Hidden Resources Think nonprofits have no money to spare for your company? Stop ignoring this $621 billion market.
Opinions expressed by BIZ Experiences contributors are their own.
Does it seem like every time you turn around, a charitableorganization is hitting you up for a contribution? You'veprobably bought products, sponsored events and written checks--buthave you considered that these nonprofit groups might be potentialcustomers?
If you think "nonprofit" means "no money,"think again. With more than 1 million nonprofit institutions in theUnited States--schools, hospitals, human services agencies, artsand cultural organizations, religious groups, and more--employingnearly 15.1 million people and generating revenues in excess of$621 billion, this is a market worth a good, hard look.
Growth in the nonprofit sector has mushroomed in recent years,and although governments continue to reduce funding for socialprograms, that growth is expected to continue. And beyond thenonprofits themselves are their stakeholders--the supporters,members and funding sources that may also be potential markets foryour business.
What do they buy? Just about everything. For example, nonprofitassociations are a significant market for insurance, printing,travel services and technology, both as end users and as theconduit to sell such products to their members. In fact, workingthrough a nonprofit can be an excellent way to reach consumers.
Sandy Suarez Boutin knows this well: As the director of GreatDane Rescue Inc. in Plymouth, Michigan, Boutin is always in need ofdog food but has a very limited budget. So she invites pet foodmanufacturers to participate in her group's fundraisers. Thedog food companies get their names out in front of a big group ofprospective customers, and in return, they donate food for the dogsin Boutin's shelter.
The most important point to keep in mind: Nonprofits consume thesame goods and services for-profit companies do, and for the mostpart, they pay fair market prices for those products. Which is notto say you should market to nonprofits the same way you do tofor-profit customers. While there are many similarities, there arealso some distinct differences between the two sectors--differencesthat are important to grasp if you want to succeed in selling tononprofits.
Contributing writer Jacquelyn Lynn regularly writes"First Steps" and "Your Business."
Understanding The Market
The most obvious difference between nonprofit and for-profitorganizations is financial. Yes, collectively there is a tremendousamount of money within the nonprofit sector, but when you break itdown by organization, you're likely to find budgets that aremore limited and less flexible than in the for-profit world. Thisis due in large part to how nonprofits are funded.
"Typically, nonprofits have a blend of city, state, federaland private--either individual donor or corporate andfoundation--funding," says Chris Perks, 45, president of PerksReutter Associates, an engineering consulting firm that frequentlyworks with nonprofits. "There's typically a higherreporting function because each of those sources wants to knowabout the progress of the work and how their money is beingused."
It's not uncommon for a nonprofit to begin work on a majorproject before it's fully funded. "They [often] raisemoney as they go, which has pluses and minuses," says Perks."The negative side is that if they fail to meet theirfund-raising goals, your project can be stopped or delayed. On thepositive side, if your project increases in scope, they have theability to raise more money if they think it'sworthwhile."
Although Perks has seen projects change course and budget afterthey were well underway, Rob DeRocker, 40, co-owner of DevelopmentCounsellors International in New York City, says nonprofits aregenerally less flexible than for-profits when it comes to changingan established budget or the work product itself. For example, ifyour contract calls for a particular set of goods and services butin the process of providing them you realize something else wouldbe better and more effective, it may be difficult to change theterms of the contract, even if it's to the customer'sadvantage. "Especially if you're dealing with a governmentnonprofit, it's harder to change course than when you'redealing with a private company," says DeRocker, whosemarketing and public relations firm special-izes in economicdevelopment and whose clients are primarily non-profits.
At first glance, it may seem this market is more trouble thanit's worth. However, there are some distinct advantages.Depending on the product or service you provide, there may be fewercompanies competing for business in the nonprofit segment becausemany are not willing to do the upfront work to get thebusiness--and when you get the business, you often have a higherdegree of security than you might with a for-profit company thathas a simpler purchasing process.
"We find the front end of the process invariably morecomplex, sometimes more competitive and certainly morebureaucratic," says DeRocker. "But once you're in,you can be institutionalized and be in for a considerabletime."
Barbara Talisman agrees. "Once you understand completelywhat they need and want and are able to provide it for them,nonprofits are the most loyal customers you can find," saysTalisman, 39, president of Talisman Associates Inc., a fund-raisingconsulting firm in Chicago.
