What Business Are We In?

Adapted from a blog by Rick Williams of Growth Strategies, LLC – October 18, 2017

Guest Column by Lewis M. Rambo, PhD

Does a nonprofit have customers?

The answer is yes. Learn how to identify your customers and how to use their perspective in defining your priorities.

“What business are we in? What are we selling?” These are often the starting points for a business school case study discussion. However, this may be a question that the board members of a nonprofit organization might not think to ask themselves.  Just because your organization is designated as nonprofit does not mean that it is not in business! The phrase “nonprofit” refers merely to its tax status.

Inevitably, a serious examination of these questions can begin with an in-depth discussion of this question: “What is the customer actually buying from us?” For a profit-based organization, the answer may seem obvious. They make cars. They sell diapers. They take orders online and deliver all kinds of things. They are lawyers and accountants; they sell time.

However, this is also the very first question that a nonprofit board should ask as it re-examines its vision, mission and strategy. For a nonprofit organization, the question will require quite a bit of thinking “outside of the box!”

As surprising as it might seem, nonprofit organizations are selling themselves to donors and potential donors, to their communities, and to those who are targeted to receive (buy) what they offer.

The board of directors of a nonprofit may have a hard time accepting that their organization has customers. Going a step further, determining exactly who their “customers” are, and then coming to an agreement on what their customers are “buying,” can be even more confounding.

Just as many businesses have products and services that are targeted to different sets of customers, nonprofits face the challenge of recognizing and acknowledging that they too must think seriously about performing some careful, strategic customer segmentation.  Your board may have a very narrow definition of your customer base. Your customers could be your clients, the people in your town, members of an association, or patrons; they could also be your individual donors, foundations, and granting agencies that provide financial support.

The ultimate success of an organization very much depends on a deep understanding of what “business” it is in and what its “customers” truly believe they are buying.  Hopefully your board will not get hung up on the terms “customer” and “buying.”  Once coming to agreement that the beneficiaries of your organization’s initiative(s) are customers, it is then more reasonable to view them as buying or refusing to buy what you are actually “selling.” Whether your nonprofit is a startup, a national organization, or an institution of higher education, you need to understand what is in your customer’s mind when she is “buying.”

As a nonprofit organization, how carefully have you studied the costs, efficiency and effectiveness of the products and services you are delivering to your customers? Do you understand their current needs, or are you working from an outdated understanding?

Satisfying Demand vs. Providing a Service or Producing a Product

As a nonprofit, what demand are you satisfying and for whom?  The challenge is to avoid convincing yourself that your organization is helping the public with something that you are sure is what “they” want, need, and are clamoring for. A reality check may be in order before your board begins to solicit funds in support of its mission.

A fundraising feasibility study is one way that nonprofits learn the extent to which their products or services meet individual and/or collective customer needs. Other methods include customer satisfaction surveys, focus groups, and participation in community conversations.

Ted Levitt, a distinguished professor at the Harvard Business School, developed the idea that to survive over time, business leaders must see themselves as satisfying a customer demand rather than producing a product.

Ford, BMW, Toyota, and Tesla manufacture cars; but are their customers “buying cars?” Each one of these companies are communicating very different value messages, features, and branding. In the auto industry, Ford = tough, Toyota = dependability, BMW = performance, Tesla = luxury and eco-friendly.

Another HBS professor, Clay Christensen, describes in his new book Competing Against Luck the huge effort McDonald’s made to increase sales of their milkshakes. They started by adjusting the flavor, topping the shakes with whipped cream, changing the size of the cups, all with no impact on sales.

A team working with Christensen watched customers buying milkshakes. Many of the milkshake sales were before 9am; the purchasers were often alone in a car, and buying a shake rather than a donut, a banana or a bagel. To their surprise, Christensen and his team discovered that McDonald’s customers were “hiring” the milkshake to be their companion on a lonely drive to work and to keep from getting too hungry before mid-morning. With that understanding, McDonald’s made buying the shakes faster and thickened the drink, so it would last longer in the car. Sales improved significantly.

Improve Your Chances for Success

When success happens, it may be the result of a few creative and courageous leaders who asked questions that often challenged “the way we do things here.” False steps and approaches that did not work were part of the creative process. Without a doubt, not asking the question “What business are we in?” is a sure path to poor performance and eventual failure. By action or inaction, your board and your organization will be choosing the way forward. Use all the risk reduction techniques you can to test your approach with smaller groups of customers before making big commitments. But in the end, your organization’s success depends on how well your services and products satisfy real customer demand today and in the future.

Here are steps you can take to improve your chances for success.

1. Build a customer-focused culture within your organization.
2. Become the chief advocate for understanding your customer’s point of view.
3. Periodically take the Steve Jobs challenge and look forward to where technology, consumer trends, cultural values, demographics and other variables could create opportunities for new products or services that your customers themselves cannot yet imagine.
4. Within your organization’s leadership and management team, develop an understanding of the barriers to different points of view and to change. Get comfortable with both ideas.
5. Periodically suggest the creation of a task force with the specific charter of asking the question, “What business are we in?” Invite others from outside the organization to share their perspective on your organization to help you to better understand the customer point of view.
6. Encourage your executive director to engage in a similar exercise with the organization’s management to gain additional input and to provide the basis for outside and inside comparisons.

“There is no right answer” is often the case study bottom line. The information and the insights gleaned from these exercises will not be perfect. Expect competing centers of influence within the organization to have conflicting views. You and your board may be convinced that your organization is doing an OK job today; you have customers and are operating well, as far as you know.  But choices must be made!

The old saying of, “If it ain’t broke, don’t fix it” comes to mind; yet your challenge is to make very sure that your organization is positioning its services and organizational structure for what your customers will need, want and buy… not only tomorrow, but two, five, and even 10 years from now.