Charities and Business Modelling - Part One
I really enjoy working with charities - improvements to their performance literally changes/saves lives.
Running these organisations can be hard work, and innovation is difficult.
Failure doesn't mean a drop in profits, it means a drop in impact - so you can understand why leaders are risk averse.
Having taught a lot of Not for Profit boards and teams how to use the Business Model Canvas, some patterns have emerged.
There are a few parts of the process that charities struggle to implement.
That’s because they involve a lot of change, and change is rarely comfortable.
My colleague Annie loves to use this cartoon in her presentation, and it sums things up well:
Here are three of the most common things that trip people up.
Viewing Donors as Customers
The relationship between a charity and a donor is surprisingly complex.
The donor is in awe of the charity’s work, and wants to support the cause.
The charity needs the donor, but doesn’t have much to offer them in return.
It’s like they’re always asking for a favour, which can feel awkward.
Despite doing a lot of good work and having a strong brand, the charity is ultimately at the mercy of the donor.
Making financial projections based on expected generosity not an easy task.
Most businesses don’t have this problem.
They understand their customer and their needs, and create products and services that will be appealing.
If sales fall, the business can drop prices, lift their service or create something new to entice people back.
It’s why supermarkets sell cheap milk, Apple make new versions of the iPhone, and Coke keep experimenting with new flavours and bottle sizes.
It’s also why those businesses are massively successful – they empathise with their customers, and constantly work to re-earn their attention.
Charities hate this shift.
It’s uncomfortable, and they don’t like feeling like they’re “just a product”.
“Why can’t people just be generous?
Why can’t we assume that people will just keep on doing what they’ve always done?”
It would be lovely if they did, but change is guaranteed.
Refusal to adapt is arrogance, and poor decisions will decrease the funding for your cause.
Confusing Mission with Value Proposition
When your organisation is praised for doing good work, it’s easy to assume that people will support you financially because they share your vision.
“Behind every decision are two reasons – the good one and the real one” – JP Morgan
Yes, your donors/customers like your work, but it’s often more complex than that.
Maybe there’s another factor that contributed to their decision.
There are a fair few charities out there who think I like them, as I’ve supported one of their campaigns.
Sure, I like their work.
However, the real reason for my support was that my friend was fundraising for them, and I like my friend.
If my friend does it next year, I’ll probably support them again.
If not, I won’t be sending in another random donation to that charity.
This applies to the 40 Hour Famine, MS Readathon, Movember, Be Brave and Shave, Oxfam Trailwalker, CEO Sleepout, and a tonne of others.
The customer is the person who signed up to raise funds.
If you lose them, you probably lose all their friends too.
This also applies to fundraising events, like Galas, Trivia Nights and Fun Runs.
Just because a customer likes one, doesn’t mean they’ll like the others.
The customer who did the fun run might have been looking for an excuse to get fit.
That doesn’t mean they’ll fill a table at your fancy gala ball next year.
The way to stay relevant is to focus on what motivates your customers:
What gain am I creating for them?
What pain am I relieving for them?
Why would this motivate them?
Why would they choose this over all the other alternatives?
Setting price points
This one is difficult, because ultimately the donor sets the price.
You can’t force a particular amount, because there’s a huge competitor that hurts every charity.
It’s called “Doing Nothing”, and it costs $0.
With that in mind, there are three ways that NFP’s can improve their forecasting.
Firstly, we want to understand what inspires a customer to give/spend a certain amount.
Is it prompted by them, or us?
It may be the suggested donation amounts on your brochures or websites.
Maybe it’s a fixed price for your campaign, like what World Vision do with their Sponsor a Child program.
Secondly, it’s worth examining how we can shape these influences.
It might be by changing the suggested amounts, or listing what a certain sized donation does for our beneficiaries.
The fields of consumer psychology, behavioural economics and service design are worth exploring: small changes in your marketing can lead to much higher donations.
Thirdly, you want to match your value proposition with an appropriate price point.
Would people who buy The Big Issue still do it if the magazine cost $20?
Would you sponsor a child for $1,000 a year?
Would those rubber charity wristbands have worked if they were $50 each?
We saw this happen with those Cadbury fundraising chocolates; they moved from $1 to $1.20, and sales fell.
I’d guess they fell by more than 20%, because they soon switched back to the $1 price point, just with smaller chocolate bars instead.
Maybe there’s something casual and carefree about $1 that is lost when you move to $1.05.
On paper, the difference is negligible.
In reality, the difference is disastrous.
In Part Two we'll look at boards, volunteers and the entrepreneurial mindset...