What the Best Nonprofits Know About Strategy

Executive Summary

The nonprofit model has a strategic edge beyond tax exemption, and the best nonprofit leaders learn to leverage it. Customers need to be segmented differently, products are built on openness rather than secrecy, marketing can rely more on partnerships, and revenue sustainability is vital. The good news for nonprofits is that many of them naturally have a long-term orientation, which gives them a strategic advantage over for-profits.

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William Andrew/Getty Images

After years of working in tech startups, which strive to transform underdog status into competitive advantage, I dove into the nonprofit world. The contrast was striking: Too few nonprofits use the advantages of their nonprofit status. In doing so, they miss out on a huge opportunity. The nonprofit model has a strategic edge beyond tax exemption, and the best nonprofit leaders learn to leverage it.

I call this approach nonprofit judo, a reference to the martial art that emphasizes how an apparently disadvantaged player can succeed through a strategy that turns weaknesses into strengths.

My experiences with nonprofit entrepreneurs have revealed patterns in the strategic choices that successful leaders make. Many of these nonprofits use technology, but the way they transform perceived weaknesses into strengths — nonprofit judo — can inspire any social venture.

Customers: Segment them differently.

While most for-profit companies start with product and then subsequently segment customers based on profit potential (higher lifetime value and lower acquisition costs), the most successful nonprofits commit first to reaching an underserved population, which often includes higher acquisition costs and lower lifetime value. This unwavering focus on an underserved market segment, even when there are others who could benefit from the nonprofit’s programs, drives all aspects of the organization’s strategy, pushing successful nonprofits to design the best solutions for that customer’s situation.

Consider TalkingPoints, a nonprofit with a mission to increase student achievement by meaningfully connecting teachers and families through mobile technology. Other companies provide parent engagement tools, but they are largely designed for higher-income customers. Founder Heejae Lim wanted to focus on the needs of low-income families of color. While a for-profit would face investor pressure to pursue the most profitable market segment, TalkingPoints focuses on under-resourced teachers, leading to a product strategy that prioritizes translation in 20 languages and doesn’t require a smartphone. TalkingPoints’ focus on underserved customers positions the organization to dramatically increase parental engagement in high-needs schools, cultivate a loyal user base, and acquire partners who share these priorities.

Product: Build on openness, goodwill, and the wisdom of crowds.

Compared with for-profit products and services, which are often proprietary and protected with secrecy, nonprofits frequently share data, processes, and ideas in ways that spark multiplier effects for the greater good. Open-source and volunteer models can be interpreted as weaknesses, but sophisticated nonprofit entrepreneurs turn this to their advantage.

Crisis Text Line provides free text-messaging crisis intervention 24 hours a day throughout the United States. Founded by experienced nonprofit entrepreneur Nancy Lublin, the organization designed its product strategy around a squad of unpaid counselors who volunteer 200+ hours a year to the service. The product remains free thanks to product integrations with Verizon, Sprint, T-Mobile, and AT&T, which waive charges for messages sent to the hotline. This arrangement wouldn’t be possible as a for-profit. Moreover, the mobile carriers omit texts to the hotline from billing records, protecting hotline users from alerting abusive family members. The volunteer counselors and corporate product contributions are Crisis Text Line’s nonprofit judo, saving hundreds of thousands of dollars in costs and enabling the exchange of more than 75 million messages with people in crises.

Crisis Text Line also created crisistrends.org, which aggregates anonymous text-message data into the largest open-source database of youth crisis behavior in the country. This open approach to product strategy builds influence in the field and generates ripple effects of value in the broader ecosystem, as Crisis Text Line helps to shape the national dialogue and spur research into crisis prevention and treatment.

Marketing: Forge aligned partnerships.

Salesforce spends about $4 billion a year, half of its $8 billion budget, on sales and marketing. No nonprofit comes close to that marketing spend, but the best nonprofits pursue unique sales and marketing opportunities not available to their for-profit peers, creating tremendous value without spending billions of dollars.

The College Board, the nonprofit that administers the SAT test, faced criticism that admissions tests favored students from wealthier families, who are able to pay for costly prep classes and materials. Given this criticism, the College Board was averse to forging partnerships with for-profits that would exacerbate the situation, despite years of persistent inquiries from test-prep leaders like Kaplan and Princeton Review.

Eventually, the College Board partnered with Khan Academy, the nonprofit committed to providing a free, world-class education to anyone, anywhere. Together they launched Official SAT Practice, a set of free, personalized tools that allow any student to prepare for the SAT and college-level courses. Khan Academy’s nonprofit mission catalyzed the partnership. Today more than half of SAT test takers in the United States, across income levels and backgrounds, use Official SAT Practice to prepare for the exam, giving Khan Academy access to students that might otherwise be hard to reach.

Revenue: Embrace a unique path to financial sustainability.

For-profits embrace selling as an important aspect of financial sustainability. Nonprofits often view fundraising with dread, wanting instead to focus on fulfilling their mission. However, the most successful nonprofits think of fundraising like sales: They’re as thoughtful about the benefits to the funder as about those to the beneficiaries they serve, often creating mission-aligned products or experiences tailored to a specific type of funder. This is hard to do. Most for-profits are lucky if they can find product-market fit, and nonprofits need to find that fit for every new source of capital, without drifting from their mission. When done well, finding a sustainable funding source enables mission-minded leaders to focus on impact rather than an exit.

Careervillage.org crowdsources career advice for low-income students. After years of separately fundraising and recruiting volunteers to provide high-quality answers to student questions, founder Jared Chung identified an aligned opportunity to turn his reliance on volunteers into a strength: leveraging the volunteers’ employers into partnerships for careervillage.org. By connecting Fortune 500 companies with accessible digital volunteering, careervillage.org found a sustainable revenue model. This nonprofit judo has become a major driver of the website’s rapid growth and provides more benefit to the organization than would be possible in a for-profit model that sells only to schools.

When markets function optimally, for-profit companies can achieve great things. In cases where the commercialization of products or services aligns with the creation of social value, all the better. However, market forces often fail to solve (and in some cases have caused or worsened) the world’s biggest problems, in areas from health care to education to human rights.

We need more leaders and organizations that are equipped to leverage every strategic advantage as they push for impact. Social entrepreneurs can wield unexpected power if they design strategies that exploit the unique advantages of nonprofit status. Going nonprofit is more than a tax-exempt move; it is a strategy with unique advantages for tackling the toughest social problems of our time.

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