The very first blog I wrote when I created the StoryBoard HTX website was a look at the unequal way that the pandemic hurt small profits, while most larger nonprofits saw an increase in funding. The conclusion was that the pandemic is speeding up a longer-term trend. Big nonprofits are getting bigger, while smaller ones may struggle to survive.
If that is a depressing forecast, you might want to grab a beer, not to drink, but as a lesson on what could happen to the nonprofit sector and perhaps as a roadmap for small-to-medium-sized organizations that want to thrive.
Sometime after World War II, consolidation started in the beer industry. Larger brewers grew and small brewers were left in the dust. The industry consolidation reached a tipping point after the 1980’s and the market was controlled by a handful of very large brewers. Now, just two brewers control half the market, and the U.S. Treasury Department is studying whether consolidation has gone too far.
Why did it happen? Interestingly, when brewers adopted aluminum cans in the 1960’s, it made it easier and cheaper to ship beer for longer distances. That allowed larger companies to grow by taking advantage of economies of scale, lower per-unit advertising costs, marketing clout and more efficient systems.
Economists say this trend eventually happens in every industry. The big get bigger until the industry reaches a tipping point and most smaller companies just can’t compete.
Is that happening in the nonprofit sector? You be the judge. Larger nonprofits can:
Invest in the staff and technology to cultivate donors,
Manage large, complex grants,
Spend more on advertising,
Standardize programs, hiring and purchases, and
Build reserves that allow them to plan further into the future.
These economies of scale mean that they can put a larger percentage of their budget and smaller percentages into administration and fundraising compared to smaller nonprofits. Today, more than 10% of all U.S. revenue goes to just 100 nonprofits and 75% of nonprofits get by on less than $100,000 a year.
In the beer industry a lot of the consolidation has been driven by the fact that beer consumption has been falling for the last decade as wine and hard liquor sales increase. But something else happened in the beer industry that may hold the key for the nonprofit sector…Craft breweries. Two dates may help explain the phenomenon:
St. Arnold Brewing Company was the first craft brewer in Houston. Houston is home to more than 50 local breweries. Nationally the number of breweries has skyrocketed from 100 in 1983 to nearly 6,500 today.
So why have the little guys increased, even as the bigger guys have been getting bigger? Niche markets. Brewers like St. Arnold build a customer base and cater to it with their products, their pricing, and their marketing. A loyal audience will even pay a premium for that product.
That is the lesson that smaller nonprofits need to follow if they are going to thrive. The best mid-sized nonprofits find their lane and stay in it. They fight the temptation to expand their mission even if it means not applying for a particular grant.
Here’s how niche markets apply to nonprofits:
Specialization – For nonprofits, that means having programs or services that set them apart from other nonprofits in that space, even the big ones.
Example: The American Cancer Society is a $1.4 billion nonprofit that tackles cancer through research, awareness, and a host of other initiatives. One of our smaller clients focuses on cancer too, but not in a way that competes with the Cancer Society. It helps female cancer victims through very personal services from sending individualized notes of encouragement to paying a car note so that a woman can afford her medicine without losing her vehicle. They may not end cancer, but they are like a lifeline for women who struggle with the hopelessness that so many cancer victims face.
Uniqueness – Find that one thing that makes your organization unlike any other group.
Example: There are a million nonprofits that provide clothing. You would think it would be impossible to stand out in that area. Then there is Houston-based Undies For Everyone. It started 10 years ago with a simple mission of making sure children in crisis didn’t have the insecurity of having no underwear. Last year it provided 100,000 pairs of underwear to kids in 15 cities.
Service – Nonprofits may have similar missions. The key is to be able to deliver better, more targeted service to a specific group.
Example: There are many youth development programs. What makes Houston’s Youth Development Center standout is that it delivers highly focused after school tutoring for elementary students in just one area, the Greater Fifth Ward. It has turned down opportunities to expand its services in order to maintain its level of care.
Flexibility – This one can’t be minimized. Small-to-midsized organizations can be much more nimble and able to adapt than big organizations. They have fewer levels of bureaucracy and an ability to try innovative approaches to meet changing demand.
Example: During the pandemic, smaller nonprofits changed to meet the new challenges much faster than larger nonprofits. These included switching to virtual sessions, shifting to help clients find needed services and inventing new ways to follow their mission after schools and community centers closed. I remember one very small nonprofit that switched their social and emotional learning workshops to virtual sessions and delivered lunches to the children’s homes at the end of the workshops.
The last key to surviving in a contracting market is niche marketing. The craft beer market, as a whole, has managed to thrive, but many small brewers will fail because they aren’t able to get the word out on their services. The same is true for small-to-midsized nonprofits.
Back to St. Arnold, it doesn’t spend a lot on advertising, but still manages to make its own distinct (and quirky) marketing “voice” heard. For example, before one Superbowl, it said that it wouldn’t spend millions to advertise during the game. Instead, it would send supporters a logo that they could stick on the corner of their TV to make it look like the brewer was sponsoring the game. The announcement got a lot of news coverage and didn’t cost a dime.
When we work with clients, we look at:
Identifying their distinct audience,
Finding the right communications channels,
Capturing that audience’s attention through storytelling and interesting content, and
Being authentic in communicating what makes them unique.
The nonprofit world is seeing a real shift right now as larger organizations can more funding and attention, but that doesn’t need to come at the expense of smaller nonprofits, if they position themselves to survive and thrive within their niche.