverage every
strategic advantage as they push for impact. Social entrepreneurs can wield
unexpected power if they design strategies that exploit the unique advantages of
nonprofit status. Going nonprofit is more than a tax-exempt move; it is a
strategy with unique advantages for tackling the toughest social problems of our
time.

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   Kevin Barenblat is co-founder and president of Fast Forward, a tech
   accelerator for nonprofits. A seasoned tech entrepreneur, Barenblat
   co-founded social marketing company Context Optional and served as CEO
   through the company’s acquisition by Adobe. He holds a bachelor’s degree in
   engineering from Stanford and an MBA from Harvard Business School.

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ONLINE SOLUTION

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MOLOCO, INC.

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