Should Nonprofits Operate Like For-Profits?
In a pre-coronavirus world, many nonprofits operated annually like airplanes flying on autopilot. They would defer to the same unchanged operational plan or look to utilize a strategic plan when it was fashionable to do so. I asked several nonprofits about having a strategy plan. They either had an old plan or a group of external individuals were charged with creating a new strategic plan without the input of internal key organizational leaders. The arrival of the coronavirus has forced nonprofits to wake up and reevaluate processes, strategies, goals and operations. This should be a unique time for nonprofits to consider thinking in different ways.
According to the National Association of Nonprofit Organizations and Executives, pre-COVID data suggested that approximately 30% of nonprofits fail to exist after 10 years. There are over 1.5 million tax exempt nonprofits in the U.S. That number is certainly higher at this point.
Seven reasons why nonprofits fail is:
- 1) Empty optimism: Lack of a sound business plan.
- 2) Values vacuum: Poor organizational development that lacks values and trust.
- 3) Competitive blinders: Lack of realization of competitors and adjustments to compete.
- 4) Iced innovation: Lack of ability to innovate and knowledge to change when the market changes.
- 5) Mission creep: Too many directions, no mission clarity, diffused expertise and donor confusion.
- 6) Misplacing priority No. 1: The focus on having money is more important than mission.
- 7) The data conundrum: Lack of concise data to guide planning, analyze management systems, etc.
Nonprofits also fail due to not having adequate leadership, poor social media focus, poor planning, weak accounting practices, no marketing programs and lack of overall organizational vision.
The Balance noted that the term nonprofit leads to a misunderstanding of what charitable organizations do and the role they play in our society. It is not about having or not having a profit. What makes an organization a nonprofit has to do with purpose, ownership and public support. Nonprofits have a mission, public ownership and income that is distributed back to the organization.
It also noted that a for-profit generates income for its founders and the profits are shared with owners, employees and shareholders. There are many nonprofits other than charitable ones that exist in the U.S. Businesses employ paid staff while nonprofits have a workforce of both paid staff and volunteers, many of whom become great donors. Nonprofits seek to make profits through pursuing public benefit purposes, controlled by a board of directors and accountable to the public.
Modern Nonprofit states that nonprofit should be run like a business. While driven by a mission with social impact, nonprofits must invest in their companies like the business world to achieve the greatest impact. Nonprofits need to invest in their staff by having quality recruitment programs, high-level organizational culture, benefits and decent salaries. Nonprofits also need to invest in quality technology for communications, fundraising and constant analysis of data.
Organizations need to invest in marketing and brand awareness, well-designed websites and networks to share campaigns. Donors must be treated as loyal customers by under-promising and over-delivering. If donors experience a problem, provide them with customer service as a business would provide. Seek to obtain quality innovation, take risks, generate ROI and apply business principles for maximum success.
Forbes Nonprofit Council provides 12 effective ways to operate a nonprofit like a for-profit business. The Council feels nonprofits have a responsibility to their community and donors to be successful. If you run your nonprofit like a for profit business, you can ensure you can meet revenue goals each year. The 12 effective ways to operate a nonprofit like a for-profit are as follows:
- Raise funds and save money.
- Speak the same language.
- Focus on ROI.
- Run your nonprofit like a startup.
- Generate revenue through corporations.
- Do not ignore expenses.
- Match costs and benefits.
- Make the mission itself portable.
- Make investments in member needs.
- Use data to make decisions.
- Be an ecosystem warrior.
SUMAC notes three reasons why nonprofits cannot operate like businesses. It states that many nonprofits bear little resemblance to a typical business. The nonprofit staff have different motivations and values as they care about mission and not just profit. There is a strong emotional connection as staff wants to make a difference for society. Nonprofits succeed because of volunteers.
These individuals must be handled with care. They all have a purpose and love the organizational mission they are serving. Many nonprofits base their revenue on soft numbers, those deriving from different forms of fundraising, special events and other means. For staff of a nonprofit, it is not only about the bottom line but the organizational impact on society.
Should nonprofits operate like for profits? Nonprofits should take the best attributes from for-profits that make sense and see where they can fit elements in the nonprofit model. Each nonprofit organization operates differently. Results must be maximized based upon best of class features. Every organization should learn from each other. In today’s world, mutual knowledge is critical for nonprofits not only to survive short term but thrive long term.
Editor's Note: To learn more about fundraising strategy, be sure to attend NonProfit POWER, a three-day virtual conference happening December 14, 15 and 16. Click here for more information.