Non-profits Going to Scale
The Aspen Institute is a think tank of sorts.
For a number of years we've worked with non-profits in the US. Did you know we have more non-profits in the US than anyone else in the world?
The problem is they do good things but they don't go to scale very well. They are very mission focused and it's hard to inject financial or structured standards into them.
So we asked the questions, "How do they get bigger and how can they be more sustainable?"
In most cases scale means serving more customers. Most non-profits don't refer to economies of scale but just think about growing the number of customers they serve.
Most non-profits - not including hospitals and universities - serve about 1% of the people in need. In the work force area they serve about 5% of the need that exists.
We studied organizations that have gone to scale and that are sustainable.
Scale isn't one simple concept. There is scale at a product level. There is scale at an organizational level but we've found out the real opportunity is at the industry level. Most organizations don't have a view to be national. They just want to serve more people in their area.
With Langdon's help we put the whole research paper into this one graphic image.
Most physician practices are non-profit now (not by design!). [laughter]
If we have an industry of small local players the only way to make them bigger or better is to work at the industry level. Industry intermediaries have a huge role to help change things. Developing an industry infrastructure and having good data easily available with privacy assured is key.
A lot of industry time is spent lobbying because of that.
So we tried to map this out and see the different kinds of industries that exist. There are typically five different players in an industry. Customers are one type. Industry members are another. Investors or funders (payers) are another. There are trade associations and then there are policy makers and regulators.
This next structure there are customers but like the example of grocery stores there are mostly little grocery stores and then there are trade associations that do a lot for the small members.
What was most interesting to me was this diagram. We did this for organizations that are subsidy dependent. They produce things that people cannot fully pay for. Who is actually paying for this? Foundations are important in this industry structure. Regulators are also important because a lot of money comes from them. There are also trade associations but they don't have a lot of capacity to help.
What is most interesting is the customer is left out in these types of industry structures. These organizations rarely do customer service. Even though non-profits say they exist to serve they don't actually do much customer service.
It is not surprising in a way that there are very few established processes to deal with the customer. In this kind of industry the member is most responsive to the payers and this says that trade associations have a very large role to play.
If you imagine a scenario with two different organizations. One organization has no customer and the other is comprised of all customer groups. The outcomes would be very different in each of those scenarios.
Collaborative models could help organizations. Some kind of collective or collaborative models have some great benefits. You can have local control and reduce management (or have better management).
By a collaborative model I mean something that helps all the individual players work more efficiently, get more capital and get some things done at an industry level.
In some dental work I had done the doctor was having some problems because the equipment was too small. They told the manufacturer they wanted the equipment smaller but the manufacturer said they didn't have any clout.
So I want to talk about a couple of interesting examples of collaborative business models.
Unified Western is a grocery coop distributor. They serve about 500 grocers at 1500 stores. They are credited with saving the individual grocery industry in the west. They provide grocery buying. They have a smart warehouse in California. They teach people how to pick real estate sites and how to purchase. The members own this coop. You buy into a coop. The way they maintain themselves is by taking a spread off the savings on the groceries. They also provide consulting but the percentage of revenues from consulting is very small.
Housing Partnership Network
They themselves are not a coop. No one is forced to go into anything. They have created for profit organizations that support and serve the members. Non-profits can have for profit entities. All their for-profit activities are in the support of the mission of the member organizations.
What is the range of the members?
You have to demonstrate that you are high performing. You have to be a certain size and you have to work with a larger number of people. What they have done is like no other non-profit organization I know of.
CCA Global Partners - Carpet One
This group is 20 years old. They were created by about 16 leaders in the carpet industry because the large groups like WalMart were coming. This has morphed into a combination of coop, franchise and licensing model.
They own a network of biking stores. They own Carpet One and Mortgage One and Lighting One. They provide benefits to the owners. They could not compete with the larger groups without being part of this cooperative. The CCA brings real estate programs, educational programs, services, research, and they negotiate larger contracts and then coordinate the work. They are now within the top five in the country for carpet stores. They do not let everyone in. You have to be above a certain size. The bike stores are an exception I believe.
They have built a real culture. I went to one of their summits. They had several 1000 people at the summit and they are like a family. The CEO said you create something they can join and the culture will develop by the fact of being a part of something. They are very community oriented. Their focus is very community oriented.
They are looking at a buying program for the housing network.
These collaboratives haven't been started by large groups of people. The ownership are typically by the members. There is no us and them when the members own the collective.
In studying these groups what works and doesn't work? These collaboratives haven't been started by large groups of people. The ownership are typically by the members. There is no us and them when the members own the collective.
They have professional management. Not anyone can join and that is by design. The entity type is a designed entity that has a bottom line. Trade associations have to let everyone in. Trade associations seem to serve the lowest common denominator. They try to do things for the lowest tier.
In some sense it's a peer association. It's a peer alliance.
These things are formed by high level people like CEOs or Principals. Revenue streams are typically earnings. Member fees never seem to be enough to cover operating costs.
Revenue streams could initially be donations but they morph to revenue streams at some point.
Member fees - where does that fit? Is that the collective earning for providing services? The fees are so minimal in the fields we are in but if they were larger they would be important.
There was a really strong reason for having a collaborative. Wall Street says fear and greed drive everything.
The value proposition has to be such that everyone gains.
There are many types of models for organizations. Across the top are parameters. There are all kinds of coops and credit unions. What you pick to some extent determines your criteria for membership. If you are a coop you are owned by the members. There is a force on some affiliates in the Habitats for Humanity group for more accountability.
A peer alliance or a coop is the best model we've found.
A peer alliance or a coop is the best model we've found. Most people don't look at the entire landscape of businesses. This is the next iteration of what Peter Drucker talked about.
What makes an alliance or a coop? What tips the scale one way or the other?
Coops for some reason seem to be viewed as a social movement rather then a corporate movement. Excess revenue over expenses is distributed to members. A coop allows ownership.
What about mixed models? There are so many different types of organizations so maybe there are multiple or mixed models?
Do you have examples about organizations where there are no standards? The history is difficult to break down.
Coops have been around the longest.
Setting the standards for membership is important.
Charter Schools - they are a creative destruction thing. They are going to step out a bit but they are still within the public school system.
The story of the Housing Alliance is they were an ineffectual trade association. So they went through a number of transformations. They found some things that they could do together. They fell into a gold mine.