How to Run Your Nonprofit Like a Business, Part 1

A few days ago I received a phone call from a business acquaintance. In the course of the conversation, he talked about how frustrating it was to serve the nonprofit community when some organizations act so unprofessionally toward his firm. I replied that just the night before, in the final class of the semester for the graduate students I teach, I had gone over the 20 things that—if they forgot everything else—I hoped they would take from the class. One of those learnings was, “A nonprofit is not a business. But if you don’t run it like a business, you will go out of business.”

Over the last 37 years, I have worn a number of “hats” related to the nonprofit community. I have served on multiple boards. I have worked for five nonprofit organizations. I have donated to dozens of causes, being part of monthly giving programs, sending in the occasional gift, and even making a few donations that were considered major-donor level by the recipient. And I have been a business person catering to the nonprofit marketplace. This is not about bragging—it’s just to establish that I have some credibility related to what I write about.

Some of you may be offended that I said a nonprofit is not a business. Others may be offended that I said they have to lower themselves to the level of a (gasp!) businessperson. So by way of explanation, first, you are not a business in the sense that you do not have to meet the expectations of investors and analysts who primarily are interested in your financials. Your bottom line measurement of effectiveness is mission fulfillment. Secondly, there are many principles of business that you have to follow to remain viable, not the least of which is remaining financially solvent so you can invest in mission fulfillment. You also need to deliver on your commitment to various groups of people:

Board: When you ask someone to be on your board, you are asking them to loan you his or her name and reputation, not to mention invest his or her time and talent. Included in the “10 Basic Responsibilities of Nonprofit Boards” is “provide proper financial oversight.” Board members are said to have fiduciary responsibility, which means that they are entrusted, legally, with managing someone else’s money. In essence, they are entrusted by your donors, large and small, to make sure their money is being used to do what the donor expects it to do—fulfill your mission.

When you fail to give board members full information, complain if they do more than rubber stamp your desires or basically take the “just trust me!” approach when it comes to justifying your budget, you are essentially asking these men and women to betray the trust your donors have placed in them. You are asking them to trade their reputations for your agenda.

Relationships with boards should not be contrary, but neither should they be only harmonious. Give-and-take often will yield the best results in the end. It’s not a personal attack when your board questions you; rather see it as an opportunity to sharpen your strategy. (If your board truly is dysfunctional, that’s another story outside the scope of this article.)

Someone once told me, “I have 100 ideas a day, and 95 of them aren’t very good. Your job is to identify the five good ones and make them happen.” That’s your board’s job, too. Free them to do their jobs and you will be far more successful in doing yours.

Staff: There are a few things for which I will fight to the death—things like “you are not the target audience” and “you have to spend money to raise money.” You can add to that list, “Individual staff members at a nonprofit organization are not interchangeable parts.” Yet too often, a person’s resignation is viewed like running out of milk—“Hmm, I better pick up another major gifts officer.” I can’t prove it with research, but I can’t help but wondering how much more an effective nonprofit could accomplish if it wasn’t constantly investing in recruiting and training new staff because of avoidable turnover.

Aaron Hurst, chief executive of Imperative and author of "The Purpose Economy,” recently wrote (subscription required), “According to the Workforce Purpose Index, 57 percent of those who work at nonprofits report low levels of fulfillment and satisfaction in their work. How can we expect nonprofits to fulfill their role in society if their own workers aren’t thriving?”

“We do good things” is not enough to attract—and more importantly retain—good employees. And “doing good” is no excuse for treating employees poorly. Your employees are valuable, beyond even their skills. A rockstar employee is an ambassador, a recruiter of other talent, a valuable link in your donor satisfaction chain, and, yes, a potential donor. Help those employees continue to find purpose through their work, and they will continue to give you their best selves.

Next week, I’ll talk about delivering on our commitment to two other groups: donors and outsiders. Meanwhile, this old dog encourages you to think about where your nonprofit organization could benefit from injecting a good dose of business acumen.