Stealing Smart: For-Profit Best Practices for Nonprofits
Among the ever-evolving buzzwords and old debates in the nonprofit sector, a new concept has entered the fray: running your nonprofit like a for-profit.
This conversation is natural. The nonprofit space continues to become more and more professionalized, with many people setting out on careers in the industry as opposed to "just falling into fundraising" or the like, as so often used to be the case. With further education both at the collegiate and professional levels for nonprofit professionals, this progression has become innate.
Add the influx of business professionals entering the nonprofit field or partnering with nonprofit organizations, and you see more and more "business practices" getting adopted by nonprofits.
That doesn't necessarily mean nonprofits should actually run like a for-profit. That would be problematic on many fronts — namely that for-profit entities are out to increase the bottom line and appease shareholders, while nonprofits are out to achieve their missions and serve their constituents. Just ask Nonprofit Coach radio host Ted Hart, CEO of Charities Aid Foundation (CAF) of America and president of CAF Canada.
"It's a very silly notion to say a nonprofit should run like a for-profit," he says. "The very fact that it's nonprofit means it is separate from a corporate entity — there are no shareholders, there is no profit margin, etc.
"On the other side, it's equally silly of nonprofits who do not immerse themselves in good business practices. Still, there is a world of difference," he adds. "Running a smart nonprofit does not mean running as a for-profit any more than running a well-meaning for-profit means running as a nonprofit."
The key distinction is that there are best practices in management and marketing that the business world has developed over years of testing and research. Given the large budgets of corporate America for marketing and research and development, the learnings from companies can be invaluable to nonprofits that do not have quite the same financial flexibility to do the same. As Hart says, it's silly for nonprofits to not immerse themselves in those good business practices.
"The common sense of running a smart organization that meets budget and earns its way is really what people mean when they say that nonprofits should run like for-profits," Hart says. "That means incorporating smart ways to manage budget well, manage people well, manage resources well — skill sets that unfortunately have not been seen as paramount in the nonprofit sector.
"People have risen to the top who do not bring those skills in some nonprofits, and the nonprofits are at a disadvantage for that reason," he adds.
So what are these best practices nonprofits can "steal smartly" from for-profits?
If you don't have a plan, it's difficult to achieve any goal that's set forth. That's why so many nonprofits spend lots and lots of time in meetings labeled as strategic planning.
Unfortunately, these "strategic planning" sessions aren't really strategic at all, at least not according to what author and consultant Ben Delaney, founder of CyberEdge Information Services, has seen during his career. Delaney entered the nonprofit sector after years of working in marketing in the business world, and his experience on both sides of the fence — as a board member and former executive director on the nonprofit side and marketer on the for-profit side — opened his eyes.
"I see nonprofits go through strategic planning exercises often wasting days and days of executives' time developing big plans for the next three, five, 10 years," he says. "Often these plans are not truly strategic but long-term, tactical plans."
"You don't know who's going to be working there in 20 years, but you know the departments you have. So you must ask yourself what do you do now that keeps us on the path to our goals and helps build our strength to those goals," Delaney says.
It's the difference between goal setting and achieving goals. Nonprofits are often very ambitious in their goals, but many times they lack the true strategic planning to accomplish those goals.
Delaney lays out the example of a nonprofit organization that feeds the hungry. Strong strategic planning would look at whether more or fewer people will need to be fed — and how many more or how many fewer. How much money is needed? Is the organization's kitchen big enough, or does it need to open a second kitchen?
"These are strategic ideas that a nonprofit has to think about in addition to measuring the day-to-day activities," Delaney says. "… Some nonprofits tend to get so lost in the weeds that sometimes they lose track of where they're really going."
That's where the strategic plan comes in. It looks at not only what the organization is doing, but how what it's doing today affects tomorrow … and how the needs of both the organization and its constituents will change in the future. Then the foundation can be laid for the steps the organization needs to take.
Once a nonprofit has its strategic plan, it's important to periodically and continually review it to make sure the strategic plan is working. Delaney suggests reviewing the plan every six to 12 months, making sure every activity the organization does makes sense for the plan — and that the plan still makes sense for the organization.
"Lots of nonprofits spend lots of time chasing money and get off mission. Here's a grant; let's do that … no, let's do this instead. It divides an organization's energy and reduces effectiveness," Delaney says. "You need to make sure it all fits together. It's really important to stay on track."
The amount of marketing research that has been done over the years in the commercial sector is staggering. Thanks to technological advances that many for-profits are quick to adopt and test, there are all sorts of lessons the for-profits have already learned for nonprofits when it comes to marketing.
