Are you an effective competitor? That may seem a strange question to ask a nonprofit leader — after all, this is a sector where collaboration, not competition, is usually considered the appropriate way to relate to other organizations. These days, however, it is essential to your organization's success that you be an effective competitor as well as a trustworthy collaborator. Why? Because as much as we might wish we lived in a different world, in this one there are simply not enough resources to go around.
If you want to be a nonprofit organization that achieves important goals, manages its resources (human and financial) well, and provides a real benefit to society — then you need to attract an optimal share of the four types of resources all nonprofits need in order to be effective. We said an optimal, not necessarily equal, share. Sometimes an optimal share means you need more than other organizations vying for those resources.
Securing the resources you need is an ethical as well as an organizational imperative. Nonprofits do not exist simply in order to provide their employees with jobs. Their purpose, in most cases, is to change the world: to transform lives, save species, cure disease, create beauty, or develop healthier, more vibrant communities. But despite the never-ending needs addressed by the sector and the fact that effective organizations are in the best position to meet these needs, less effective nonprofits continue to take up space in the market. These organizations attract, and often waste, precious resources that might be more effectively used by others seeking to advance the same mission. Given that reality, ethical competition can raise the bar for everyone and help channel resources where they will do the most good.
In this article, the first of three, we describe some of the competitive challenges facing nonprofit organizations. Although our focus is on competition, we acknowledge that there is a role for collaboration in the sector. Nevertheless, we want to raise nonprofits' awareness of competition as an alternative to collaboration, particularly when the latter is counterproductive, because we truly believe that nonprofits can be more effective if they consider ethical competitive strategies when choosing among the array of strategies available to them.
The Four Essential Resources
Effective nonprofits, as a result of their success, typically have the potential to increase their impact — that is, to do additional good work — if they can secure more of the following:
- Third-party payers (funders)
- Human resources (staff, board members, volunteers)
- Public and media attention
It is, of course, the scarcity of these resources that results in competition in the sector.
Customers. Nonprofits use a variety of terms to refer to their beneficiaries, including "clients," "constituents," "patients," "members," "residents," and "consumers." For the purposes of this discussion, we refer to them as customers. Depending on the type of work your organization does, these are the people who use your services, attend your performances, and mobilize for your fundraising or advocacy campaigns. In essence, they are a large part of your organization's reason for existing.
Some readers will argue that most nonprofits don't have to compete for customers, simply because there are so many more people with needs — e.g., homeless people in need of shelter — than could conceivably be served by organizations working to address that need. Don't let a scarcity of resources to meet existing needs be a reason not to strive to be the best at what you do! Mediocrity or, worse yet, substandard performance is a sure path to irrelevance.
Of course, potential customers often do have a choice, whether it's another nonprofit providing the same services as your organization, or choosing to do without those services if the available options are unappealing. Take the arts, where competition for customers is readily apparent. Even with an abundance of choices, there are only so many dollars and hours that one can invest in visiting galleries or attending operas and the theater, and your customers can always decide to stay home and watch a DVD if none of the live options appeals to them.
Third-Party Payers. One of the differentiating features of the nonprofit economy is that customers usually do not pay the full cost of the benefits they receive. The homeless person pays nothing for a night in a shelter, and the symphony-goer's $100 ticket covers only a fraction of the true cost-per-seat of the performance. The only way these, and so many other, nonprofit activities are possible is through the additional financial support provided by the public sector, foundations, corporations, and individual members of the community. These "third-party payers" contract, grant, and/or contribute funds to nonprofits, which in turn provide services that the third-party payers are unwilling, or unable, to provide. While the third-party payers receive no extrinsic benefit for their investment, they do wield a great deal of power in the sector. In fact, among nonprofits, competition for their favor is intense — though mostly unspoken, perhaps out of fear that overt competitiveness might conflict with the widely-held belief among funders that nonprofits should work collaboratively.
