Charities and Business Modelling - Part Two

Even the best charities struggle with the Business Model Canvas at first.
This is Part Two of the hurdles that can trip them up (you can find Part One here)

Customer Acquisition and Retention
A vital part of your strategy is your method of attracting and keeping customers.
Some businesses emphasise one over the other depending on their industry, that’s up to you.
The problem is, most not-for-profits can’t articulate either approach.
They start with a large network of donors, and then tend to slowly let them slip away.

It's like someone trying to fill up a bath, but without a plug:
Customer acquisition is about how hard the tap is running – how much water is going into the bath.
Customer Retention is about the size of the drain at the bottom – how quickly water is leaving the bath.

Charities see this and say “Our most valuable asset is the water that’s currently in the bath”.
The real question is: is the bath getting fuller, or emptier?

Startups and For-Profit businesses do this instinctively.
It’s a part of survival.
They measure click-through rates.
They experiment with different acquisition channels.
They use targeted advertising.
They obsess over campaign metrics.
They use A/B testing to constantly improve the customer experience.

Charities on the other hand?
Print a newsletter, mail it out, cross our fingers and see what comes back.
There’s so much to gain from following how the best new companies attract and delight their tribes – the sharpest charities are already cottoning on.

Reliance on Volunteers
Volunteers are great – people who love your cause, and want to help out.
Sometimes, volunteers are skilled, bringing their professional expertise with them.

The temptation is to depend on these volunteers, instead of employing a staff member.
It’s initially a good offer, saving $50-70k that can go elsewhere.
Until you look at the hidden maths.

Volunteers aren’t free.
They take up your time, energy and attention – especially when there’s a few of them.
Training is expensive, and you’ll constantly be training and re-training new volunteers.
You can’t bank on a volunteer like you can bank on a paid team member.
You can’t ask them to do the horrible parts of the job.

You have no control over their schedules or their lifestyle.
That means, they hold the power, and you can’t keep calling in favours when things get busy.
There’s also no gauge for performance – and no incentives for exceeding targets.

A proper front-of-house person will do more (and faster) than three volunteers in a café.
A proper sales person may not be cheap, but will bring in multiples of what they’re paid.
A proper graphic designer will create as many versions of a logo as you like, rather than asking a volunteer as a personal favour.
You’ll end up with something that’s actually good.

A business model that relies on skilled volunteers saves money at first, but the risks and inefficiencies aren’t worth it.
Use your volunteers wisely.

Shifting to an Entrepreneurial Mindset
In The E-Myth Revisited, Michael Gerber describes the three roles that exist within a business:
The Technician – a specialist who gets the job done, like a barista, teacher, accountant or carpenter.
The Manager – a generalist who makes sure everything is working as it’s supposed to. They often look after a group of Technicians.
The Entrepreneur – a visionary on the lookout for ways to grow the business, like new customer segments, a second location, or even a new industry.

In most businesses, the CEO and founding team are Entrepreneurs – casting the vision for where the business will be in five years’ time.
They then employ a team of Managers, who in turn monitor the Technicians.

Charities and Not-For-Profits are often led by a team of Managers – people who want to keep the status quo, and keep everything going as normal.
A defensive, conservative approach.
Unfortunately, if you want to keep up with the market, defensive is too slow.
There needs to be some aggression, some drive, some proactive and calculated risk taking in order to grow the organisation.

Risk isn’t just in taking new opportunities.
There’s plenty of risk in doing nothing, and hoping that things stay the same.
Look at the most successful businesses – all of them reinvent their model before its necessary.
If they don’t, they get crushed by the competition.

Charities need an entrepreneurial mindset.
That means, fixing things that aren’t yet broken (but will be soon), exploring new business models, and proactively expanding their donor base.

It also means focusing on the numbers – chasing the projects that create a surplus, and avoiding the lovely ideas that don’t.

Difficult Boards
CEOs and boards have an odd relationship – the board can fire the CEO, the CEO can get rid of the board.

Essentially, a Not For Profit board is a group of volunteers who meet (without the management team) and make choices that will help/hinder the business – without actually owning the business.

Boards can be active or passive, and trouble starts at both ends of the spectrum.
Sometimes the board stray into management decisions, picking paint colours and criticizing font choices, which disempowers the team.
Alternatively, they become disconnected from the team, and therefore make decisions on their own - a great way to start a fight.

You can’t tolerate either of these extremes.
A board needs to be aligned with the management team (especially the CEO), and they need to be in on the strategy design process.
That does not mean you can make a canvas and then expect the board to be excited.

It means bringing them in on the ideation process.
It means creating an Intent statement together.
It means all being on the same page about “Who is our customer?” and “What is our Value Proposition?”
It means healthy conflict – vigorous debate, all ideas heard, consensus at the end of the day.

Once the model is set, the board step back into their governance role, and the management team run the show.
Yes, the canvas can be tricky, but the process is invaluable.
Redesigning your charity is uncomfortable, but it leads to financial sustainability.

If you’re using the Canvas, you’ll love my free Business Modelling eBook, full of tips for inventing and testing ideas that will change the world