Competition and Competing with Business

At the June meeting of the Social Enterprise Network, the group discussed competition and competing with business.  Kevin Lynch of Rebuild Resources (and co-author of Mission, Inc) hosted this meeting.

Notes from Competition and competing with business

Defining Social Enterprise

Social enterprise, at its core, is a business whose primary purpose is the common good.  Social enterprise sees the power of business and the market and harnesses it for the community.

  • For this group, we usually use a narrower definition, limiting the scope to nonprofit business ventures or social enterprises with a specific charitable purpose.  

How Rebuild Approaches Competition

Businesses compete for market share.  To be successful, you have to accept, even relish, competition. It helps to have an aggressive mentality.

  • Rebuild integrates this competitive streak into their business operations and identity:
    • Day to day goal is to take market share from business competitors - other custom apparel and screen printers, including other nonprofit social enterprises.
    • Identifies their mission (in the global sense) as taking market share away from the prison-industrial complex. Every success story - every person who is able to live a productive life in recovery - is one person who will not end up incarcerated.
      • With each sale, they can employ more people and produce hope.
    • Fight for deals in the marketplace.
  • If you don't approach business with that framework you may not survive
    • It's also critical that Rebuild's student-employees (and employees at other job training social enterprises) experience a realistic workplace environment.  This helps prepare them to transition into permanent employment.

Value Exchange

  • What does the customer want/value? Always thinking about what the customer wants, how to provide value in that transaction.
  • Two kinds of customers - donors & clients
    • Donors: feed desire to create change (mission)
    • Clients: Transaction, exchange money for product (not mission).
      • Quality product
      • Produced on time
      • Good customer service
      • Price point

Market niche

  • Really important to identify your market niche - what products/services can you deliver with consistent excellence and at a price the market will bear.
  • Ensure that you do what you do well
  • Rebuild had to re-assess its business enterprises - it used to operate additional businesses that were too sophisticated for transitional employment
    • Made an intentional decision to tailor their businesses to the skill level of the student-employees
    • Adopt a ladder of jobs approach
      • The first position is entry level
      • By the time they leave Rebuild, each student-employee has developed a skill set and employment history that will make them a desirable employee.

Excellence

  • Hire the best people
    • Create a good team - one that would thrive in any setting, nonprofit or for-profit
  • Demand the best and have high performance standards
  • Drive out waste - be as efficient as possible
    • Some nonprofit social enterprises that are also job training sites might be concerned about being too efficient - you could employ fewer people (impact mission results)
    • Rebuild's experience is that increasing efficiency makes you better in the marketplace
      • Growth
      • Increased employment
      • Being less efficient would make it hard to compete and succeed in the marketplace
    • Lean manufacturing - decrease waste in all systems

Know the True Costs of your Enterprise

  • Appropriate pricing requires accounting for the true costs of your product(s), business operations, and other services
    • Important to identify costs associated with mission and extract them as separate costs.
      • Know what you need to subsidize and implement a fundraising strategy
      • Otherwise these costs get transferred to the products, making you less competitive in the marketplace
    • Using Rebuild as an example:
      • Sales
      • Business operations
      • Mission services
        • 13% of student-employee time
        • Staff who deliver those mission services
    • P&L - isolate institutional costs, program (or service) costs, and true business costs
      • Increasing efficiency helps Rebuild find ways to drive down the business costs to lower the price of the product.  This helps them stay competitive be successful.

Nonprofit Social Enterprises - Advantages and Disadvantages

  • Undercapitalzed - due to form/structure, it's hard to get the funding and/or upfront investments
    • At a competitive disadvantage, corporations can tap into traditional investors
    • Especially true for investments in equipment and technology that are necessary to compete with business
  • Identify the opportunities as a nonprofit - important to take advantage of these programs.  It doesn't offset the challenges, but it helps.
    • Some tech companies donate free or deeply discounted products to nonprofits
      • There are no hard costs, so they are able to provide value to the nonprofit community without sacrificing their bottom line
      • Incentives for them too
        • Gives them an opportunity and market to test their product
          • Find (and fix) any bugs
          • Get feedback from users
          • Helps their marketing - nonprofits are poster kids for the products, services, and values of these companies
    • Marketing plan can depend on internet, search, and email marketing - opportunities to expand business across country

