I’ve decided to take on an issue that I find fascinating. Why is it that association members think the association should support their competing business? Why is it that members often think that the association should not only stay out of their way but also have an obligation to help them build their business?
So what specifically do I mean? Well most associations provide a set of services that often help to underwrite other activities. Associations don’t just randomly lurch from service to service but instead they plan strategically to meet the needs of members over the short, medium and long term. Services are developed and run according to strategy as the organisation builds its capacity.
Associations regularly cross subsidise parts of their business and rely on running profitably in a few key areas. Some classic examples include education and continuing professional development, conferences, advertising and endorsements. Some associations extend their services into business or professional support and general services for the industry. These are generally reasonable commercial activities for an association to do in support of their membership, with members gaining access to discounts and / or the benefits that are funded through surpluses. Even where an association makes a profit in some areas, they can’t do anything other than put those profits back into benefiting members.
From time to time, members decide to start a business that competes. Some examples I’ve seen in recent years include education businesses, conferences, competing service directories, product endorsements and business support. These have been started by members who have decided they have something of value to offer the market, and that’s ok because competition is a natural part of entrepreneurialism and enterprise. Often members cherry pick by focusing on the most profitable services and products and then rely on the association to supplement their business in costly, less profitable or even loss making activities. What’s fascinating is the inherent belief that it’s a requirement or even a responsibility of the association to provide the member access to the benefits of high cost activities such as member acquisition and marketing to provide entry into to market, at little or no cost. This is the point I’d like to explore further.
If an associations in to survive in today’s world, it needs to be run as a ‘profit for purpose’ business. It needs to behave commercially and strategically so it can invest in pursuing its broader purpose on behalf of members. That means deciding which services to sell to the market at a profit and which services to subsidise in pursuit of the purpose and on behalf of members. Often, the service that costs the most and that is difficult to fund is advocacy, media and awareness raising. Associations also invest significant amounts of money into member / customer acquisition and building the members base because the larger the member base, the greater the economies of scale and the more you can do for members.
An association however faces an interesting challenge. When is it in the interests of members to inform them of services available in the market versus leveraging the significant investment in marketing and member acquisition to derive revenue? This is where it becomes a matter of strategy and a matter for the organisation to weigh up.
An association must decide which markets and services it believes it can be a leader on or that help to support its mission. This will most likely be made up of services to the industry or profession albeit in some cases, associations run very commercial supply operations as well (eg. The Australian Pharmacy Guild have a significant set of competitive commercial businesses). Once it decides which areas of the market it will compete in, it needs to leverage all of the assets at its disposal to become a market leader. Anything less than this would not be accepted by commercial investors in pursuit of a financial profit and shouldn’t be accepted by members seeking the best possible return on investment and effort through the pursuit of the purpose of the organisation. Being a ‘profit for purpose’ organisation doesn’t offer an excuse for organisations to be strategically or competitively lazy, it simply means that the return on investment for members needs to be in the form of services and benefits for members.
So what does this mean for members who want to provide services to other members? I’d argue that they need to assess their market entry like any other business person. Buying some shares in Wesfarmers won’t force Wesfarmers to put your products on the shelves in Bunnings and if you told Wesfarmers that as a shareholder they needed to support your new online hardware store by promoting it, they’d promptly advise you what you could do with that idea. Wesfarmers have invested in building a business, establishing stores, advertising, acquiring customers and gaining a reputation. Associations have built an organisation, buying offices, employing staff, developing services, acquiring members, building a reputation, all in the interests of supporting an industry or profession and its members.
So should associations compete with their members? In the core business of the association and in areas of high strategic value – #absolutely. Associations owe it to their member base to get the best return on investment they can so they can provide better services and support for the members broadly. The membership deserves the best possible return on investment and anything less is negligent. In non-core areas, it’s reasonable for an association to supplement their offering by making members aware of what’s available, sometimes at a fee and sometimes without charge to a supplier. However, this is a supply channel just like any other. Just because Wesfarmers puts your product on the shelves today, doesn’t give a guarantee that they won’t change to other competitors or introduce their own brands where it’s in the interests of their shareholders. Associations may do the same.
So, my advice to associations is don’t be competitively lazy. Compete and compete hard on behalf of those that own your organisation – the members. My advice to members who want to enter a market is that you shouldn’t assume that the association is there to build your business. If you want to leverage the association’s assets then don’t expect other members to subsidise your access to the market. You need to take a commercial approach and think about contracting and paying for access in the same way you would if you were trying to put a product in Bunnings.
As usual, I’m open to discussion as I’m sure there are alternate views out there.