The business of nonprofits: issues often different

Chris Reddin
Chris Reddin

Debate often arises when talking about whether or not it’s advisable to run a nonprofit organization like a business. Some believe traditional for-profit business strategies are helpful in pushing nonprofits to deliver value. But others believe there’s little common ground between profit-driven and mission-driven organizations. In fact, both arguments are correct. 

Nonprofits should operate as lean, efficient, strategically-minded businesses to deliver as much value as possible to the “customers” they serve. However, nonprofits are far more complex than most of their for-profit counterparts.  “Customers” are not the sole drivers of financial stability and revenue is not the only measure of success. With many more moving parts and goals that aren’t connected to financial results, the nonprofit world can make even the most seasoned corporate executive feel muddled and confused. 

In an effort to try to explain how a for-profit mindset can view nonprofit issues, here’s a breakdown of some of the ways nonprofits are different:

~So many stakeholders, oh my. In the for-profit world, businesses can focus with single-minded efficiency on delivering value to their customers. If your customers love you, they will buy and the revenue and profit figures should follow. The same is not true in a nonprofit world where multiple stakeholders are served. For example, Homeward Bound of the Grand Valley provides food and shelter quite effectively to the homeless “customers” they serve, but can’t keep the doors open without also addressing a wide number of other stakeholders: donors, board members, community leaders and partner organizations.

To generate revenue, nonprofits must raise funding with passion, engage the broader community, partner with granting agencies and ensure community leaders understand their value. It’s a tall order.

~Consensus building is not accomplished quickly. With multiple stakeholders to serve, decisions in the nonprofit world are not made by a single organizational leader.  Instead, decisions are made with leadership from the board of directors, input from key partners and feedback from volunteers. Changes are made after much deliberation, discussion and by bringing all points of view to the table. Consensus building is a patient art that takes time, but is critical for nonprofits to keep stakeholders connected and supportive.

It’s one thing to make decisions based on the bottom line. It’s a totally different beast to make decisions based on a mission. Yes, this is slow. Yes, this is a lot of talk and a lot of work. But it means the whole community remains engaged, and that’s critical in the nonprofit world.

~Success metrics are unique. Measuring performance in nonprofits is notoriously difficult. While a traditional business tracks value through customer-purchasing activity, nonprofit organizations track value through relationships with multiple stakeholder groups. Without a simple financial metric to guide them, leadership must focus on such intangible and ethereal issues as social good and community benefit. Assessing this from a management perspective means somehow measuring it.

In spite of the challenges, it’s important to develop meaningful metrics, however imperfect. The basis of tracking value is to figure out exactly whom you are serving — who are the  “customers.” This could be your members, volunteers, donors and partners. Then, systematically and regularly collect data on exactly how and why each “customer” group remains engaged with the organization.

By collecting feedback from these stakeholders, nonprofits have powerful data and stories to improve processes, market more effectively and make key personnel decisions. It might not be as clear or definitive as the measures used in the for-profit world, but even subjective value metrics are important to tracking progress. 

Although nonprofits have specialized needs and unique purposes, there’s still plenty of room for some traditional, for-profit business know-how: good business planning, strong financial acumen and effective marketing communications to name a few. Nonprofit boards can benefit from both members with a passion for the mission and a passion for business management.

While I firmly believe any member of the business community can learn a thing or two from getting involved in a nonprofit they care about, the nonprofit can benefit as well.