In the nonprofit sector, many organizations operate without a strategy or written annual plan. Even some small-to-midsize businesses (SMBs) have avoided the task of developing written plans, focusing more on the tactics of generating revenue and staying alive in their competitive markets.

Some nonprofits have embraced the all-encompassing, five-year strategic plan--the dreaded activity that takes many resources to develop and write, often becoming obsolete a year or two later.

In many cases, the nonprofit strategic plan focuses on the mission and vision, interpreting what the organization's focus and goals will be over the next few years. It may or may not include specific projected revenues and capture growth or shrinkage, because it doesn't often include a bona fide SWOT (strengths, weaknesses, opportunities and threats) analysis or market research results.

Many nonprofit lay leaders or boards of directors, as well as SMB owners, consider these costs unaffordable or inconsequential. However, nothing could be further from the truth.

In one organization where I worked, a lay committee discussed the development of the strategic plan, after which a VP wrote the first draft. Senior management discussed it during a meeting before the CEO received it for review. The CEO amended it (numerous times) over several weeks, before the VP presented it at a board meeting for review and feedback. It was on the board agenda once more, but after four months they didn't want to make any major changes at that point.

My sole contribution as the marketing and communications director was to provide a projected department budget for the next five years. I didn't find the request that unusual, except that I hadn't seen the draft plan before I wrote the projections! How could I possibly know how to staff the department or develop the tactical costs without knowing where we were heading?

In that case, I did the best I could and provided my vision of the organization's growth, with an emphasis on marketing that I felt would make a difference in generating its potential revenue. With all departments operating in this fashion, I silently questioned the validity of their projected revenues.

Earlier that year, during a senior staff meeting, I had talked up the need for an organizational marketing plan--one that would clarify our strategies and tactics based on the business goals and overall strategy of the organization. I was pleased that the CEO considered the effort and encouraged me to develop it, yet I procrastinated as long as I could. Without the organization first developing a proper business plan, there wasn't much to go on.

Nonprofits that fundraise and function solely as a clearinghouse for grants and allocations operate very differently from those that provide services, sell products or offer memberships. Some are hybrids of the two. Yet all nonprofit models need to define their direction according to their mission, with a solid understanding of their business goals. Without such a road map, nonprofits run the risk of losing focus, falling behind, missing opportunities and experiencing attrition in membership, revenue or support.

A nonprofit business plan need not be a long-winded document with numbers that only an accountant can comprehend. However, it does require certain basics to which all department heads and senior staff should contribute. Every operational function from HR to finance, service delivery to fundraising, needs to be part of this process.

Before this exercise can begin, it's important to address the difference between social return on investment (SROI) and the common business term return on investment (ROI). If your organization employs sophisticated financial outcome analyses, then using those results in this business plan will be advantageous. If your organization does not, initiating the methodology may be premature without first having developed a basic business and marketing plan, and tackling an SROI analysis another time.

Social Return on Investment describes the social impact of any nonprofit operation in dollar terms, relevant to the investment required to create the impact, and exclusive of its financial return to investors (from "Social Return on Investment: Standard Guidelines," by Sara Olsen and Alison Lingane, Center for Responsible Business, University of California, Berkeley, September 2003).

Return on Investment is the profit or loss resulting from an investment transaction, usually expressed as an annual percentage return. ROI is a return ratio that compares the net benefits of a project verses its total costs (from FundingPost.com).

It's important to note here that with some modifications this plan can be easily adapted to a for-profit endeavor.

The Business Plan

1. Organization Description

Briefly describe your organization. For example:

In [year] the [founders] registered [organization name] to [main objective]. The organization is located in [location]. (If the organization is an affiliate of a national or larger regional organization, state that here.) The organization is currently in the [describe stage of development] and expects to [describe growth potential or shrinkage, depending on what is anticipated].

2. Mission Statement/Organization History

Provide the mission statement as it appears in your constitution, bylaws or annual report and briefly state your organization's history as it relates to its original objective and evolving changes.

3. Nonprofit Category Analysis

This where you analyze your niche in your geographic area and provide statistics. Include statistics on all nonprofits in your area, focusing on your category, such as religious or academic institutions, social service agencies, etc. Include the number of donors and average gift size, number of members and cost of annual dues, number of people served, your market share in this area (what percentage your organization serves) and any trends or predictions for your nonprofit category.

