79 Strategic Questions

Upstarts and new rivals

The number of new nonprofits entering the market each year is dizzying.[1] These new entrants can bring lower cost models or an entirely new business model to the market, making their services more efficient and perhaps more desirable to funders. Who are they and where did they come from? You need to keep track of this startup rush.

27. Low-cost entrants: Have new social entrepreneurs entered your sector with lower overheads and an ability to scale that you do not have?
28. Different offering: Do new entrants into your area offer something new and different that allows your customers easier access to services, or a wider variety of services for similar funding levels?
29. Earned income success: Has the new rival developed an earned income model that allows it to be self-supporting or even provide funds for expansion?
30. Funding independence: Has this entity taken advantage of government funding that allowing it to remain somewhat independent of private foundations, thereby giving it long-term staying power?
31. Rich uncle: Does the new entrant come with the financial backing of a much larger nonprofit, giving it staying power?
32. Technological prowess: Does the social innovator also bring with it technological prowess that dramatically increases efficiency and lowers overhead costs, as well as deliver other services not available to you?

• [1] According to The Urban Institute 2015 report, the number of 501(c)(3) public charities rose from 798.988 in 2003 to 954,476 in 2013, nearly a 20-percent increase. https://www.urban.org/research/publication/nonprofit-sector-brief-2015-public-charities-giving-and-volunteering . During a similar period (2006-2014), the number of new businesses created dropped from 614,024 to 452,835. http://money.cnn.com/2016/09/08/news/economy/us-startups-near-40-year-low/index.html

Customers or User Groups

Some nonprofit sectors, such as public education, attract many social entrepreneurs. You need to consider how crowded your market has become.

33. Customer gatekeepers: Do you and your rivals service many individuals or few but large customer organizations? Large customers, such as inner city public school systems, may insert gatekeepers between the nonprofits and the true user or beneficiary of the service. In the case of a public school system, the ultimate customer is the student. How do you or your rivals gain access to students in such cases?[2] Are certain rivals able to win more grant money or gain more access to customers than does your group?

• [2] For example, as of January 2018, there were over 100 nonprofits offering services to the Boston Public School system (BPS) with BPS acting as a clearing house to vet these organizations. (www.guidestar.org)

Current rivals – general issues

You can think about new entrants or customers when you consider the competitive environment but most of the time when you think “competitive”, you mean competitor. Too often we can become lazy when watching competition. Indeed, rivals may not drastically change their behavior, but they can make incremental changes or cut deals that could make them far more of a threat than you anticipated. Consider the questions below when planning to “win market share” from your competition.

34. Commodity offering: Are you one of a few organizations providing your service or are you one of many? Do donors possibly view your service as a commodity offering? [3]
35. Differentiated offering: How differentiated is your offering, compared to other nonprofits in your market or in your region? Do your rivals offer more value to their beneficiaries by making it easier to receive services, or delivering more effective outreach? How do rivals describe what they do better than anyone else? How do your rivals set themselves apart from other social service groups? Are they faster or easier to use? Do they represent lower risk?
36. Collaboration competitive advantage: Have you noticed more collaboration among nonprofits serving your market? Has this collaboration given rivals a cost advantage or an ability to serve a larger region?
37. Collaboration disadvantage: Are there disadvantages to collaborating, including diluting brand image, loss of jobs, or potential damage to your reputation?

• [3] Guidestar lists over 20,000 animal rescue organizations nationwide with over 2,300 in California alone under the NTEE code, D20. (www.guidestar.org)

Rival goals

Sometimes rivals express their goals openly, other times not. For those rivals who do not publicly telegraph their plans, they nonetheless make them known in a variety of ways expressed below.

38. Rival goals: What are the rival’s stated and unstated goals regarding customers, growing its services, scaling, and so on?
39. Belief system: Does the rival organization have an organization culture, set of rules, or marketing constraints defined by a religion, a belief system, or by a constitution?
40. Board control: How much does the board control or influence operations? What are the positions of these board members? Are they conservative or proactive and aggressive in the way they approach risk or growth opportunities? Do you have evidence of decisions make by board members in this organization or in their role as executive or board member in a corporation or other nonprofit?
41. Contracts: Are there contractual arrangements with a government agency or another group that may limit a rival’s reach and impact?
42. Unexplored market: Does the rival’s set of goals take it into a new and unexplored market, perhaps parallel but not in conflict with your services?

Management background and risk attitude

An executive’s approach to risk is something often witnessed, but not heard. As Associate Supreme Court Justice, Potter Stewart, said about his difficultly in describing pornography, he wrote that “I know it when I see it.”[4] Yet you can find evidence of an organization’s risk tolerance, as the questions below indicate.

