Monday, June 4, 2012

A Hosted CRM Solution for NGO Business in Palestine

This business idea aims to reduce the cost and improve the efficiency for business development (project acquisition / "sales pitches") for NGOs. This aim is to be achieved through a "Palestinian Donor Directory" that provides a wide range of information and services that help NGOs to acquire new funds efficiently and effectively.

What is "NGO Business"?

Development aid constitutes around 20-30% of the Palestinian GDP. As percentage of GDP, that is much less than for example Afghanistan, but measured per capita, it is among the world's highest of maybe 500-800$ per capita. Part of that goes into infrastructure and procurement, or salaries of around 150,000 civil servants, while another, quite significant part is channelled into local implementing agencies and NGOs that employ an estimated 20-30,000 Palestinians.
If you are from Europe, you might expect NGOs to operate like Greenpeace, with many politically motivated volunteers and unpaid interns. In Europe, it would be unthinkable that Greenpeace salaries are better than Mercedes or Bosch. Palestine is different than Europe in many ways, and a significant portion of the educational elite in Palestine is employed in NGO business with very competitive salaries. Actually, some Palestinians are complaining that young graduates from western countries are taking away their jobs in NGOs with their underpriced salary expectations.
NGOs in Palestine receive only a very small portion of their funding from direct donations of people or companies, but instead they act as implementers, service providers or consultants on behalf of a versatile landscape of institutional donors. I'm not saying that Palestinian NGOs are lacking intrinsic motivation, or that they are greedy. It's just that due to the market size and the funding mechanisms, their work has a stronger business character than elsewhere in the world.

Optimizing NGO Balance Sheet

While private businesses are streamlining their operations towards optimized profits, NGOs don't pay dividends to shareholders, and most are non-profit, but still they like to generate internal profits from projects that can be used for core staff salaries, for office infrastructure, cars, secretaries, business trips for management, rainy-day funds, and many other things.

Many donors give contracts that separate project cost from overheads. For example, a contract limits overhead to 8%, so most funds have to be disbursed project-related, and only a small portion can be used for management, for headquarters infrastructure, and business development -- this overhead is always the most scarce and precious portion of the funding. So optimizing an NGO balance sheet means creating a slim management, slim office infrastructure and slim business development. Managers anywhere are not inclined to cut their own salaries, and it is nice to have a secretary and a comfortable chair, so why not focus on cutting cost in business development?

Just like a consultancy company, many NGOs invest significant funds and energy into business development, to keep the project pipeline filled, so that they can choose the projects that best fit their portfolio, and to have a better negotiating position for each of the contracts. This is where a "Palestinian Donor Directory" has a good potential to save staff cost and improve effectiveness of business development.

Another balance sheet optimization strategy is double-selling projects. NGO business usually doesn't produce a tangible product that is transferred to the client, but instead it sells development impact. The same impact can be sold to two clients without additional efforts. Just as consultancy companies sometimes double-sell their staff working hours, NGOs can double-sell their staff efforts, and sometimes even their procurement efforts if the clients don't demand submission of tax invoices for all expenditures. So, it is valuable for NGOs to know about the administrative procedures of donors. Donors that do pay staff efforts are usually more profitable, and donors that don't require submission of original tax invoices can also be more profitable.

What Information Should a Palestinian Donor Directory Contain?

LACS maintains a phone book with all contact information of OECD-DAC donors, which constitutes about 2/3 of Governmental development aid, and maybe half of total development aid. That phone book is structured by sector, and gives a good starting point. However, it is provided for free, and you definitely need to add some value to make NGOs pay for it.

First and most obviously, you need to make it as comprehensive as possible, so include all Gulf state donors, include international NGO donors, include private donors (Bill & Melinda Gates Foundation and such), etc.