Identify your category's seasonal cycles, trends, barriers and opportunities. You may not have all this data without doing the research, so check with colleagues, published government statistics and both internal and external sources for the data. In larger organizations with various locations, it may surprise you to learn that your staff may already have some of this information. Hiring MBA or undergraduate students during the summer can keep your research costs manageable.

4. Business Activity

Although this may sound simple, especially for smaller organizations, larger organizations run the risk of trying to do too much with limited resources. Identifying the nature of the business you conduct may help focus the organization's efforts. The important issue here is to ensure that the organization's business activities live the mission.

What activities do you conduct? How do you generate revenue? Make a list of all business activities, including fundraising, service delivery, product sales, membership services, etc. Be specific. Fore example, if 20% of your fundraising revenue comes from an annual campaign, state the percentage.

What are your unique features or benefits? Do you offer standardized services/products, or do you offer a customized approach for your clients/consumers? Are you planning to launch any new services or programs? Do you raise money and allocate it through grants? Briefly describe how you raise or generate the money.

5. Target Markets

Whom do you serve? What are their demographics and psychographics (lifestyle and attitudes)? Do you serve women, men, children? Of what age, level of education and socioeconomic status? What are your target markets' lifestyles, political leanings and beliefs? (More on this will appear in Part II: The Marketing Plan.)

If there are unmet needs, are you in a position to fill them? If you've conducted satisfaction surveys, what are your clients, consumers, members, donors saying? Are they likely to use your service/product again, patronize you again or make a repeat donation? What is your potential to expand and by reaching whom? Identify your primary target audience, as well as secondary and tertiary ones. For example:

Awareness Breast Cancer's (ABC) primary target market is the one consisting of [#] women affected by breast cancer in [location]. In the last fiscal year, ABC provided support groups, counseling, education, and information to 5,000 breast cancer survivors. Our wait list for services is burgeoning, with 250 names. We also recognize the need to provide counseling and support to family members of survivors as a secondary market, but we do not have the resources at present to offer this service.

6. Collaborative/Competitive Analysis

Nonprofits often express discomfort with the concept of competing with other nonprofits. After all, many collaborate to resolve a social issue, address a community need or reach similar objectives. For this purpose, this section splits into two streams.

a. Collaborative Analysis

Dissimilar to the for-profit competitive analysis, which focuses solely on a business's competition, nonprofits should identify existing partnerships and evaluate any feasible collaboration that they hadn't considered previously. Who are your nonprofit partners and how do both organizations collaborate? How do these current partnerships help to reduce your overhead or expenses? (An example would be two nonprofits sharing office space and equipment.) How does your organization benefit from the arrangement?

Does your mission overlap with other organizations in your geographic area, and with which ones? Does your organization offer something unique in your community? Identify any new collaborative opportunities. Evaluate to what extent your organization will realize any cost savings or benefits from a business perspective, or any social benefits that relate to your mission.

b. Competitive Analysis

As much as partnerships are valued and can often be beneficial, the other reality for nonprofits is that there are a finite number of funding sources in their target markets. Whether you seek funding from government, donors, corporations, members, clients, consumers or others, your organization will be "competing" with other nonprofits for those same funds. The mere revenue-seeking efforts you make place you in a position to be more successful than other recipients for that funding. Therefore, your success depends on an understanding of your competitive landscape.

Identify other nonprofits in your geographic area with a similar mission. How do you differ? If your organization markets professional services or products, identify any for-profit businesses that compete with you (an example is the sales of holiday greeting cards that several national or local organizations market each fall). How is what they offer similar or different? Do they have any competitive edges? Do you? Identify these. Are any other competing businesses or nonprofits starting up in your area that may challenge your position in the community?

Completing this analysis helps your organization identify and analyze how you might position yourselves differently from your competition to gain market share and increase support for your cause.

7. Strategic Position and Risk Assessment

How does your organization position itself? What are the strategic ways it differentiates itself from the others?

Healthy organizations have balanced and diversified revenue streams. Seeing your revenue streams on paper can be a valuable tool in evaluating your risk. Identify the organization's strengths and assess its risks. How will it manage these risks? Establishing a volunteer risk management committee can help identify the risks and set the groundwork for managing them or changing the way you do business.

