This post first appeared on the Exceptional Boards Blog
As the pace of societal transformation continues to accelerate, nonprofit boards must develop their capacity for generative business model thinking. The business model, which we define as the rationale of how an organization creates, delivers, and captures value, is also the framework that integrates the organization’s commitment to purposeful action with the equally critical pursuit of a responsible level of profitability. (Yes, you read that correctly. “Nonprofit” is simply a tax status, not a business model, and a measure of profitability is essential to make investments in building organizational capacity every year.)
To help your board fully embrace business model thinking, here are three things you and your colleagues need to know:
- Business model stewardship is the most important form of fiduciary responsibility. Most nonprofit boards pursue fiduciary responsibility through the regular review of key financial documents, such as audits, balance sheets, and P&L statements. This type of oversight, although absolutely necessary, is mostly retrospective, and thus insufficient to build organizations capable of thriving in the years ahead. For 21st-century nonprofits, fiduciary responsibility requires energetic business model stewardship. Every nonprofit board has a duty to build a deep understanding of the organization’s existing business model to grapple productively with more complicated questions about new value creation for both current and future stakeholders.
- Business model innovation must be an ongoing priority. When it comes to creating value, nonprofit organizations must listen closely to and learn with empathy for their stakeholders, many of who have demonstrated a strong preference for more open and inclusive platforms that embrace their technology-enhanced mobility, create more meaningful interactions, and enable simpler collaboration with their networks. For 21st-century nonprofits, coming to terms with and capitalizing on these new dynamics of value creation means boards must make consistent and well-paced investments in business model innovation in the years ahead.
- Business model design is about nurturing both adaptability and resilience. The critical business model design challenge for nonprofit boards is crafting new business models that are both adaptable and resilient. Adaptive business models can more easily adjust to shifting conditions and are flexible enough to take advantage of emerging opportunities. Resilient business models are organized around a coherent strategic core that creates lasting influence with stakeholders by solving their short-term problems, meeting their intermediate-term needs, and helping them achieve their long-term outcomes. For 21st-century nonprofits, designing adaptive and resilient business models is essential to building organizations that can thrive.
For 21st-century nonprofits, the business model conversation is the most important dialogue your board will have for the foreseeable future. To have the right conversation, nonprofit boards must work with their staff partners to remove any obstacles that may interfere with the serious work of business model stewardship, innovation, and design.