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Hidden Resources

Think nonprofits have no money to spare for your company? Stop ignoring this $621 billion market.
January 1, 2000
URL: http://www.entrepreneur.com/article/18746

Does it seem like every time you turn around, a charitable organization is hitting you up for a contribution? You've probably bought products, sponsored events and written checks--but have you considered that these nonprofit groups might be potential customers?

If you think "nonprofit" means "no money," think again. With more than 1 million nonprofit institutions in the United States--schools, hospitals, human services agencies, arts and cultural organizations, religious groups, and more--employing nearly 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 social programs, that growth is expected to continue. And beyond the nonprofits themselves are their stakeholders--the supporters, members and funding sources that may also be potential markets for your business.

What do they buy? Just about everything. For example, nonprofit associations are a significant market for insurance, printing, travel services and technology, both as end users and as the conduit to sell such products to their members. In fact, working through a nonprofit can be an excellent way to reach consumers.

Sandy Suarez Boutin knows this well: As the director of Great Dane Rescue Inc. in Plymouth, Michigan, Boutin is always in need of dog food but has a very limited budget. So she invites pet food manufacturers to participate in her group's fundraisers. The dog food companies get their names out in front of a big group of prospective customers, and in return, they donate food for the dogs in Boutin's shelter.

The most important point to keep in mind: Nonprofits consume the same goods and services for-profit companies do, and for the most part, they pay fair market prices for those products. Which is not to say you should market to nonprofits the same way you do to for-profit customers. While there are many similarities, there are also some distinct differences between the two sectors--differences that are important to grasp if you want to succeed in selling to nonprofits.


Contributing writer Jacquelyn Lynn regularly writes "First Steps" and "Your Business."

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."

Person To Person

Of course, as with any business, personnel changes can send you back to square one of the sales process. It's not uncommon for the turnover rate at nonprofits to be somewhat higher than you see at for-profit companies, and those staffing changes could affect your standing with the organization. New boards, new officers and even new elected officials (particularly in the case of government-funded nonprofits) can all have an impact on the operation.

"People come and go. Don't take it personally," says DeRocker. "People often come in on a platform that everything that's been done before is wrong, and you're one of those `wrong' things, so they clean house and you're out. But by the same token, a new administration may also be your chance to get in."

That's why it's a good idea to maintain a safe distance from the politics of the organization if you can. "If your being in business with a nonprofit is based on who you know as opposed to what you've done and what you're doing, remember that the people can change," DeRocker says. "If you've got nothing after that to hang your hat on, you're dead 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 the issue of expertise. "Nonprofit staff members tend to have a different professional focus than you'd find in for-profit businesses," says Perks. Often, you'll be dealing with people whose expertise is in the mission of the organization, not necessarily in management, administration or whatever service you're providing.

"Many [staffers at nonprofits] may not come from professional business [backgrounds]," says Talisman. "They're there because they love what they're doing." Staffers are often focused on their programs rather than on efficiently administering their operation. For example, they may know they need a copy machine, but they have trouble determining which lease or purchase agreement is best for them.

Of course, what holds true for one nonprofit is not necessarily true for another. While some organizations are run by people who came up through the ranks at least partly because of their passion for the mission, others are run by professionals hired for their specific business expertise by an overseeing board. Some nonprofits give their staff members a significant degree of autonomy in decision-making; others make all but the most minute decisions by committee, which can be a cumbersome and frustrating process for a supplier.

Once decisions are made and the project is in motion, nonprofits tend to be less demanding than for-profit customers. Talisman has even seen her clients accept substandard work from other suppliers; rather than complain, they tolerate the low quality, pay the bill and--if the problem was serious enough--go elsewhere next time.

"There is often not the attention to performance a private company would demand," says DeRocker. Even so, he adds that he's seeing a tendency toward more accountability. "The better nonprofits are watching the store more closely. We find our clients are more results-oriented than they were even 10 years ago."

What Now?

So you're ready to tackle the nonprofit market? Begin by deciding whether the sector in general and the particular prospects you have in mind are worth the effort to bring them on board as customers. "Decide upfront whether the piece of business that you'll ultimately get is worth the trouble," DeRocker echoes.

