Doing Business with Nonprofits: the Good, the Bad, and the Beautiful

Three summers ago, just after learning that I had not gotten any of the internships that I applied to, I called my friend to see what he was doing over the summer. He frequently volunteered at the local mosque, and he mentioned that the mosque had lost a substantial percentage of their donations that month due to pledge forms with illegible handwriting.

“I can’t understand why they still use paper forms!” I exclaimed, and that conversation was the beginning of AOASoft (aka Masjidtime), a startup we created over the summer to provide digital technology to faith-based organizations, schools, and charities. Over the course of the next two years, we served more than 20 non-profit organizations, giving me insight into a rare type of business model: the B2N (business-to-nonprofits).

kiosk

A credit-card processing kiosk we installed in an Atlanta, GA non-profit organization

Like running a B2C (business-to-consumer) and B2B (business-to-business) startup, running a B2N startup requires you to design and sell your products in a way that is tailored to your market. Non-profits are rarely discussed as potential customers, so here are 5 ways doing business with them is different than doing business with other kinds of customers.

The Good

 High Success Rate with Referrals

After we signed up our first customer, a mosque in Roxbury, we were able to easily close the deal with 3 more that month, all of whom had already heard about us through word of mouth. Nonprofit organizations tend to have overlapping members and strong relationships with each other. Capitalizing on this is key. Encourage your clients to provide testimonials on social media and spread the word in person, and you’ll find that they are happy to refer clients without any monetary incentive.

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Low Competition

When we pitched to our first mosque, the imam excitedly called us into his office and showed us a magazine that he had saved with a picture of a credit-card kiosk on its cover. “I’ve been waiting for years for someone to make one of these for the mosques!” and he was sold. Non-profit organizations are often overlooked customers, so by focusing on them as customers, you may find that you are one of the few companies in your niche. This means you need to spend less time developing detailed persuasive marketing content, and more time reaching out to potential clients (ideally with referrals in hand).

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The Bad

High Customer Acquisition Cost (especially time)

Nonprofit organizations rarely have streamlined processes for purchasing products and services, which means that instead of just selling your product to one person, the entire board of directors or executive committee is the decision-making unit. Convincing these men and women, most of whom are volunteers, to take the time to study your product and make a decision can take multiple meetings, so the customer acquisition process easily spans months. Before going into these meetings, it helps to have at least one person already “on your side,” who can be an advocate for your company throughout the discussion, and even after the meeting is adjourned.

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Low Lifetime Revenue

If nonprofit organizations were able to pay high returns, then it would make economic sense to pursue them in spite of the time and money. Unfortunately, that is rarely the case. Nonprofit organizations seldom have the budgets to support “corporate rates” and are, in many cases, wary of long-term contracts, making the total revenue grossed over the customer life cycle quite low, as compared to for-profit clients. Nonprofits combine two of the hardest parts of a B2B and B2C business: high customer acquisition costs, but low lifetime revenue. Therefore, a successful B2N company should look for other ways to generate revenue, such as by monetizing data created on its platform.

B2N4

The Beautiful

Highly Satisfying Work

Despite the difficulty in running a business that caters to non-profit organizations, my work at Masjidtime was incredibly satisfying. For our 20 clients, we raised over a quarter-million dollars in donations, and the relationships we built with nonprofit organizations made me feel that I had a share in making their work and their missions come true. Even after we ended Masjidtime after two years, our clients wrote us touching emails thanking us for all of our work and wishing us the best of luck in our future startups. Those are the kinds of customers that it’s a genuine pleasure to have!

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2 thoughts on “Doing Business with Nonprofits: the Good, the Bad, and the Beautiful

  1. Abid,

    Assalamaolaikum.

    Really proud to hear of the successful business that you had set up. I would strongly propose that you do continue this route, of being an entrepreneur, because, we the muslim community need so much more of you!

    Looking forward to hearing from you on your next venture.

    Do let me know if you are ever in Riyadh.

    Greetings from Riyadh,
    Abdulla Sheikh.

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