Human Resources. Nonprofits depend on people, whether they're board members, experienced staff, or volunteers (all of whom are in great demand). The terrific art museum in your community competes nationally with other museums to fill the position of curator, even as it competes locally with the YMCA, the community theater group, and other local organizations for quality board members and volunteers. In some fields, such as legal services or health care, nonprofits also compete with larger, better-paying for-profit competitors. Because many nonprofits spend upwards of 80 percent of their budget on employee compensation, keeping top-notch staff is critical.
Public and Media Attention. Most nonprofits would love to receive frequent positive media coverage. Media coverage of any kind is free advertising, and when it's positive it has the added benefit of enhancing the credibility of your organization. Yes, the media has a notoriously short attention span (look at the Asian tsunami) and a nearly insatiable appetite for scandal. But if you can overcome these obstacles and garner positive press for your organization on a regular basis, the resulting increase in public awareness of your work or cause will put you ahead of the pack. While few nonprofits have the resources to dedicate a full-time person to attracting and influencing media coverage, even a limited application of resources, on a consistent basis, can have an impact on media coverage of your organization.
Three Types of Competitors
These four resources do not exist in unlimited quantity, and the demand for them typically outstrips supply. As a result, whether you call it competition or not, your organization is essentially competing with others for limited resources.
Who are these competitors? There are three main types. If you are the leader of a nonprofit, you know at least some of the organizations in your market that offer similar services or activities. You probably run into their leaders at conferences and other gatherings. You may find yourself submitting proposals to the same foundations and seeking relationships with the same donors. We refer to this type as direct competitors. But you may be less familiar with the two other types: substitutable competitors and indirect competitors. It is important to know and understand the key characteristics of all three types.
|Direct Competitors||Substitutable Competitors||Indirect Competitors|
|Those organizations with the same market focus: they provide the same services / programs as your organization within the same geographic area, for the same types of customers.||Those organizations that meet the same need(s) as your organization but in a different way.||Those organizations that do not compete with you for customers, but do compete for other resources: funding, board members, staff, etc.|
Direct Competitors. No surprises here: direct competitors vie for your customers. They have the same market focus as you do, both geographically and in terms of target population and services offered. The best way a nonprofit can counter the threat posed by a direct competitor is to offer a better service (e.g., one that produces better outcomes), in a more accessible manner, at a competitive price. None of this will mean much, however, if your potential customers (i.e., your target market) are unaware that your service is better, costs less, and/or is more accessible. This is where marketing and public relations come in; they are the best tools at your disposal for letting potential customers know why they should choose you.
Substitutable Competitors. Substitutable competitors are usually not as easy to identify as direct competitors. To do so, you need to think very broadly about how your customers' needs could be met by different means, and that requires knowing your current and potential customers well enough to understand what they want and need, as well as the qualities and values they seek in a service provider.
To further clarify this concept, here are a few examples of needs usually served by nonprofits and the substitutable services or alternative approaches customers might choose instead of those offered by the nonprofit:
- Treatment of depression — the customer may seek mental health counseling from a nonprofit clinic, or s/he may decide to a see private therapist, or do neither and, instead, opt for medication prescribed by the family physician and/or commit to an exercise regimen.
- Love of classical music — the customer may choose to attend a live performance of the local symphony, or s/he may decide to buy a new home-stereo system and hundreds of dollars of classical music CDs.
- Constructive use of leisure time — the customer may join a community center or the Y, or s/he may decide to buy a home exercise machine or set up a regular tennis match at the city-owned courts down the street.
Each of these examples begins with a nonprofit offering to meet a need. But while it may have direct competitors — organizations with the same market focus — it also faces competition from other options that a customer can substitute for its programs or offerings.
Understanding both your direct competitors and the substitutions potential customers can make for your programs or services will help you market them more effectively. Let's say, for example, that an increasing number of seats for weekend performances of your chamber music ensemble are going unsold. It's imperative that you understand what it is that is keeping your potential customers from coming out for your concerts. Is it a direct competitor with a better product? The cost of the performances or location of the performance venue? A shortage of baby-sitters in the area? The availability of high-quality home stereo systems? Or a combination of the above? The more you know what you're up against, the greater your chances of responding effectively.