8. Marketing Plan and Strategy

The reality of many nonprofits is that they cannot increase their programs or services if they don't have the necessary funding. However, they can and must market their mission and case for support if they are to generate the fundraising revenue needed to fulfill the mission and expand their efforts in any way. If the organization generates revenue from the sales of professional services or products, or from fees or ticket sales, a marketing plan lays the groundwork for increasing that revenue and expanding market share.

The marketing plan also establishes the tactics and channels by which the organization can communicate its message and positioning, gain profile in the community, demonstrate accountability to funders, government legislators and any other audiences.

A more detailed Marketing Plan template will be available in Part 2 of this article.

9. Operations

From where does your organization operate? Does it have branches or chapters? Identify any properties or equipment you own or lease. Where and how do you provide your programs and services? How do you sell your products or provide services? What operational infrastructure do you require to generate revenue?

Who are your key suppliers? Who is responsible for customer, client, donor, member satisfaction? Do you have the physical room to grow if you're busting out, or do you need to downsize your space to be more cost-effective? Evaluate your business relationships using a cost-benefit analysis. An example is to do the math whether rental space is more or less expensive over time than making a down payment and taking out a mortgage.

What are your major operational expenses? Analyze how you might realize any cost savings. Do you need to expand your operational budgets? Estimate the typical increases you might expect, and anticipate those you don't, such as health benefits, insurance premiums, absentee costs, severances, etc.

If your business plan includes the launch of a new activity, ensure that you factor in the hidden costs such as IT support, utilities, telephone, etc. I've seen grants that have put organizations in the red because staff didn't work out the true costs to deliver that service.

What is your technology plan? How do you keep up with technological advances and capital expenses? Do you rent technology or lease it? Which is more cost-effective? Note any required capital expenditures and how you plan to fund them. Identify any operational challenges.

10. Management

This is the who's who of your organization in detail. Identify who is on your senior staff and what their areas of responsibility are. List your Board of Directors, Advisory Council members, consultants, and external agencies.

What are your current and growing management and staffing needs?

11. Development, Long-Term Goals and Metrics

What is your destination? Where does your organization see itself over the course of the next three years? What are the strategies required to achieve those goals, and what are the risks? Include your expansion or cutback plans, organizational and financial goals. Identify where and how you plan to spend your net proceeds. Identify the metrics you need to put in place to evaluate whether you're achieving your goals at various intervals.

12. Financials

The financials provide a picture of your organization's health at a glance. A table such as the one presented below allows you to identify your profit and loss for the previous three years. In most cases, organizations live within their means, but there are always extenuating circumstances that you can flag. Donor acquisition tactics, for example, are often amortized investments, which you may choose to footnote in this section.

In the US, using the organization's IRS Form 990 helps identify the required information. Another option is to expand this table by adding items #1-12 of the Form 990. This can help identify all organizational revenue sources to help evaluate risks.

Outside the US, your yearend audited financial statement should give you the information needed to complete this table.

After Drafting the Business Plan

Once you've completed this plan, ask several volunteers or committee members in business to review it for their feedback. Using them as your pro bono consultants is highly valuable. Make any necessary adjustments before presenting it to the board for discussion and approval.

Going through this exercise is an important step in developing a business paradigm to operating nonprofit organizations. With increased opportunities to expand corporate philanthropy, and the need to show greater accountability to stakeholders, especially in this post Sarbanes-Oxley Act era, the outcome will help identify the organization's strengths, weaknesses, opportunities and risks. Being proactive in this approach is not only strategic, it is imperative in today's growing nonprofit sector.

Knowing your direction is essential to identifying which tactics to employ. Otherwise, you are susceptible to the changing tides and flavors of the month that present themselves. Having your business plan in tow enables you to evaluate any new opportunities to see whether they fit into your plan and live your mission.

Your staff can only handle what is feasible in any given workweek. Feeling disempowered and unable to prioritize is a common complaint of nonprofit employees. Give them the tools they need. Stay on track and use the business plan as your road map.

Next Time: Part 2--The Marketing Plan.

Acknowledgements: Special thanks to Maryn Boess of JUST GRANTS! Arizona and to Elizabeth Tregor-Dokken, Associate Director of the Arizona Chapter, The American Jewish Committee.