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New horizons for non-profit business models

By Judith Sanderse, PhD candidate focussing on non-profit business models and change management

If measured as a single nation, the estimated 10 million non-governmental organisations across the world would boast the fifth largest economy(1). The size and importance of the non-profit sector has led to greater roles, mandates and ambitions for these organisations – as well as wider recognition across society. Many now see non-profits(2) as being able to achieve things which governments and businesses cannot.

There is still often a misperception that as non-profits are not businesses, they do not need business models. Yet an organisation’s business model simply describes the rationale of how it plans to create, deliver and capture value – however that value may manifest. In general, every organisation – be it a corporate venture, public sector body or non-profit entity – essentially faces very similar operational needs and challenges. These will range from defining the guiding vision and objectives to working with partners; from planning how to reach and motivate key audiences to ensuring solid organisational foundations and long-term financial viability. A business model sets out such markers and milestones – and is therefore a concept that is applicable to any organisation, irrespective of its size or the sector in which it operates. 

Traditionally, the business model has more often been referred to within corporate management literature. So why now the interest across the non-profit sector? There are several reasons for this. 

Among others, the stronger-than-ever economic size of the sector stands out boldly. There is also a realisation that non-profits have remained less understood than their for-profit counterparts – and have some catching up to do if they are to compete for limited resources on a serious footing. The transformative role played by non-profits across society is increasingly being recognised, shifting the focus of philanthropists, influencers and policymakers. Major emerging global trends – from the digital revolution to globalisation – are also causing disruption for non-profit organisations. This in turn brings increased competition, both within the sector and from outside players – such as social entrepreneurs and impact investors. Finally, due to boundaries between sectors blurring, profit-generating social initiatives have begun attracting private businesses to enter into a space which was traditionally occupied by non-profits – while non-profits are establishing for-profit divisions within their own organisations. 

The non-profit landscape is more complex – and offers more potential – than ever before. What does this mean for the evolution of non-profit business models?

The business models most commonly identified until now in the non-profit sector are for donor-funded time-bound projects. However, the changing global landscape as outlined above has made the importance of adapting and diversifying business models across organisations even more important. This has led, and is still leading, to an expansion in the variety of innovative business models which we are seeing in the non-profit and non-governmental sector. One hears increasingly about social businesses or social enterprises, impact investments, blue bonds, and other new approaches for non-profit organisations. 

This is not to say that there have never previously been innovative business models. One just needs to think of a social enterprise example such as the Grameen Bank, a microfinance organisation and community development bank which concept was established in Bangladesh back in 1976, that makes small loans to the impoverished without requiring collateral. The social enterprise concept is of businesses which have a financially sustainable revenue generating model, but whose primary focus is on creating positive societal impact – whether social, environmental or ethical. Another example of an innovative non-profit business model, in operation for several decades, is Oxfam – a non-profit organisation that has multiple revenue streams. Sales from trading online or through its high street charity shops is Oxfam GB’s third largest source of income(3).

What is different now is the sheer number of non-profits that are looking into innovating, adapting or diversifying their business models. Another difference is the growing number of articles and reports (such as from the International Civil Society and the Third Sector Research Centre) highlighting the necessity for non-profits with traditional ways of operating to adapt their business models, predicting that the larger, more established NGOs need to either adapt – or be threatened with extinction. 

These forces have caused major changes within the non-profit sector, making it a more varied landscape with greater fluidity and continuous movement. It will be fascinating to see where the sector moves next. In the current climate – of innovative disruption, plurality and an increasingly globalised operating platform and audience base – I will be very surprised if we do not see emerging entirely new business models for non-profits that we have not even dreamt of yet. Watch this space!

 

1. Nonprofit Tech for Good, ’25 Facts and stats about NGOs worldwide’ (www.techreport.ngo/facts-and-stats-about-ngos-worldwide.html, 2017).

2. In the literature the terms ‘non-governmental organisation’ and ‘non-profit’ are often used interchangeably.

3. 2016/17 Oxfam GB Annual Report & Accounts (http://www.oxfamannualreview.org.uk/wp-content/uploads/2017/11/oxfam-annual-report-2016-17-v2.pdf).

Image: Tobias Mrzyk on Unsplash

Luc Hoffmann InstituteNew horizons for non-profit business models