On the other side of the table, Sid Paulson, COO of IHC HealthPlans Inc., a nonprofit health plan in Salt Lake City, backs upDeRocker and Talisman. "I think not-for-profits, more so thanfor-profits, are much more loyal," he says. "Oncethey've purchased something, they tend not to move around asmuch."
However, he adds, while that may mean nonprofits can be a toughsell, it doesn't mean you shouldn't try to market to themif you know they work closely with your competitors. Paulson sayshis organization had been using the same cellular phone company fora long time when he was approached by one of that company'scompetitors. The salesperson later told Paulson she'd beendiscouraged from contacting him by her colleagues, who essentiallytold her he would not be willing to listen or change services. Shetried anyway, and picked up an account worth $500,000 annually.
"It boiled down to her helping us understand what hercompany could do for us in the way of services and reducingexpenses," Paulson says, "not just today but for the longterm."
Person To Person
Of course, as with any business, personnel changes can send youback to square one of the sales process. It's not uncommon forthe turnover rate at nonprofits to be somewhat higher than you seeat for-profit companies, and those staffing changes could affectyour standing with the organization. New boards, new officers andeven new elected officials (particularly in the case ofgovernment-funded nonprofits) can all have an impact on theoperation.
"People come and go. Don't take it personally,"says DeRocker. "People often come in on a platform thateverything that's been done before is wrong, and you're oneof those `wrong' things, so they clean house and you'reout. But by the same token, a new administration may also be yourchance to get in."
That's why it's a good idea to maintain a safe distancefrom the politics of the organization if you can. "If yourbeing in business with a nonprofit is based on who you know asopposed to what you've done and what you're doing, rememberthat the people can change," DeRocker says. "Ifyou've got nothing after that to hang your hat on, you'redead in the water. Even if you get to know and love the people,base your relationship on performance."
Another point to keep in mind when it comes to people is theissue of expertise. "Nonprofit staff members tend to have adifferent professional focus than you'd find in for-profitbusinesses," says Perks. Often, you'll be dealing withpeople whose expertise is in the mission of the organization, notnecessarily in management, administration or whatever serviceyou're providing.
"Many [staffers at nonprofits] may not come fromprofessional business [backgrounds]," says Talisman."They're there because they love what they'redoing." Staffers are often focused on their programs ratherthan on efficiently administering their operation. For example,they may know they need a copy machine, but they have troubledetermining which lease or purchase agreement is best for them.
Of course, what holds true for one nonprofit is not necessarilytrue for another. While some organizations are run by people whocame up through the ranks at least partly because of their passionfor the mission, others are run by professionals hired for theirspecific business expertise by an overseeing board. Some nonprofitsgive their staff members a significant degree of autonomy indecision-making; others make all but the most minute decisions bycommittee, which can be a cumbersome and frustrating process for asupplier.
Once decisions are made and the project is in motion, nonprofitstend to be less demanding than for-profit customers. Talisman haseven seen her clients accept substandard work from other suppliers;rather than complain, they tolerate the low quality, pay the billand--if the problem was serious enough--go elsewhere next time.
"There is often not the attention to performance a privatecompany would demand," says DeRocker. Even so, he adds thathe's seeing a tendency toward more accountability. "Thebetter nonprofits are watching the store more closely. We find ourclients are more results-oriented than they were even 10 yearsago."
What Now?
So you're ready to tackle the nonprofit market? Begin bydeciding whether the sector in general and the particular prospectsyou have in mind are worth the effort to bring them on board ascustomers. "Decide upfront whether the piece of business thatyou'll ultimately get is worth the trouble," DeRockerechoes.
Once you've decided to go for the business, have thepatience to work through the process. "Generally speaking, thedecisions are slower in coming from a not-for-profit," saysPaulson. "But don't be discouraged because it takes longerfor a decision to be made."
"It's never as simple as `Hey, you need a service; Ihave it; let's go do it,' " adds Talisman. Inmany nonprofits, purchasing is done by a committee, or staffrecommendations must be approved by a board. Talisman adviseslistening carefully, then requesting clarification when you see acontradiction--all before you present your proposal.
