This article comes from the summer 2018 issue of the Nonprofit Quarterly, “Nonprofits as Engines of a More Equitable Economy.”
Nonprofit organizations operate in dynamic and lively communities with shifting political landscapes, funder priorities, constituent needs, and demographics. For many for-profit businesses, the direct relationship with their customers creates a feedback system allowing them to understand the impact these changes will have on their business model. But for many nonprofits, those providing the financial capital are different from those using their services—leading to at best a lag in information and at worst misinformation or unaligned forces. John Carver calls this a “muted market” because of the lack of direct voice from those using services.1 The result is additional complexity for leadership in understanding and analyzing the influences the community has on an organization’s business model.
This complexity often leads boards and staff to focus solely on funders when assessing their market in search of sustainable funding. This approach may answer the questions “Where can we sell our idea?” or “What do funders want us to do?” but leaves out the crucial voice of those directly receiving services or benefiting from the organization’s programs. It also doesn’t build the support and engagement necessary for success. Rather, nonprofits need a structured way of understanding the market in their community to inform a different, more important question: “What does our community need us to do?”
Answering this question requires engaging and listening to the broader community. A deeper understanding of the needs and values of different segments of a community strengthens program design, leading to greater impact; and greater impact, together with knowing the values and motivations of current and potential funders, may open up new revenue strategies to increase sustainability.
At Spectrum Nonprofit Services, our previous work has focused on helping organizations visualize their business model using a tool called the matrix map, which showcases how mission-specific and fund-development programs work together to achieve exceptional impact in a financially viable manner.2 This snapshot of an organization’s portfolio of programs allows leaders to make strategic decisions to strengthen the business model. However, just as a boat moving through water is affected by the current, tides, and wind, an organization’s business model is buffeted by external forces that must be taken into consideration for a sustainable strategy.
A holistic view of a nonprofit’s market recognizes those who receive services or who benefit directly from an organization’s efforts as well as those who fund the efforts or benefit from the improvement to the community and society. Beyond these two, a nonprofit’s market also consists of other for-profit, nonprofit, and public organizations working side by side, including those whose approaches differ and who compete with the organization for resources, talent, and impact. Likewise, an organization’s mix of programs, effectiveness, and sustainability can be influenced by the availability of skilled labor and by the political and social environment. A true market analysis needs to explore all of these influences at some level. To capture the influences, we segregate the nonprofit market into five components (as depicted in the “market wheel,” above).
- Direct Beneficiaries. The primary pool of people using the organization’s services or directly benefiting from the organization’s efforts.
- Other Beneficiaries/Funders. Beyond their direct beneficiaries, nonprofit organizations benefit multiple other groups by furthering their ideals, values, or shared beliefs, supporting their businesses and complementing efforts in a systemic way. Drawing on Dennis Young’s work on benefits theory,3 this component looks beyond the traditional beneficiaries to include any group of the population that may benefit from an organization’s efforts.
- Other Organizations. No organization operates alone in a community. This component of the market examines other organizations, both for-profit and nonprofit, that share the community. Other organizations may be competitors, or potential collaborators, or—depending on the programs offered—both.
- Inputs/Labor Market. Providing effective services or benefits for the community requires a pool of qualified, talented, and compassionate individuals. Nonprofits compete for human capital every day in the form of staff, volunteers, and board members. Understanding the trends of talent and other resources is essential to having a complete picture of the nonprofit market.
- Political/Social Environment. Nonprofit organizations and those that fund their missions don’t operate in a vacuum. Philanthropic and public funding are both subject to social and political trends that can dramatically influence an organization’s ability to accomplish its mission. Therefore, understanding and working to shape the environment is essential to knowing how to craft an organization’s strategy.
Each of these market components influences aspects of an organization and its business model differently, with some at times being more important than others. From the perspective of delivering exceptional impact, however, no voice is more important than that of the direct beneficiary. Understanding deeply the needs and options of an organization’s direct beneficiaries allows leadership to design both an impact strategy (theory of change) and programs to meet those needs. It also allows the board and staff to understand how the other market components interact with those needs and influence the organization’s business model as it strives to meet them.
The following pages explore each aspect of the market in more detail, and offer a framework for conducting a market analysis that considers each component by asking questions and gathering information to better understand how it is changing. And, recognizing that the depth of understanding of each market component is endless and can be all consuming, they introduce a tool to help leaders prioritize which market forces require immediate strategic attention. Through this analysis, nonprofit leaders, board, and staff together will be able to assess the elements collectively and paint a complete picture of their nonprofit’s market. Then, using the internal assessment, they can engage in discussion and decision making about strategic priorities and how best to structure the operations of the organization to achieve impact and strengthen sustainability.
To understand an organization’s market, leadership must start by engaging with (and understanding better) those constituents who benefit directly from the organization’s efforts. For social service organizations, these may be clients; for arts organizations, they may be audience members; for advocacy organizations, they may be those they advocate for; and for some organizations, they may be all three.
While the efforts of nonprofits often benefit many segments of the community, narrowing down those that benefit most directly from the organization’s activities gives leadership increased clarity on and power to navigate their market. Direct beneficiaries can be defined by:
- Age or demographics;
- Socioeconomic status;