Then, you need to add keywords that each donor usually likes to hear when talking about project proposals.  So "gender sensitivity" is the most obvious example for most DAC donors. Some might like "rural development" while others prefer "human rights" aspects to be covered. Some might call for "democracy", while others put it more mildly as "governance" or simply "state building". Gulf donors may have a preference for humanitarian aid or islamic schemes like zakat projects etc, while western donors tend to like things being "sustainable" and "empowering". Sector-specific, there is a lot more keywords to be added if you know the specialities of each. And knowing the personal preferences of the decision makers is worth even more.

Another added value is an overview about ongoing and completed projects. On one side, NGOs could get an impression on the rationale of project design and typical project sizes. In addition NGOs could see when is the right time to contact someone (during the end phase of a running project, where some donors may be unsatisfied by the competing NGO, giving a chance for a new player to enter).

As mentioned in the previous chapter, the administrative procedures are very valuable information to optimize the balance sheet. That includes information on how a contract is won, what overhead can be charged, which cost categories are eligible for reimbursement, and what proof of expenditures have to be presented, etc.

The Business Model

With an expected market size of maybe 200-500 NGO clients, one needs to find a way to create significant revenues per client through regular updates and a subscription scheme. If you provide very valuable information, you'll be able to charge maybe 20$ per month for small NGOs and 100$ per month for large ones -- that would create annual revenues of between 50.000-180.000$. Enough to run a website, hire a programmer and a secretary.
In addition to the standard services, you could offer premium services, like arranging sales pitch appointments, and consultancy on a sales strategy, service of drafting an offer according to EU requirements etc. to create additional added value.

To get some inspiration on how another site on development business looks like, check
Here is another site specific to Palestine, but so far contains only basic contact info:

In the start-up phase, you could concentrate on providing a comprehensive list of job offerings and project tenders in the development sector that you provide for free. With enough audience, you can start the money-generating business of providing the donor directory with all the added value services.

Abuse prevention. If you make information expensive, you have to prevent copying. A good approach is to provide an on-line subscription which can be viewed on-line only, with regular updates, to make copying hard. You can do some plausibility checks to check for abuse of accounts (like cookies, IP addresses, java or flash apps etc.

Another way to prevent abuse is to integrate the donor directory with a hosted CRM solution like salesforce. There is a salesforce partner that has recently established linkages with Palestine you might want to talk to. The entire platform could be well implemented as a salesforce module. Instead of a monthly subscription, you could work on business models of pay per lead, or actually pay as a percentage of contract volume acquired.

Positive Side-Effects for Development

Today, in most sales pitches of NGOs with a donor, the NGO will say that they are the only one in Palestine who does this (be it rural women empowerment, or whatever else may be on the agenda). Donor staff tends to believe in this, because they fluctuate every 3 years or so, so they are hardly exposed to the entire market. That creates a negotiating position of a supply-side monopoly for the NGO. Monopolies tend to increase prices, and are not good for quality either.

The donor directory would give NGOs better access to decision makers at donor institutions. So donors would be exposed to a greater variety of implementers, increasing competition, which may result in positive impact on aid effectiveness. De-monopolizing the market can decrease prices and improve quality.

Prepare to Face Resistance

A large part of ODA is partner oriented in line with Paris Declaration, therefore PA institutions often have a strong saying in which implementation partners to choose. Those governmentally chosen NGOs enjoy a certain supply-side monopoly, enabling them to increase prices, while they have to watch carefully to behave PA-friendly in all their steps.
So this part of the monopoly is hard to break up -- and PA may be punishing attempts to do so. So the focus should be on those donors that enjoy more freedom, and those sectors that enjoy a not-so-tight grip of PA in steering donor funds.

There are a few top-dog NGOs in each sector that have good networks with donors on one side, and good linkages with the relevant PA institutions. They will not be amused if competitors try to take away their market shares. So some might try to prevent you from making their well kept business development secrets widely available.

Your advantage is that actually this information is not really secret. Donors are more open in communicating their funding commitments, their strategies and implementation plans. You could work as an agent on both sides, talking to donors presenting them the variety of NGOs active in that field, and selling the information about donors to NGOs as sales leads.


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