You may also find yourself functioning as a coach."Oftentimes, [clients say] `We want A and B.' I come inand say `You need A, B is going to have to wait, and I suggest wedo C in order to get to B.' It's not just about listening;it's about coaching, because I'm the professional,"Talisman says.
While knowing your customer is always a critical part of thesales process, in the case of nonprofits, you must understand notonly their mission and how they operate but also how they'refunded. Demonstrating your knowledge by tailoring your marketingmessage to the goals of the organization will set you apart fromother prospective suppliers and increase your value.
Paulson says letters from salespeople offering products andservices that will increase profits or decrease taxes are thrownaway. "They don't know my business, and I don't wantto waste my time with them," he says. "If they've gotsomething to sell me that will help me reduce my expenses andaccomplish our mission to the community, and it's clear fromthe beginning they understand what that is, I'll listen tothem."
Finding out about nonprofits is much easier than researchingprivately held companies because government regulations make muchof what you want to know easily accessible. Start by asking for anannual report, then do an Internet search for additionalinformation.
Above And Beyond
As a supplier, you may be asked to communicate what you'redoing to the organization's stakeholders, particularly if thegroup has a large number of donors or volunteers. "There [maybe] a public relations component to what you do because you couldbe asked to prepare information or speak directly to some of theselarger stakeholder contingents beyond the organizationitself," says Perks.
You may also be expected to make a contribution to the cause."Nonprofits have development arms that are raising money fromcorporations and foundations, and you as a vendor are a primetarget to be solicited for contributions," Perks says. If andhow much you give is a decision you'll make based on your owncharitable policies, your feelings about the issue and yourrelationship with the organization. But don't assume asubstantial donation will secure your position--you still mustperform.
"Whether or not the nonprofit customer is acting like aprofit-oriented company, you should act as if they were,"DeRocker advises. "Make yourself more accountable to them thanthey would make you. Always act as if they were a profit-orientedcompany focused on bottom-line results. It will make you moreattractive because you can always answer the question `What are yougoing to get for your money?'--and you can answer it with moremeasurability and certitude than somebody who doesn't take thatapproach. It will make you more appealing in the sales process, andit helps make you more bullet-proof once you get theaccount."
Making Choices
The majority of nonprofit organizations are not essentiallycontroversial, but you may occasionally find yourself faced with aprospective client whose mission you fundamentally oppose or whoseoperating methods you disagree with.
Of course, if you're selling a basic commodity that can bepurchased just about anywhere, you'll likely be less concernedwith the specific mission of your customers. But if, by the natureof your product or service, you're going to be promoting whatyour customers do, you should make sure you're comfortable withtheir goals before you agree to work with them.
What should you do if you're approached by a nonprofit witha mission you don't support? One approach is to price yourselfout of the market, or you could decline the account by sayingyou're too busy. Barbara Talisman, president of TalismanAssociates Inc., prefers to tell the truth without beingconfrontational.
"We send a letter that says `We appreciate your thinking ofus; unfortunately, we're not able to offer you a proposal atthis time that would be mutually beneficial,' " saysTalisman. "I don't tell them I'm too busy, or Idon't like their mission, or they're not operatingethically."
However you decide to handle it, don't compromise your ownstandards. "Don't work for anyone if you have to hold yournose to get the job done," says Rob DeRocker, co-owner ofDevelopment Counsellors International. "Don't sell yoursoul. You'll feel bad, and you won't do a goodjob."
Next Step
- American Society of Association Executives: a membershiporganization for the association management profession
1575 I St. N.W.
Washington, DC 20005
(202) 626-2723
- Council on Foundations: a nonprofit membershipassociation of more than 1,800 grant-making foundations andcorporations offering a variety of conferences, workshops andpublications
1828 L St. N.W.
Washington, DC 20036
(202) 466-6512
- Independent Sector: a nonprofit membership organizationworking to strengthen America's nonprofit sector
1200 18th St. N.W., #200
Washington, DC 20036
(202) 467-6100
- National Council of Nonprofit Associations: a network of40 state and regional associations with a collective membership ofmore than 20,000 community nonprofits
1900 L St. N.W., #605
Washington, DC 20036
(202) 467-6262
Contact Sources
Development Counsellors International, (212) 725-0707,http://www.perksreutter.com
Talisman Associates Inc., (888) 3-TALISMAN, http://www.3talisman.com
