What I Learned About Charities and Business

One of my first business coaching clients was the Cancer Center For Kids (CCFK) at (the former, before a merger) Winthrop University Hospital on Long Island. A recent excellent article, “Charities Are Getting Down to Business” by Liz Brody in the May-June edition of Entrepreneur Magazine reminded me of a few of the lessons I learned working with a nonprofit.

One of the main points of the article is that charities are “flipping the script” using for-profit strategies to attract and secure donations. This is motivated by a current trend toward falling donations. Liz Brody proceeded to challenge three points of “Charity Dogma.”

1. Charity “customers” can’t pay – nonprofits not unlike for-profit companies in distribution have end users or ultimate customer and paying or direct customers or donors. For nonprofits, their donors include foundations, governments, companies, and individuals and families who have a passion for the mission of the charity. Their customers or end-users are the beneficiaries of the charity. For distributors, their customers are the retailers or companies that sell or use the products being distributed. The end-users are the ultimate customers that purchase the products. Thus, there is a disconnect between a nonprofit’s donors and beneficiaries. The business point is it is essential to understand who your customer really is.
2. Never spend on overhead – we often hear charities promote their high percentage of donations that go directly to providing services to their beneficiaries. Many financial advisors council their clients to avoid nonprofits that have a high percentage of “overhead” expenses compared to funds raised. This leads to many nonprofits being challenged to pay salaries that will help with attracting and retaining talented team members. The business point is it is important to attract and retain and pay competitive salaries to team members that are essential to accomplishing your organization’s mission.
3. Investors are for business, not nonprofits – Simply not true. There is something called philanthropic venture funds. “Investors” who embrace a charity’s mission can give unrestricted dollars to a fund established by the nonprofit. The business point is everyone who provides funds to your business, investors, bankers, customers or donors, must understand the mission of your company.

These are all valid points that illustrate how nonprofit organizations are acting more like for-profit organizations. I agree with all these methods that charities can adopt to increase their effectiveness. However, the article misses the fourth key point, namely that most charities’ marketing (fund raising) message is

“We have a great cause, give me your money.”

The point of course is many non-profits fail to distinguish themselves from all the others with similar missions they are competing with for donations. Getting back to the CCFK, when I started coaching them, I asked “how many pediatric cancer centers are there in the NYC metropolitan area?” There were eight at the time. My follow up question was “why should I donate to CCFK as opposed to any of the others in the area?” The answers to that question were the basis of very successful new marketing materials, distinguishing CCFK from the other pediatric cancer centers in the area. Result – funds raised increased by 29% in the first year of the new messaging and continued to have impressive year-over-year increases in subsequent years.

What does this have to do with your organization, for-profit or non-profit? You must distinguish your organization from the other competitors in your marketplace by tapping into the value proposition of your customers or donors. As mentioned in several of my previous blogs you MUST continually be able to answer the key question:

Why should I be your customer?