Book Review: The Nonprofit Business Plan

One of the things that I love at the Packard Foundation is the learning culture.   Different program officers host regular program forums with nonprofit experts, grantees, authors, and thinkers.     This week I attended a session with David La Piana, author and long-time nonprofit consultant, hosted by the Foundation’s Organizational Effectiveness Program.    David gave a talk about his new book,  The Nonprofit Business Plan, and mini-workshop about what makes a good business plan from a funder’s point of view.  (Some reflections from David here)
David La Piana has been a long-time consultant to scores of nonprofits as well as with the OE program, helping nonprofits develop strategic plans.  He gave a brief reflection with how is strategic consulting to nonprofits practice has changed over the many decades he has been in service to the field.    “It used to be that nonprofits developed five-year plans – we used to refer to as “The Stalin Approach.”   But after doing research, we learned that nonprofits rarely filled in the year 4 or year 5 – not due to laziness, but because the world has gotten more complex.”  His model moved to real time planning, although there is some tension between having a strategy and strategic plan.  “But something was missing, strategic plans were not enough, especially with so many broken nonprofit models.  The missing piece was the economic and operational planning  – the Nonprofit Business Plan.”
David gave an overview about the difference between a nonprofit strategic plan and business plan:
A strategic plan describes goals, strategy, and actions.   A business plan tests the proposition in the vision and based on research determines whether it is economically and operationally viable.   He said that strategic plan is more wishful thinking compared to a business plan that chocked with analysis.
A good business plan should not contain too much inside baseball and to understandable by an outside audience.    He recommends that if a funder reads a business and doesn’t understand, they should ask the nonprofit for a clarification.     He also pointed out that if a grant proposal is an assertion, the business plan demands proof.     The business plan makes sure that the nonprofit has taken the vision and idea further.  Business plans are not difficult to measure and the process is a discipline process of asking questions.   What’s more important though, notes David, is the process.  Did the organization make decisions?   That’s why it is important for funders who need a nonprofit business to make a funding decisions, should also interview the organization.    David shared some red flags to look for.
David also pointed out that a business plan is more than a strategic plan with numbers.  It goes  deeper into the numbers.   He recommended that funders should ask to see a business plan when there is new venture, or one that is ready to scale, is anticipating major growth or has a goal of sustainability.
He shared some the basics of what grantmakers should look for in a nonprofit business plan:
1.   Market: Is there a need for this?  Are there already 20 groups doing this?  Is this new and unique? Competitors?
2.  Structure: How will they estimate, describe and test the operational structure?  What kind of marketing, staffing, and tech?  Need to think it through or else they will fall on their face
3.  Cost: How much will it cost?
4.  Sustainability: Assumptions about the future.   What’s the truth at the end?  Will they need more money?   What nonprofits are sustainable?
5.  Impact: What will they have?  How will they measure success?
6.  Risk (and Risk Mitigation): What are the risks?  How do they plan to reduce it?  Scenarios?  Legal, Financial, Human Capital?  How they have take a prudent person’s approach to identifying the risks.
He shared a few case studies, including some examples of nonprofits with “broken business models” because of today’s connected world.   After the presentation, we worked in small groups to review a couple of scenarios of nonprofit funding requests and whether or not a business plan should be requested and what to look for.
Reflection: What struck me about the talk was the importance of having a good measurement practice or system within the organization to be able to answer the impact questions (as you may know I just finished writing a book with KD Paine about this topic).   The idea of defining success and measurable goals as well as identifying the KPI (or key performance indicators) that are the mileposts along the way to know whether the organization succeeded or failed.   David mentioned that many nonprofits have “broken business models”  — some due to the change in our connected world and the need to be more networked.   So, articulated success metrics for a networked strategy is also important.
The “How do we know we achieved impact” question helps identify right mileposts or “key performance indicators.”   Too often, nonprofits identify KPIs that are look more like a list of tactics or activities, not results.   Once the nonprofit has formulated goals and KPIs, then it is the right time to talk about collecting right data.   If goals, KPIs, strategy, and data are the needles, then the measurement process is the yarn that knits everything together. Measurement helps organizations decide what works, what does not and how to the organization  can better making an impact.
Does your nonprofit have a business plan?   Does it consider networks and connectedness?   Do you have a measurement system to help you track impact along the way and improve what you’re doing?