Built to Stagnate
My corporate training was
in product management. I was trained to
build and grow product lines.There were three questions I was taught to ask to uncover major growth opportunities:
1) What additional
services or products can we sell to our existing customers? If you have a
store, you can increase revenues by getting each customer to buy two items
rather than one.
2) Can we sell our
existing product to a new type of customer?
I recently learned that Diet Coke can be used to remove graffiti. They could change the packaging and sell it
at Home Depot.
3) Are there core parts
of the product or the supply chain used to create the product that could be
leveraged to create an additional product at low cost and give us a competitive
advantage? You see this done a lot with
auto manufacturers that use the same engine or chassis for multiple lines of
cars. For example, the Passat and
several Audis are built on the same chassis.
Working now as a
nonprofit manager in an organization poised to introduce a new product line, I
tried to use these same three questions to identify and prioritize our best
options for growth.
What I am discovering is
yet another impediment to nonprofit growth (and therefore cost effectiveness
and efficacy). It is tied to the
challenge of having two customers - the client served and the public or private
funding that covers the cost of serving clients who by definition can't pay
themselves.
It is relatively easy to
identify new services to provide clients.
There is an almost endless source of unmet need.
So, if two organizations
are providing the same service in a market, a foundation might give them each
$25k per year (total of $50k for both organizations). If those same organizations merged and were
able to collectively serve 25 percent more clients on the same budget (assumes
economies of scale), the foundation would reward them by cutting their grant in
half to $25k, as that is their ceiling per organization.
Flip that around and you
can see our challenge. If we have a
foundation funding the Taproot Foundation at their ceiling amount, the only way
to get them to support a new program without cannibalizing our revenue for
existing efforts is to start a new entity for the new program. Taproot Foundation would do our current
programs and get the $25k grant and the Turnip Foundation (spin off) could get
a second grant. This, of course, would
double our overhead expenses, as we would need two HR, accounting, and IT
departments, among others.
If Foundations are
serious about outcomes and efficacy, they could address this in a couple of
ways:
- create some grant
programs based on market share (the more services you deliver, the larger the
grant)
- allocate grants to providers
who maintain quality while operating at the lowest cost until the grant budget
is drawn down. So, if the best provider can use 80% of the grant budget to
serve clients, they would get 80% of the funding. the next best provider would get the
remaining 20%.
- create a policy that if
two organizations merge, they will be eligible for 200 percent of the ceiling
of a single nonprofit going forward (or better yet, bump it to 250 percent to
create incentives)
This is directly tied to
one of the biggest criticisms of foundations.
The current common foundation model is based on the assumption that
foundations exist to keep nonprofits in business. It should instead be focused on partnering
with nonprofits to achieve the maximum public benefit.
Leave a comment