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What Nonprofits Can Learn From Netflix

By Nell Edgington



Even if you aren’t a subscriber to Netflix (the DVD and online streaming video service) you have probably heard about how their bad decisions have cost them thousands of customers in recent months. Although a nonprofit might seem worlds apart from Netflix, there is still much to be learned from their debacle.

Unlike for-profit companies that have only one customer group, nonprofits actually have two. First are those customers to whom nonprofits provide services — their clients. For a homeless shelter these “customers” are their homeless clients. Their second customer group is those who pay for the services — their funders. So for nonprofits, customer management is much more complex. I would argue that nonprofits generally do a good job of understanding and taking care of their client customers. But their second customer group, funders, can sometimes get lost in the shuffle.

Which makes the lessons from Netflix even more important. Here’s what Netflix teaches us about taking care of your supporters:

Listen to Your Supporters
Netflix assumed that their customers were so in love with their services that a 60% price hike wouldn’t phase them. When customers flooded the Netflix blog and took to Twitter to complain, Netflix largely ignored their customer’s anger. Then Netflix was  shocked when customers started leaving in droves. Organizations make mistakes and will at times irritate their customers, the trick is to listen to your customers and quickly correct any missteps. This is particularly important now that social media is so prevalent and is often the first place people go to vent about an organization. Listen to your funders, volunteers, supporters and other community advocates wherever they are and respond to their feedback, concerns, ideas. Don’t build walls around your nonprofit and ignore the outside world. Meet people where they are talking about you and listen and engage in a conversation with them.

Understand How Your Supporters Tick
It’s not enough, however, to simply listen to your customers, you have to understand what they want and need. Netflix assumed that separating DVD rentals from online video streaming was no big deal to customers. Boy were they wrong. The introduction of Qwikster, a separate DVD-only service from Netflix, threw an already angered customer base into a tailspin. Netflix failed to understand how their customers operate. Having two separate websites, two separate passwords and two separate queues for movies was completely untenable to their customers. As a nonprofit you have to understand how your supporters operate and what makes them tick. What about your mission and programs appeals to your supporters? How do they want to be involved? Invest some time in getting to know your donors, volunteers, board members, friends, advocates and what makes them passionate about your nonprofit, how best to engage them, what they’d like to do to support the cause, and how to make it easy for them to do so.

Acknowledge That Your Supporters Ultimately Run Your Business
Netflix forgot that their customers run their business. Without customers, there is no Netflix. Similarly for nonprofits, you may like to think that you exist solely to achieve your mission, but you have no mission without a way to fund it. You cannot separate your mission from how you financially support it. You need to take a step back and understand what types of funding and funders your mission would appeal to (Is your organization a good sell to individuals? Is there an opportunity for school or other government contracts? Is earned income an option?) and then develop a plan for going after and sustaining those funders.

Figure Out a Viable Business Model
Netflix used to have a very viable, profitable business model. But movie studios have realized that there is more money to be made in content, so their financial demands on Netflix have increased dramatically. Which pushed Netflix to increase customer prices. Now Netflix’s business model is out of whack. I’m not a media content expert, so I have no idea what a viable business model is for Netflix, but I don’t think they do either. The trick is to figure out how to get revenue and expenses to create a net positive. For nonprofits, the same is true. Funders will be more likely to support a viable entity with a bright future. Get your financial house in order by aligning your mission with a way to bring sustainable money in the door and funders will be more likely to support you.

Netflix’s missteps have almost been painful to watch. But watch we must if we are going to learn how to avoid their pitfalls. Whether you run a for-profit or nonprofit organization, you must be ever-cognizant of your customers and constantly work to fully integrate them into a successful, viable financial model.

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About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.


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7 Comments to What Nonprofits Can Learn From Netflix

Charles kimanzi
October 26, 2011

I joined social velocity last week and am just happy of unearthing knowledge as am a social worker and working for an NGO in Kenya. I appreciate the posts and will be sharing with my colleagues whom we are on the same job.

Nell Edgington
October 26, 2011

Charles,

Welcome to the Social Velocity site, I’m glad you are here! And thanks for sharing the info. Let me know if you have questions. Thanks!

Pamela Grow
November 29, 2011

Great post Nell! I couldn’t help sharing the perverse kick I got out of re-writing one of Netflix’s recent email communications: http://pamelagrow.posterous.com/what-netflix-shouldve-said-6371

You’re so correct: nonprofit organizations need to be just as committed to funding their missions as they are to the mission itself.

Nell Edgington
November 29, 2011

Ha, that’s great, Pamela. I love your re-write of the Netflix email. Thanks for sharing!

D. Johnson
November 29, 2011

Responding to the almost constant news stories, events, and ads touting Hunger in America, I purchased (with my food stamps) $200 worth of groceries and prepared to donate them, The catch was that I wanted someone to help me clear the clutter from my office. This was not a monumental task. NO ONE from 3 churches and 2 food pantries called me to pounce on this offer. I am a burnt out, neglected customer. Scrooge- pre-ghosts- is going to seem nicer than me this holiday season. NON-PROFITS NEED TO BE NIMBLE!!

Nell Edgington
November 30, 2011

D.,

I agree that nonprofits do need to be nimble and figure out ways to engage and empower people in the community to build support for their organizations. However, at the same time I think donors need to be mindful of the very tight resources nonprofits have and not ask them to jump through too many hoops. It sounds to me like the nonprofit you contacted made a wise cost/benefit analysis and realized that $200 worth of food was not worth hours of staff time (because they can’t send volunteers to a non-organization site). I really wouldn’t fault them for this, instead I would argue that they were making good use of their resources. I hope you will still make your donation.

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