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Strategy talk: How strategy differs for nonprofits

Organizations that don’t have a profit imperative still need to answer three critical questions.

Dear Ken,

I recently “retired” from the business world to lead a nonprofit. Having run many businesses in my career, my inclination is to work on strategy as an important early step. But I’m a bit fuzzy on how to think about strategy in my new role. Businesses have customers, competitors, investors, and profits. Nonprofits don’t. What does strategy mean for them? 

—A not-so-shy retiring type

Dear Not-so-shy,

Many leaders of nonprofits think that strategy is for profit-seeking businesses, not mission-oriented enterprises. But consider the following excerpts from actual mission statements of organizations that are seeking to:

  1. Expand global access to healthcare
  2. Advance sexual and reproductive autonomy, choices, and health worldwide
  3. Alleviate poverty
  4. Create lasting solutions to poverty, hunger, and social injustice
  5. Refresh the world in mind, body, and spirit, and inspire moments of optimism and happiness
  6. Bring clean, safe water to people around the world
  7. Empower every person and every organization on the planet to achieve more
  8. Develop innovative, principled, and insightful leaders who change the world
  9. Expand access to quality education and opportunity for people who are left behind
  10. Inspire lifelong learning, advance knowledge, and strengthen our communities
  11. Reinvent how people share knowledge, tell stories, and inspire
  12. Spread ideas

I often ask leaders to pick which mission statements from this list are from nonprofits and which are from profit-seeking businesses. They rarely get them right. (The odd-numbered excerpts are from public companies; the even-numbered are from nonprofits.) The point is, businesses can be just as mission-oriented as nonprofits, and nonprofits have to compete just as hard as businesses to achieve their missions. And, like businesses, they need a strategy to do so.

Here’s a table comparing the essential elements of strategy for nonprofits to those of businesses:

Based on these differences, a nonprofit strategy must answer three essential questions:

  • Who should the financial supporters of our mission — our “target supporters” — be?
  • What should the value proposition to those target supporters be?
  • What should our leading capabilities — the capabilities we should prioritize and nurture so that we can be better than anyone else at realizing our value proposition to our target supporters — be?

When a nonprofit’s leaders can answer these questions with one voice, they have a clear strategy. The more compelling and distinctive their answers are, the better that strategy will be.

But that’s easier said than done, particularly because the questions are interdependent — the answer to any one depends on how you answer the other two. Leaders have to iterate responses to all three questions to find answers that reinforce one another and their nonprofit’s mission, and also reflect the organization’s strengths and weaknesses.

Moreover, each question is challenging on its own. For example, the range of potential financial supporters — including individual and corporate donors, family and other foundations, NGOs and government entities, advertisers, and volunteers who donate their time —can be mind-bogglingly complex. Plus, financial support can come from a nonprofit’s beneficiaries, such as a university’s students or a museum’s visitors, thus muddling two of its most important constituents.

The second question is tricky, too. Your value proposition is the bundle of benefits that target supporters experience by backing your mission. These can include, for example, the joy of having a positive impact on the world; the reputational value associated with a particular cause (such as fine arts) or the nonprofit itself (e.g., an elite university); or the business value of affecting externalities — such as clean water or air, defeating a particular disease, defending the rights of disenfranchised people, or leveling the playing field for the disadvantaged — that are important to corporate donors.

Businesses can be just as mission-oriented as nonprofits, and nonprofits have to compete just as hard as businesses to achieve their missions.

Most supporters don’t explicitly expect something in return for their altruism, or articulate it even if they do. Moreover, what compels one supporter can be very different from what compels another, and it can change over time. Nevertheless, nonprofit leaders have to be crystal clear on the value proposition that hits the bull’s-eye for each type of financial supporter they’re targeting.

And as for the third question — about capabilities — leaders are typically all over the map. This is often because they’re hazy on their target supporters and value propositions, and thus on what they need to be better at than anyone else.

Most nonprofits have a mission and a plan to achieve it, but lack a sharp strategy because they can’t answer the three questions listed above in a clear, compelling manner. And that’s too bad. A nonprofit’s mission, strategy, and plan form a powerful trinity of leadership tools. Missions define the heart and soul of what nonprofits do and why they exist. Strategies prescribe how nonprofits compete to fund their missions. And plans set out how they will achieve their missions and implement their strategies. Each part of the trinity makes the other two stronger, and each is weakened if one or the other is missing in action.

All of this is to say that you’re right. One of your first steps should be to work with your new team on creating a strategy that’s sharp, distinctive, and broadly understood by your staff, partners, directors, and other constituents.

Ken Favaro

Ken Favaro is a contributing editor of strategy+business and the lead principal of act2, which provides independent counsel to executive leaders, teams, and boards.

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