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Creative Destruction

Creative destruction can help keep a nonprofit strong and relevant.

Creative destruction is the process of eliminating the current economic order to make room for a new structure. In the case of a nonprofit, creative destruction means rewriting the business model in response to changing external conditions. The changing conditions might be due to economic, competitive, social, demographic, cultural, legal and regulatory, or other shifts.

The phrase, creative destruction, implies a dramatic change. Dramatic change is sometimes necessary when a nonprofit is struggling. If you periodically make minor adjustments in response to changes in the external environment, adjusting the business model can be a gentle evolutionary process.

The business model defines how the logical segments of the organization interact. By analyzing each segment, it is possible to understand how the organization creates value, delivers services, and interacts with the community. Every organization (nonprofit, for-profit, and government entity) has a business model. Some are formally defined while others arise informally, are difficult to document, or are loosely supported by habits, traditions, and leadership preferences.

Dividing a nonprofit’s business model into 12 segments makes it easy to understand. Click here for an explanation of the 12 segments.

Before you decide to make changes to your business model, it is best to establish long-term goals (5 or more years into the future). It is easy to plan the changes to a business model. It takes time to implement the changes because of the effect the changes have on the various parts of the business model.

Making only one change at a time in the business model is the wisest decision. The interconnectedness of the elements of the business model means any change usually has cascading effects.

Next Step:

Establish a long-term goal for your nonprofit

Determine how to change the business model to make achieving the goal easier

Determine which segments of the business model must lead the change process

Keep your business model current by surveying the external environment regularly and make minor adjustments in your business model periodically

Fine-tuning your business model is one way to strengthen your nonprofit and improve its sustainability. Because the fine-tuning better aligns your nonprofit with its external environment, it also helps to improve the appeal of your programming. More appealing programming means you can touch more lives by increasing your capacity to serve and client retention.

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