When you think of business planning, do you envision a team of freshly-minted MBAs rappelling from the ceiling in loosened ties and rolled-up shirtsleeves, armed with calculators and PowerPoint decks? Well, you can have that if you want -- just not here.
In this post, we talk candidly with two of our expert team members about how business planning for nonprofits can be not only practical but powerful, delivering meaningful value in ways you may not even expect.
Lester Olmstead-Rose, Partner, brings a background in nonprofit management and public policy to engagements that have included business planning for large and mid-sized nonprofits working in youth development, health, and the environment.
Luis Vergara, Senior Manager, uses his experience in nonprofit leadership and market research to help executive staff and boards develop a sound business case while addressing the organizational culture and change management issues necessary for success.
Why should nonprofits even care about business planning? Isn't it just an exercise for startups?
Luis: It's really not just for startups...not at all. We've found that business planning is useful for nonprofits that are considering a new program or partnership, that are interested in pursuing a growth strategy, or even if they're experiencing a major business model challenge. It gives those with a strategy they want to move forward the opportunity to dig deeper into what that will mean, in terms of both their operations and financial model.
Lester: Absolutely, any time an organization is taking on a big-risk type of activity like buying a building, or scaling up programs -- that is the time to do business planning. Not because it guarantees a successful outcome, but it makes it more likely because you've anticipated what you might need to do that you otherwise might not have thought about. It sets the organization up on a tested path toward success.
What are some of the pitfalls in business planning, and how can they be avoided?
Luis: I think there's still some confusion about what business planning really is, so part of it is just the need to support organizations in distinguishing strategic planning from business planning and what they need most to get them to their end result. It's a lot easier, maybe more natural, for nonprofits to talk about strategic planning -- and it's all ultimately related, but there are key differences that need to be understood.
Lester: For business planning to bring value, there has to be a clear strategy. If not, that's where it has to start, and that's where it can sometimes overlap with strategic planning. Another pitfall is that, maybe because business planning feels more foreign, organizations may have a greater expectation that the consultant will develop the plan for them. But that doesn't work for business planning any better than it does for strategy development. Organizational leaders must be involved in the effort.
Luis: That's a big part of it. You also have to ask: How does the organization's culture support what is laid out in the plan? Or how might it end up being a challenge? It's also critical to focus as much on the process as the product...if not more. Of course, it's important that the plan reflect the decisions the group has made, and it should include strong analysis and a compelling business case, but that's going to be meaningless if it hasn't got real ownership from those in the organization who have got to make it happen.
Lester: That's really key. The expectation should be that the organization's leadership internalizes the issues and the questions, and at a detailed level. That's important because, truly, the business plan is out of date the minute it's adopted. Any effort to think about a lot of details and project how things will play out into the future requires assumptions, big and small. Staff will have to adapt to deal with assumptions that played out differently than anticipated. A primary value of business planning is that organization leaders have actively engaged in, and owned, the effort, so they know the issues and are well prepared to respond and adjust the plan over time. You're ready for the changes because you've internalized the details of what you need to roll it out.
What can a nonprofit expect to get out of business planning?
Lester: It's important to us that the plans are practical and actionable. We'll often include a fair amount of program design or reorganization to achieve that; we honestly do roll up our sleeves and work out a pretty high level of detail with the organization. Also, maybe to back up a bit, I should reiterate that the organization has to have a strategy selected, or in place, before business panning can be of real value, so we sometimes end up pulling elements of strategy formation, or Real-Time Strategic Planning, into a business planning process, just to make sure that we're building the plan around a sound and well-articulated strategy. I guess the takeaway there is that each nonprofit must work within a process that fits its specific situation. Business planning should leave organizations with a sound plan to guide implementation, to make changes during implementation, and to use as a tool to communicate with funders...that can help instill confidence and make a case for support.
What might they NOT expect, that you have seen come out of these projects?
Luis: One thing they might be surprised to get out of business planning is often the informal coaching and ongoing thought partnership we integrate into our approach. This is important, so that organizational leaders, as they're trying to manage the demands of leading change, have us as a resource they can turn to for the questions that come up that don't necessarily show up in a work plan or list of deliverables. All of our consulting team members draw from diverse backgrounds, but with a shared depth of experience, to be able to partner with clients in that way. We even extend that relationship beyond the project itself because we know it takes time to implement these plans. A big part of that coaching role is asking the right framing questions. One thing I think we help do is enable the organization to see both the individual components they want to address and how it all fits into the bigger picture.
What advice do you have for nonprofits considering the value of business planning?
Luis: I think, to my earlier point, the organization really needs to be involved, to prioritize the effort it is going to take, and business planning is a pretty significant undertaking. So making sure that staff leadership and any board members who are going to be involved can give it the time and attention it needs.
Lester: I'd also say that to get the most out of it, and to arrive at the best outcome, organizations should be ready to push their thinking about how they'll resource the activities they have planned. Not that we'll always get into full fund development planning, but there have to be some realistic projections to work from, beyond just wishful thinking. They don't need to walk into the room having that all figured out, but it's important to think about how to expand your current fundraising base, what your optimal revenue mix is, and what new skills you might need to develop new revenue streams.
What do funders need to know about nonprofit business planning?
Lester: The biggest thing for funders to recognize (and this is important for the nonprofits to hear, too) is that it's still just a plan. Always, there is leadership required to put the plan into motion and adjustments that will need to be made. So foundations and other funders should look at business planning as a preparedness tool as opposed to a dictate that's written in stone. If they treat it as the latter, it's a disservice to the grantee. That doesn't mean that a funder shouldn't ask questions, though, to dig into what's leading to the variations from plan and why the new course of action is the right adaptation to make. Because with a good business plan, the nonprofit will know where they're deviating from and will be better able to articulate why. When approached in a constructive way, the conversation can open up an important transparent discussion between funders and their grantees.