Defining Your Competitive Advantage

It’s unfortunate that social change organizations tend not to think about competitive advantage as it relates to social impact and growth; far too many nonprofit organizations view competition as something reserved for the for-profit world. Many think their competitive advantage is simply a rephrasing of their mission statement (i.e. our advantage is that we serve those in need). But the fact is that all organizations are competing for something—whether it’s market share, or more attention from clients or donors.

The Nature Conservancy (TNC), for example, competes for land; when a new parcel of land is up for sale, TNC tries to outbid competitors (private developers or other conservation groups) on land for conservation. Teach for America (TFA) competes for new teachers—its recruiting sector aims to entice graduating college seniors away from lucrative job offers on Wall Street toward public service. Even “last resort” organizations compete for clients. The competitor for a homeless shelter, for example, is a park bench, or a night on the street—viable alternatives for those who don’t want to (or who aren’t physically able to) wait in line. Homeless shelters must “outperform” the competitor by offering a better alternative for homeless people, offering superior amenities, convenience, and location. At first glance, these examples are contrary to what we might think. After all, clients will take advantage of social services regardless of whether the organization knows what its competitive advantage is, right?

New programs are started all the time without a good understanding of competitive advantage, and as a result, many fail to meet their desired outcomes. Baby University (Baby U), based in Cambridge, MA, is a great example of a new organization that took steps to find its competitive advantage and is now successfully meeting its goals. Baby U offers free parenting skills workshops modeled on the success of Geoffrey Canada’s Baby College (part of the Harlem Children’s Zone). Through weekly workshops, playgroups, and home visits, Baby U helps parents strengthen their parenting skills. Its competitors include church groups, social workers, and other social services. The organization didn’t have a cost advantage—other parent skills services in the area were free too. But Baby U had three things its competitors did not: 1) a proven model to increase parenting skills, based on the success of Harlem Children’s Zone; 2) weekly incentives for the parents in the form of gift cards to grocery stores and a raffle cash prize; and 3) a sense of community that stays with Baby U families after they graduate from the program. The Baby U alumni families still receive quarterly home visits and are welcome to attend a variety of Baby U events. Baby U staff is comprised of Cambridge residents; thus, it is a program in which neighbors are learning from neighbors and collaborating in ways that are not often found in urban social services. Once the Baby U staff shared these three advantages with potential clients, its classes filled up.

Once you start thinking in terms of competitive advantage, the next step is to identify what, exactly, your advantage is. As a social change organization, it’s easy to think your advantage is as simple as what you do, but the definition of competitive advantage is the attribute (or combination of attributes) that allows you to outperform your competitors. Your competitive advantage is what will allow you to achieve your mission. You can either compete by differentiating your organization from your competitors (differentiation advantage) or by delivering lower-cost products (cost advantage). Most nonprofits, our own financial services organization Capital Good Fund (CGF) included, deliver different benefits than the marketplace provides, creating a differentiation advantage. Some of these benefits also happen to be lower cost (for example, our loans are less expensive than loans from payday lenders), but that may not be your main competitive advantage. So how do you determine what your competitive advantage is? We recommend setting up a strategy session with your staff, board, and major constituents. The Foundation Center provides a handy toolkit to help determine your unique competitive advantage, whether it’s cost leadership, differentiation, innovation, operational effectiveness, or customer-orientation.

We did this exact exercise ourselves and came up with three qualities that compose our organization’s competitive advantage. For business, our competitors include credit card companies, payday lenders, and rent-to-own stores. For funding, we compete against other nonprofits. We also compete in a kind of marketplace for ideas—lots of people have thoughts on how to tackle poverty, and we want our approach to be heard and for it to influence policy and funding decisions.

Unlike other financial service nonprofits in our area, we partner with anchor institutions such as local universities, the state treasurer’s office, a local school district, Americorps VISTA (Volunteers in Service to America), and local employers to improve our productivity, quality of employees, and client satisfaction. We also strive to incorporate beautiful, human-centered design into all of our operations, products, and services. The concept of using financial services as a poverty-fighting tool isn't necessarily obvious or easy to grasp, but through well-designed videos and promotional materials, we can help people buy into our work. (Good design often comes from good inspiration, and for a source of user-friendly yet beautiful design, we’ve looked to Charity Water’s website.)  Finally, we do data mining—the process of looking for patterns and meaning in large data sets—which gives us an innovation advantage. With data mining, we can not only increase our loan repayment rates, but also triage our efforts so that our clients will only receive the services they need to truly benefit. These relationships and tactics allow us to become more deeply embedded in our communities, raise more funds for our operations, and better serve our clients.

Thinking competitively has transformed our organization. We are smarter about what products and services we do and do not offer; we are clearer about how we tell the story of our work; and our clients are more satisfied with what they get from us. We bet this approach can transform your organization too.

Read more stories by Mollie West & Andy Posner.