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For-profit executives use business models—such as “low-cost provider” or “the razor and the razor blade"—as a shorthand way to describe and understand the way companies are built and sustained. Nonprofit executives, to their detriment, are not as explicit about their funding models and have not had an equivalent lexicon—until now. 

When a person says that a company is a “low-cost provider” or a “fast follower,” the main outlines of how that company operates are pretty clear. Similarly, stating that a company is using “the razor and the razor blade” model describes a type of ongoing customer relationship that applies far beyond shaving products.

The value of such shorthand is that it allows business leaders to articulate quickly and clearly how they will succeed in the marketplace, and it allows investors to quiz executives more easily about how they intend to make money. This back-and-forth increases the odds that businesses will succeed, investors will make money, and everyone will learn more from their experiences.

In the for-profit world, the term “investment” has clear meaning and investors have sophisticated techniques for spotting and growing the most promising companies. Yet foundations and other nonprofit donors have not developed similar clarity or approaches. As a result, the nonprofit sector’s greatest gems often languish well below their full potential. By better translating for-profit concepts, donors can learn how to scout out and grow the best nonprofits. Likewise, certain nonprofits can take a page from business’s playbook and learn how to attract cash for expansion.