The most obvious is knowing the audience. Big companies from Coca-Cola to Comcast to Disney know their customers like the backs of their hands. They build customer profiles and personas, using data to both understand and then market to their audiences, tailoring messages based on behavior, preferences and makeup. Nonprofits should be doing this too.
"Many nonprofits don't have a good demographic profile of their donors or prospective donors," Delaney says. "They might know foundation donors, big donors, but it takes a while to really understand individual donors. … The better you know donors, the better you can talk to them, write requests that really strike home."
That means having the right people in the right seats to gather information from donors. Nonprofits must solicit feedback and utilize the data they collect in the same way for-profit companies survey consumers and note their interactions and behaviors with their brands.
While nonprofits are really good at evaluating the impact of their activities on the recipients of their services — i.e., built this many houses, fed this many people, saved this many animals — most aren't as good at understanding and relaying how those hits to the website were driven and what actions led to a donation. Tracking data and the donor journey is critical in retaining and acquiring donors — which is why for-profits spend so much time and effort understanding their customers and mapping their paths to purchase.
When it comes to actual marketing, no one is better than the commercial world. Christine Rizk, co-founder and president of charity re-commerce destination Fashion Project, says providing clear storytelling and showing impact are keys to successful nonprofit marketing — just as they are for for-profit companies. Big brands like Apple are great at relaying stories in their ads, visually displaying the impact their products have on the people who purchase them. If you buy an iPod, you'll have a richer, more convenient music listening experience, for example.
That's the type of marketing nonprofits must do too. Then, allow your donors the freedom and ability to share those stories.
"Show a really personal story," Rizk says. "We worked really closely with NEADS, which provides dogs for people who need help through support dogs. NEADS shared the personal story about a woman who lost a limb in the Boston Marathon bombing and told such a touching story about how her dog really helped her on a practical and emotional level to feel excited and feel ready to grow after her injury."
That story resonated with NEADS supporters and Fashion Project customers, just like the emotional, compelling advertisements during the Super Bowl, for example, appealed to consumers' heartstrings.
Another thing that many brands do so well is allow their customers to share their stories — namely through social media. Rizk says that is an important component too for nonprofits, allowing donors and supporters to share their experiences with your mission to amplify your message and open new potential streams of donors.
Expanding beyond these basic marketing best practices, remarketing and retargeting have become very popular in business marketing, says Himanshu Sareen, founder and CEO of website, apps and software platform builder Icreon Tech.
Remarketing is essentially an online marketing technique that enables advertisers to reach out to visitors who already visited a website with customized, personalized experiences.
"Companies like Target and Walmart do this on a regular basis — taking what you've done and retargeting that experience to the customer," Sareen says. "… Targeting and retargeting helps customize the message in a way that doesn't feel impersonal.
"It's changing the face of how businesses interact with consumers, and it's changing the face of how nonprofits interact with constituents," he adds.
It's about leveraging the technology and truly becoming a data-driven organization.
Boards and management
With a focus on the bottom line, for-profit companies really take a look at where they spend their money. Many nonprofits don't spend their funds with such a watchful eye and as a result spend money in the wrong places, according to Delaney. That's doubly harmful for nonprofits, which typically don't have budget to waste.
"The key is not not spending money; it's spending the right money in the right ways," Delaney says. "Nonprofits should be aware of the impact they get from the money they spend the way for-profit business are.
"It's something that startups in the tech field get. They don't waste lots of money on things that aren't going to move them forward. Nonprofits shouldn't either," he adds.
Budget and marketing can both be enhanced by tapping the board of directors. The corporate world relies on the board to make many tough decisions and steer change. The same can be true at a nonprofit, but board members have to be utilized in the right ways. After all, board members want to be involved, otherwise they would not have accepted the role.
Delaney suggests including board members in some of the marketing functions of the organization. Many board members have a background in marketing, and they should be the day-to-day ambassadors of the organization.
"I've found that organizations that connect the marketing department with the board of directors can really leverage their messaging more effectively," Delaney says.
Of course, the board is there to approve budgets and deal with public relations, and no topic is hotter in the nonprofit sector than overhead.
In the business world, people fundamentally understand that companies want to invest in their staffs to get the best of the best, yet when nonprofits do the same, it's often frowned upon. It takes good people to run the best nonprofit, and good people cost money.
Rizk says nonprofits must be transparent in their need to spend money on overhead — and explain that it's not a bad thing. Relating it to donors in terms of running a for-profit business is one way to do that. It's all about being clear and honest in spreading that message.
At the end of the day, not everyone will be convinced. And as Hart says, nonprofits and for-profits cannot really be run the same way.
But with the nonprofit sector becoming more professionalized and donors demanding the type of relationships they have with for-profit brands, every nonprofit can take some lessons away from the other side of the coin to run a more efficient, more effective organization.