Want to guess which nonprofit team members are quick to understand the need for an effective business model? Fundraising professionals and board members.

Fundraisers and board members know that their group’s business model can inhibit their fundraising results. Alternatively, it can open the door for fundraising success.

Why is your business model so important?

Every nonprofit has a business model (if only by default), but many are unexamined and not as effective as they need to be to support the nonprofit’s mission and vision.

Here’s an example:

A nonprofit group in a busy urban area owns a valuable 20 acre piece of real estate, on which their offices and operations reside. About 50% of the property’s acreage has an important function for the nonprofit, but the rest – around the edges – is not used by the nonprofit and would be highly marketable.

A group of long-serving board members feels strongly that the extra property should not be sold off. However, the group struggles mightily every year to pay their staff and to keep the property maintained. In addition, the staff, while committed to the mission, is about half the size of similar groups, and shows signs of burn-out. The group can’t seem to stop using funds out of their [now tiny] reserve fund, just to keep the doors open. While they do rent out the unused space in their buildings and make the grounds available for weddings and other outdoor events, the revenue is inadequate to make much of a difference in their financial picture.

The group’s reserve fund will run out next year, at the rate they are using it. Decisions are needed.

Why not just raise more money?

This group can make marginal improvements in their fundraising, but they have significant challenges:

1. Current budget and capacity issues prevent them from having even one full-time development officer.

2. Their donors can see this valuable piece of real estate every time they drive by the property, and many of them understand the expense load, and the value of the property. This group’s case for support (stated urgently every year) is undermined by the valuable asset they are sitting on – an asset that could be partially liquidated to fund an endowment for key activities or even key positions in the group’s staff.

3. Donors also understand how underfunded this group is, and how negatively it affects the quality of their efforts. The group is under performing, especially compared to other groups that ask for their support.

This group’s situation illustrates a business model issue generating a fundraising issue. Working on the fundraising issue alone may have some positive results, but if the business model issue remains unexamined and off limits for the Board and leadership, this group may have to go out of business in the next few years.

How can your business model open the door for fundraising success?

We tend to think holistically about nonprofit organizations, although we know that some parts of the organization generate a lot more funding than others. And that’s OK as a general concept, but it doesn’t provide management information to drive decision-making. If we dig in to understand the net revenue generated by each and every thing we do, and then plot it against the mission impact achieved by each and every thing we do, we get a visual image of our business model. And we can begin to make those decisions that need to be made, paving the way for better performance in all ways – including fundraising – in the future.

I recently added a new service – called Mission-Money Mapping – to my practice. “M3” (as my consulting partner, Nanita Sammons, and I call it) is a decision-making tool for the leadership groups of nonprofit organizations, and this is what it does: It allows a group to understand the net revenue and impact of their every activity, giving them clear information that can lead to decisions and choices. It also allows a group to project what their results might be if they made various changes in their mix of activities, along with changes in their investment strategies within activities and programs.

Read more about Mission-Money Mapping at HERE.