Indirect Competitors. There's a third group you shouldn't overlook: indirect competitors. While indirect competitors do not have the same market focus as your organization, and thus do not compete directly for your customers, they do compete for many of the same resources you do, including:
- Funding (from foundations, corporations, individual donors, and government)
- Human resources (i.e., board members, staff, and volunteers)
- Media attention (and the resulting visibility and enhanced public awareness of your organization)
- Community leaders (as spokespersons and advocates for your cause and/organization)
These are tangible and interrelated resources that can also yield intangible value to an organization. Third-party payers like to support nonprofits that have financial support from others. Strong boards attract strong board members, who in turn lend credibility to an organization and further heighten its stature. Good leadership and skilled staff make it easier for organizations to recruit and retain other staff. Satisfied volunteers are more likely to pass along word of their positive experience with a nonprofit to friends and relatives, who in turn may be more inclined to support the organization and bring it to the attention of the local media. Favorable media attention heightens an organization's standing in the community, which can predispose other members of the community to support the organization. In such a way, the ability to compete effectively for resources builds upon itself.
Let's assume you are the executive director of a regional performing arts organization. You know your major direct competitors are the regional opera company and a repertory theater group with its own theater. You also know that members of the community who historically have patronized the performing arts increasingly are choosing to stay at home, where they can consume their daily ration of the arts through state-of-the-art home-theater setups — a substitutable competitor for everyone in your market. So far so good: You have identified an important consumer trend and have grasped its impact on your market. But you have not yet fully described your competitive landscape.
Let's further assume that in your community the big donors, corporate sponsors, and media outlets, along with the best board members, are loyal supporters of the local Humane Society. You've always known this, but you've nevertheless ignored the Humane Society because they are not a competitor. Wrong! Although it has a different market focus and does not compete directly with you or your major competitors, the Humane Society may be the key indirect competitor for all of you by virtue of the fact that it has developed a winning formula that attracts a disproportionate share of the resources you all need.
It is imperative, therefore, that you understand why the Humane Society appeals so strongly to its supporters, so that you can compete more effectively for the resources it always seems to win. Remember, too, that if you can learn from the Humane Society, so can your direct competitors. If anyone in town can break the Humane Society's lock on high profile donors and media attention, make sure that it's your organization, and not one of your competitors.
The resources you need to enhance your organization's effectiveness are not going to be distributed evenly among the nonprofits in your community. We live in a highly competitive nonprofit world, and it won't do your organization any good if you think and act as though that world is more collaborative than it really is.
Organizations compete head-on with their direct competitors — and to varying degrees with substitutable and indirect competitors — for the four essential resources. In the case of the regional theater mentioned above, the organization is losing customers. The loss of customers has a domino effect on the other resources it needs to attract. If customers don't value its services, chances are that funders won't either. Without sufficient funding, the theater won't be able to pay for the skilled staff and performers it needs, and will have difficulty attracting the local media to its new productions. Even if it does get the media to show up, the story may end up being about declining attendance for the company's productions, not the excellent theater experience the company provides.
In other words, whether we acknowledge it or not, competition is a fact of life in our sector. The good news is that this isn't a bad thing. Competition can be a great motivator and serve as a "wake-up" call for nonprofits that are coasting. By comparing themselves to their competition, organizations can determine what their strengths are and capitalize on those strengths, as well as determine where they need to improve to better meet the needs of their customers. By doing so, they will improve their chances of attracting other resources.
In our next article we will describe some easy-to-use tools for gaining a better understanding of your competitive position. Gaining such an understanding is the first step in enhancing your ability to compete for important resources. And in our third and final article in this series, we will discuss how to use this understanding to develop and implement strategies to increase your effectiveness in securing the resources you need to advance your mission. Meanwhile, make a list of your direct, substitutable and indirect competitors; we'll use it next time.