43. Management skills: What skills or background do the nonprofit’s founders bring with them? For example, have they used technology to solve distribution and service problems in their past or current affiliations? How could that influence the type of service and how the nonprofit offers it?
44. Financial risks: What financial or organizational risks are the nonprofit’s founders or executives willing to accept or tolerate?
45. Executive risk tolerance: In the past, how have these executives acknowledged risks and how far have they been willing to stress the organization’s resources and capabilities?
46. Selling risk: How have management been able to convince foundations that investment in their organization are worth the donations?

• [4] https://en.wikiquote.org/wiki/Potter_Stewart

Funder attitude to risk

Funders open their hearts and wallets for causes that appear true and just. That said, large donors have begun to tighten their approach to managing risk. Metrics, impact of service have become ingredients in their donation recipe book. Check out the issues below.

47. Funder attitude: Do the funders you target have widely different attitudes with respect to risky or long-shot investments?
48. Portfolio history: Do you know the funder’s portfolio of nonprofits and grants issued? Can you label the grants by risk level? What percentage of these grants fit your organization’s risk profile?
49. Failure tolerance: Does the funder you are examining tolerate a certain number of failures in its portfolio?
50. Acting local: Does your funder prefer local or regional grants where it can exert more influence and a watchful eye on how the funding is spent?

Branding goals

Name recognition can attract funding. How does your organization measure up when considering the questions below?

51. Value proposition: Do donors and consumers attribute high value to the nonprofit’s name and its services? What goals does the nonprofit hope to achieve with its image? Do donors recognize and reward this high value and good reputation with continued and long-term funding support?

Rival’s assumptions

“They were primed to find flaws, and this is exactly what they found,” wrote Daniel Kahneman, the Nobel Prize-winning psychologist.[5] We tend to fool ourselves, especially when studying the competition. Our biases can defeat even the most data-rich report. You need to recognize the false assumptions you may make about a rival to appreciate that organization’s capabilities and potential threat to you.

52. Self-perception: How does the nonprofit see itself in the market it serves? Does it view itself as a thought leader or high-quality provider? If so, how does it express this leadership quality?
53. Key services: If the rival’s service has become the benchmark for others to imitate or build upon, what are those key services or infrastructure that has allowed it to be a nonprofit leader?
54. Growth expectations: Does the rival believe the demand for services it provides will grow or not, and why? What is the underlying proof driving that belief?
55. Founder’s experience: Is the nonprofit’s view of the market based on the founder’s past experiences in other organizations? What biases come with that perspective?
56. Competitor response: How does the nonprofit respond to other social entrepreneurs entering their area? Have they welcomed them or closed their doors, fearing loss of funding because of competition?
57. Strength and weaknesses: How does the nonprofit view its rivals strengths and weaknesses? Which of these strengths does the nonprofit most fear?
58. Risk-taking self-image: Does the rival see itself as a low-risk or as a high-risk taking nonprofit?

• [5] Thinking, Fast and Slow, Daniel Kahneman, FSR, 2011

Infrastructure

One organization may be more capable than another, with unparalleled resources and capital to allow it to execute on its strategy. You need to explore a rival’s infrastructure and determine if it can gain a competitive advantage because of its capabilities.

59. Funding level: Does the nonprofit have the funding in place to fulfill its long-term strategy, or is it living hand-to-mouth?
60. Marketing skills: Has the organization demonstrated the required marketing and social media skills needed to grow its services?
61. Staff training: How well trained is its staff and service providers? If the organization wished to expand or scale into other regions, could it do so with the capabilities and expertise of its existing staff?
62. Proprietary technology: Does the organization own proprietary technology which it can use to build infrastructure or deliver its services?
63. True overhead: What is the nonprofit’s true overhead? Has the nonprofit under-reported its overhead costs or reallocated costs to meet a foundation’s standards?
64. Earned income success: Has the nonprofit pursued an earned income strategy and has this strategy contributed capital to its operations, or has it only given the organization more public exposure? Or, has its earned income approach done neither, serving only as a distraction, as well as draining staff time?

Rival’s impact

An increasing number of nonprofits measure impact; their donors are demanding they do. You need to appreciate how your rivals view their impact.

65. Success factors: How does the nonprofit measure its impact on the market? What are its success factors?
66. Data tracked: What data does the nonprofit tend to track?
67. Storyline: Which impact measures does the nonprofit use to tell its story and motivate donors to support its cause? Since it began using this storyline, have funders increased donations? Has the story attracted public attention, increased news coverage?

Ability to scale

Many a social innovator would like to scale a nonprofit, dreaming of serving customers around the world through its network of offices. Can your rival scale? What factors must be in place for it to do so?

68. Commitment to scaling: Are the founders committed to scaling?
69. Hiring strategy: Have the founders themselves hired managers to expand the operation allowed these managers the leeway to do so?
70. Feedback process: Does the nonprofit have the feedback management tools in place to allow for scaling and quality control?
71. Ability to replicate: Has the organization made its products or services relatively easy to copy or replicate at its other locations?
72. Scaling by partnership: Has the nonprofit scaled by arranging partnerships with for-profit as well as government agencies?