Mission is an asset and a liability

  • Nonprofit stigma
    • Some customers will question your ability because you are a nonprofit - assumptions about the business and management skills of a nonprofit
    • With job training programs, like Rebuild, the mission can also be a barrier for potential clients 
      • Can people in recovery do the job?
      • Intentionally high turnover as employees transition to long-term jobs
    • More of an issue with B2B (business to business) sales than B2C (business to customer)
      • When you sell to someone at a company, you have to convince many more people than if you're making a sale to an individual
        • Dealing with boss(s) and committees
  • Talking about mission
    • Information about mission and organization always available on the website or if someone asks, but it isn't what you lead with.
    • If you bring it up too early, the customer may question whether or not you can do the job or think you're hiding something.
    • During sale discuss:
      • Price point
      • Service
      • Value
      • Quality of product
    • Bring up mission after the sale
      • Send them a video or other collateral that's really touches the heart, they feel great about the purchase they just made.
        • You already gave them a great product and experience
        • They got what they wanted
        • Something extra - they are doing good at the same time
      • The combination of great product, service delivery and mission helps create a lasting relationship
      • Identify service aspect - you cannot assume people know who you are and what do just because you are an established nonprofit organization
        • Establish and claim that value
  • Sometimes mission will get you in the door, but then you must provide a great product
    • Genesys Works uses high school students to provide IT services to businesses
      • Companies are interested in hiring them because they are helping nurture their future workforce
      • Have to provide great service, in the end your clients don't care about the mission, they care that they are getting a good return on their investment - a quality product or service for a fair price
    • Growth and success (and in turn ability to deliver on mission) is tied to quality and performance

Competition Can Improve Performance

Competition (real or perceived) can be a genuine benefit.

  • Forces you to have the right price point
    • Pull apart the pricing structure
      • What does it cost to produce?
      • Identify business costs and mission costs
  • Competition holds you accountable
  • Your clients are aware of the competition - their products, services, pricing - important for you to keep up to date
    • You could create a comparison chart to help make the case for your products
      • Don't just compare apples to apples
      • Contrast what you offer in comparison to your competitors - be sure to identify any added benefits or unique features
        • Products
        • Services
        • Pricing
        • Values
      • Laying out the full spectrum of choices is providing a service/added value
    • Helps you articulate what makes your business unique
    • Frame the products/services/price from the position of your values
    • Then clients can weigh all of these factors and make decisions based on their priorities

Who is Your Competition?

  • Varies 
    • Small to mid-sized businesses
    • Other nonprofits
    • Internal employees
      • Some social enterprises provide contract services
    • May or may not be limited by geography
  •  Arc & Goodwill
    • Perceive competition retail (versus other resale outlets)
    • Customers shop their stores because of price and selection
    • Goodwill has made some interesting management decisions to help their stores compete
      • Visual merchandise managers
      • Secret shoppers
      • Shop the competition
  • Ebbs and flows with the market
    • For example, right now resale is thriving while retail is faltering. Market demand may shift as the economy recovers.
    • Thoughtful growth is important
      • Meet current market demand
      • Able to scale back if necessary
  • For profit competitors may think nonprofits have an unfair advantage
    • Don't pay taxes, receive donations, etc
    • Suggest to for profit competitors, try becoming a nonprofit:
      • Get a board
      • Find a mission
      • Invest any profits back into the organization (rather than making a personal profit)
      • What business would want 400% turnover as a goal/measure of success? Or actively training employees for their competitors?
    • Some competitors may be donors or underwriters
      • "Get out of the business of making life hard for me"
      • Even if you think their concerns are overblown, you may want to handle them delicately for PR reasons
    • Perception versus reality

About the Host

Rebuild Resources is a social enterprise that helps recovering alcoholics and addicts build a healthy and stable future.  The business enterprises provide meaningful, transitional employment for 3-6 months in entry-level positions for men and women completing treatment and living in halfway houses.

  • Operates Manufacturing and Custom Apparel and Promotions businesses.
    • Aims to earn 80% of its budget from its business enterprises - they are economic engines for the organization.
  • Provide real-life work experience at a range of skill sets to prepare student-employees for long-term employment and a productive life in recovery.
  • Also provide services to help student-employees focus on recovery and re-entry into society - these services comprise 13% of their time "on the clock" (and are subsidized by philanthropic support)
    • In house AA style meetings
    • Life coaching
    • Aggressive job search program