The Surprise Economy
Nonprofits are a big market opportunity -- if you can figure out how to sell to them.
Would you bet that a fledgling company selling exclusively to nonprofits could jump from $700,000 in sales to $5 million within a year? Neither would I. But let's handicap the wager anyway, because there's a company in Austin planning to raise its sales in just that way -- and its odds are better than they look.
The once-sleepy independent sector, which includes charitable, educational, religious, and similar organizations, has metamorphosed into a true growth market. The number of U.S. organizations hit an estimated 1.24 million in 1999, up 20% from 1992. Revenues from all sources -- contributions, fees, and so on -- grew more than 30% from 1992 to 1997 (the last year for which we have dollar figures) and have undoubtedly kept rising since then. Big nonprofits like universities are already well served by suppliers, but modest-sized ones -- which also need office space and furnishings, information systems, and business services of all kinds -- are not. "There aren't a lot of vendors out there aiming specifically at small nonprofits," says Jonathan Spack, executive director of a Boston nonprofit agency.
Granted, there's a reason for that lack of competition. Nonprofits typically live on tight budgets, their priorities determined each year by the predilections of funders. Most of their money is earmarked for programs, not purchases. They make decisions more by consensus than by fiat. ("We have a volunteer committee that reviews all requests for proposals and meets with the vendors," says a Greater Twin Cities United Way official, thereby sending a shudder through every would-be supplier.) And talk about your tough sells: some inhabitants of the nonprofit world think "business" -- let alone "profit" -- is a dirty word.
So here's what I'd do if I wanted to tap this market: pretty much what Community TechKnowledge Inc. (CTK), a five-year-old Austin company, is doing. Which is to say, I would tailor my product and my business to fit the customers.
PRODUCT: Small nonprofits might get their computers from Dell or Apple, but they won't buy much else from such nonspecialized suppliers if they can help it. Take database software: what off-the-shelf program do you know that can track several hundred service programs and 350,000 customers and produce customized reports for each funding agency? CTK's software, developed specifically for nonprofits and easily modifiable by nontechies, can do many such useful things.
MAKING THE SALE: Contrary to popular belief, small nonprofits do spend money -- it's just tough for them to spend a lot at a time. So forget trying to sell them, say, customized database software requiring a dedicated server and an IT pro to manage it. CTK is an application service provider: it hosts the program, and customers get secure access to it over the Internet. The monthly fees CTK charges are exactly the kind of bite-size expenditures a nonprofit can live with. As for those consensus-driven buying decisions, CTK designed its product explicitly for ease of use. The sales process consists mostly of sitting down with board or staff members and showing them how the program works.
CULTURE: Shhh -- don't tell anybody that CTK is a business. Until recently, the company operated out of space owned by an investor. The three satellite sales offices it recently established (in Portland, Oreg.; Minneapolis-St. Paul; and Boston) are one-person affairs based in a sales rep's home. The company avoids advertising, preferring to spread the word by sending staffers to conferences for nonprofits. Founder Kathryn Engelhardt-Cronk worked in the nonprofit sector for 25 years and has built a company that tries to reflect her customers' culture. It seems to have worked.
The moral of this story? A fast-growing market is only as promising as the company that proposes to enter it. I still say CTK's $5-million goal next year might be overambitious. But $3 million or $4 million -- now, there's a bet.
John Case is a contributing editor at Inc.
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