Nonprofits Need Profit Too — What We Can Learn From For-Profit Businesses
“Nonprofit” is a misleading description of nearly 1.5 million U.S. organizations. The tax-code-defined term is as inaccurate as other famous misnomers, such as koala bears (they aren’t bears), fireflies (they are beetles), peanuts (they are legumes) and your funny bone (it’s a nerve).
Describing nonprofits by the one thing they don’t focus on leads many to think that business holds no lessons for us do-gooders.
But here’s the fact of the matter: Nonprofits need money to make social good happen. We just need to spend all our money on our mission and can’t give it to shareholders. Nonprofits do better if they can hire better people with higher salaries. More staff leads to more outcomes. Better buildings and supplies lead to higher quality services. Just like businesses. In other words, nonprofits must consider themselves businesses first before they layer on their unique, social-good-generating challenges.
If any of this grates, maybe it’s because you think of businesses as iron-fist-ruled, uncaring places where spaceship-purchasing amounts of money are made on the backs of people paid less than poverty wages. But the people-leading organizations that follow models like that are bad business leaders.
In my journey to turn around an ailing nonprofit over the last eight years, I’ve used six lessons from good, caring business leaders I met through my previous employer and as a business-serving economic development nonprofit. Follow these and you can start elevating the good your nonprofit can do:
1. Pay People More
Some wage loss is expected because of supply and demand — people want to do good with their lives so nonprofit jobs are in demand. However, expecting someone to earn a fifth of what they are worth on the market won’t lure good people. Pay more and reap the rewards of excellent talent. We need the best employees and leaders to accomplish what private industry cannot.
2. Be a Straight-Talking Truth-Speaker
Being disagreeable leads to a loner reputation that will cost you funding opportunities. But never sharing what you believe won’t solve problems. Establish that your organization will politely and kindly be a truthsayer, picking the right spots to say something insightful rather than employing an in-your-face, holier-than-thou style.
3. Make Culture Top Priority
Because everyone wants to give leeway to the inspiring missions of nonprofits, culture easily becomes complacent, overly nice (read: unaccountable) or toxic. As with for-profits, bad culture leads to poor talent and bad outcomes. Values that reverberate in hiring, onboarding, performance management and through consistent storytelling are pivotal. Use the extensive literature from the business world for tips and advice — the quest for good culture transcends profit motives.
4. Prepare To Sell Your Best
Relationships with funders, partners, clients and donors are analogs to business relationships with customers, shareholders and suppliers. All involve some sort of sale. Relationship selling, consultative selling, Dale Carnegie's habits, personality profiling, and for-profit tools used to help in sales relationships will be helpful to roles that require convincing someone of something. Ignore the stigma nonprofits assign to “salespeople.” Embrace that you are selling social good and build yourself a great sales team.
5. Use Measurement To Drive Results
First, ensure your financial and impact metrics are clear and understandable to your board and staff. Then quantify those things you think you can't quantify. Just like intangibles that identify cultural fit during performance reviews, social good can be measured. Even if it is subjective, measure your goals so everyone can align around success.
6. Fight Your Competition Fairly
Even admitting nonprofits compete is a shonde, because it implies donor money isn’t being spent optimally. There are limited grant pools, limited good board members and limited capacity for stakeholders to care. Businesses understand they are competing and (typically) fight fair through strategy and the best service delivery. Nonprofits often agree to work together while stabbing each other in the back with funders, partners and even customers. This toxic behavior ultimately undermines our collective credibility — so let’s agree that we compete and let the fair fight make us all better.
Don’t let our tax label limit how we improve our world-saving organizations. We can and should learn from business. Only then will we have the money to pursue our lofty social goals.
Ethan Karp is the president and CEO of nonprofit consulting group MAGNET, the Manufacturing Advocacy and Growth Network. Prior to joining MAGNET in 2013, he worked with Fortune 500 companies at McKinsey & Co.