Exploring the origins, ethics and future of changemaking

Do you get your market’s vote?

In Business Euthanasia on December 11, 2012 at 7:15 pm

Business is simple really – not easy – but simple. You create a product or service that offers value to a market, and that market acknowledges its value by purchasing it. If your product (or service) is not purchased, then you have to look at whether or how much the product is valued. In a way, customers are voters. With each purchase, the customer is voting for whether they like your product and/or your brand. You get lots of votes and you stay in business; you poll poorly and you are out of business.

Okay, so this is looking at business far too simplistically. There are many factors that go into a business working or not working. Indeed, you may well have a good product but haven’t figured out a way of marketing it or producing it at a cost that fulfills profit goals and a market’s price point. But that aside, let’s roll with our metaphor of the customer as voter.

This mechanism of voting/purchasing is based on a value exchange between the provider and the market. The business owner’s job is to be in constant relationship with the market to know whether or to what extent that relationship is healthy and there is a value exchange. If the relationship is healthy and the market perceives a fair value exchange, you are doing pretty well. Sales is a very clear feedback loop on how your business is tracking.

What about non-profits?

Small (and big) business owners know this and track sales constantly. It is like a doctor checking the businesses pulse (okay, no more metaphors). But what about the non-profit ‘market’? What are the mechanisms by which the ‘customer’ or ‘beneficiary’ votes for the service? How does a non-profit track its performance with regards to the people it seeks to serve?

It is interesting to even use the term ‘non-profit market’. We often hear about the ‘non-profit sector’, which is so self-referential that it identifies itself by its own legal status and relationship to others like it. The language doesn’t actually refer how the organisation or provider relates to the market it seeks to serve.

If a small business doesn’t provide a valued service, it will soon find itself out of business. Statistically we know this to be true, with very few small businesses lasting beyond their first three years. Some may suggest that it is not fair to compare small business with non-profits, but actually they face some very similar realities – challenges around financing, loads of competition, frequent market changes, fluid staffing.

The point here is that small businesses (I will get to big business in a later post) have a mechanism to tell them their service is no longer needed, and therefore lead them down the path of business closure. By what mechanisms or feedback loops do non-profits hear the voice of their customers or beneficiaries?

Now of course, many non-profits do evaluate their services; but the customer very often doesn’t pay for the service. The purchaser in the ‘non-profit market’ is very often either philanthropy or Government. It is not the user that they need to convince in terms of value, but the funder. Now this is not entirely fair, as the service provider still needs to market the service and convince the customer of value to get people in the door. The danger though is that evaluation can easily fall in the trap of not hearing from ‘customers’ to improve the service, but to improve the sell to the funder.

As I write this, I get the sense that this is a very big matter to unpack, and there are probably a bunch of paths I could take at this point including non-profit capacity, leadership and tools for evaluation. Given the theme in this blog series is about business closure though, I will stick with that for now.

At the extreme end of the spectrum, how would a non-profit know if it needs to close or its service is no longer necessary? There are many stories out there where parts of the non-profit system have more employees and organisations than people who they are seeking to serve. By what mechanisms does the non-profit system self-regulate if there is no market mechanism providing that input.

This is one of the dimensions in the stories I shared in Courage to Close: two non-profits take their next step. Now I am not suggesting that the non-profit sector is full of organisations that need to close – THAT IS NOT MY POINT. My interest in writing about this is to explore the market mechanisms by which non-profit leaders know that they are in a fair value exchange with the people they are seeking to serve, AND when or how would you know if business closure was an appropriate option?

Of course, social enterprise is one type of business that seeks to address this challenge. By bringing in a market mechanism, they are able to let the public ‘vote’ for their service. In the cases where social enterprises employ their target demographic, they also get this daily feedback loop around whether people show up and their level of engagement. We are starting to get into a totally different post, so I will leave the social enterprise story there.

I get that this is a controversial topic. I know a bunch that would agree with some of the sentiments here, but suspect there is also a bunch who would now want to lynch me. Let me know your thoughts. Challenge me if I have looked at this simplistically or could flesh out some of this.

In the meantime, be well.
Benny

This blog post is the third installment of a series exploring the ethical dimensions of business closure, including unpacking the idea of business euthanisation. You may want to check out the Courage to Close piece, or this fun advertisement Euthanize Your Business Today!

Feel free to sign up to the blog below if you are interested in more pieces around this topic.

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  1. […] topics: embracing failure and giving beneficiaries a voice. It was only after writing the piece Do you get your market’s vote? that I stumbled upon this TED talk by David Damberger – What happens when an NGO admits […]

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