Once you've decided to go for the business, have the patience to work through the process. "Generally speaking, the decisions are slower in coming from a not-for-profit," says Paulson. "But don't be discouraged because it takes longer for a decision to be made."

"It's never as simple as `Hey, you need a service; I have it; let's go do it,' " adds Talisman. In many nonprofits, purchasing is done by a committee, or staff recommendations must be approved by a board. Talisman advises listening carefully, then requesting clarification when you see a contradiction--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 in and say `You need A, B is going to have to wait, and I suggest we do 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 the sales process, in the case of nonprofits, you must understand not only their mission and how they operate but also how they're funded. Demonstrating your knowledge by tailoring your marketing message to the goals of the organization will set you apart from other prospective suppliers and increase your value.

Paulson says letters from salespeople offering products and services that will increase profits or decrease taxes are thrown away. "They don't know my business, and I don't want to waste my time with them," he says. "If they've got something to sell me that will help me reduce my expenses and accomplish our mission to the community, and it's clear from the beginning they understand what that is, I'll listen to them."

Finding out about nonprofits is much easier than researching privately held companies because government regulations make much of what you want to know easily accessible. Start by asking for an annual report, then do an Internet search for additional information.

Above And Beyond

As a supplier, you may be asked to communicate what you're doing to the organization's stakeholders, particularly if the group has a large number of donors or volunteers. "There [may be] a public relations component to what you do because you could be asked to prepare information or speak directly to some of these larger stakeholder contingents beyond the organization itself," says Perks.

You may also be expected to make a contribution to the cause. "Nonprofits have development arms that are raising money from corporations and foundations, and you as a vendor are a prime target to be solicited for contributions," Perks says. If and how much you give is a decision you'll make based on your own charitable policies, your feelings about the issue and your relationship with the organization. But don't assume a substantial donation will secure your position--you still must perform.

"Whether or not the nonprofit customer is acting like a profit-oriented company, you should act as if they were," DeRocker advises. "Make yourself more accountable to them than they would make you. Always act as if they were a profit-oriented company focused on bottom-line results. It will make you more attractive because you can always answer the question `What are you going to get for your money?'--and you can answer it with more measurability and certitude than somebody who doesn't take that approach. It will make you more appealing in the sales process, and it helps make you more bullet-proof once you get the account."

Making Choices

The majority of nonprofit organizations are not essentially controversial, but you may occasionally find yourself faced with a prospective client whose mission you fundamentally oppose or whose operating methods you disagree with.

Of course, if you're selling a basic commodity that can be purchased just about anywhere, you'll likely be less concerned with the specific mission of your customers. But if, by the nature of your product or service, you're going to be promoting what your customers do, you should make sure you're comfortable with their goals before you agree to work with them.

What should you do if you're approached by a nonprofit with a mission you don't support? One approach is to price yourself out of the market, or you could decline the account by saying you're too busy. Barbara Talisman, president of Talisman Associates Inc., prefers to tell the truth without being confrontational.

"We send a letter that says `We appreciate your thinking of us; unfortunately, we're not able to offer you a proposal at this time that would be mutually beneficial,' " says Talisman. "I don't tell them I'm too busy, or I don't like their mission, or they're not operating ethically."

However you decide to handle it, don't compromise your own standards. "Don't work for anyone if you have to hold your nose to get the job done," says Rob DeRocker, co-owner of Development Counsellors International. "Don't sell your soul. You'll feel bad, and you won't do a good job."

Next Step

1575 I St. N.W.

Washington, DC 20005

(202) 626-2723

http://www.asaenet.org

1828 L St. N.W.

Washington, DC 20036

(202) 466-6512

http://www.cof.org

1200 18th St. N.W., #200

Washington, DC 20036

(202) 467-6100

http://www.indepsec.org

1900 L St. N.W., #605

Washington, DC 20036

(202) 467-6262

http://www.ncna.org

Contact Sources

Development Counsellors International, (212) 725-0707, danelair@mediaone.net

IHC Health Plans Inc., 4646 W. Lake Park Blvd., Ste. N4, Salt Lake City, UT 84120-8212, (801) 442-5000

Perks Reutter Associates, (215) 928-9114, http://www.perksreutter.com

Talisman Associates Inc., (888) 3-TALISMAN, http://www.3talisman.com