Hidden Resources

Understanding The Market

The most obvious difference between nonprofit and for-profit organizations is financial. Yes, collectively there is a tremendous amount of money within the nonprofit sector, but when you break it down by organization, you're likely to find budgets that are more limited and less flexible than in the for-profit world. This is due in large part to how nonprofits are funded.

"Typically, nonprofits have a blend of city, state, federal and private--either individual donor or corporate and foundation--funding," says Chris Perks, 45, president of Perks Reutter Associates, an engineering consulting firm that frequently works with nonprofits. "There's typically a higher reporting function because each of those sources wants to know about the progress of the work and how their money is being used."

It's not uncommon for a nonprofit to begin work on a major project before it's fully funded. "They [often] raise money as they go, which has pluses and minuses," says Perks. "The negative side is that if they fail to meet their fund-raising goals, your project can be stopped or delayed. On the positive side, if your project increases in scope, they have the ability to raise more money if they think it's worthwhile."

Although Perks has seen projects change course and budget after they were well underway, Rob DeRocker, 40, co-owner of Development Counsellors International in New York City, says nonprofits are generally less flexible than for-profits when it comes to changing an established budget or the work product itself. For example, if your contract calls for a particular set of goods and services but in the process of providing them you realize something else would be better and more effective, it may be difficult to change the terms of the contract, even if it's to the customer's advantage. "Especially if you're dealing with a government nonprofit, it's harder to change course than when you're dealing with a private company," says DeRocker, whose marketing and public relations firm special-izes in economic development and whose clients are primarily non-profits.

At first glance, it may seem this market is more trouble than it's worth. However, there are some distinct advantages. Depending on the product or service you provide, there may be fewer companies competing for business in the nonprofit segment because many are not willing to do the upfront work to get the business--and when you get the business, you often have a higher degree of security than you might with a for-profit company that has a simpler purchasing process.

"We find the front end of the process invariably more complex, sometimes more competitive and certainly more bureaucratic," says DeRocker. "But once you're in, you can be institutionalized and be in for a considerable time."

Barbara Talisman agrees. "Once you understand completely what they need and want and are able to provide it for them, nonprofits are the most loyal customers you can find," says Talisman, 39, president of Talisman Associates Inc., a fund-raising consulting firm in Chicago.

On the other side of the table, Sid Paulson, COO of IHC Health Plans Inc., a nonprofit health plan in Salt Lake City, backs up DeRocker and Talisman. "I think not-for-profits, more so than for-profits, are much more loyal," he says. "Once they've purchased something, they tend not to move around as much."

However, he adds, while that may mean nonprofits can be a tough sell, it doesn't mean you shouldn't try to market to them if you know they work closely with your competitors. Paulson says his organization had been using the same cellular phone company for a long time when he was approached by one of that company's competitors. The salesperson later told Paulson she'd been discouraged from contacting him by her colleagues, who essentially told her he would not be willing to listen or change services. She tried anyway, and picked up an account worth $500,000 annually.

"It boiled down to her helping us understand what her company could do for us in the way of services and reducing expenses," Paulson says, "not just today but for the long term."

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This article was originally published in the January 2000 print edition of Entrepreneur with the headline: Hidden Resources.

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