I’m a big believer that nonprofits should operate using more business principles, which is happening increasingly across the sector. However, on the other side of the coin, there is a prejudice against nonprofit executives by the broader business community.
Not too long ago, I happened to come across words from the former CEO of AARP, William Novelli, who previously had been a marketer for Unilever. He said that many for-profit CEOs don’t understand nonprofit management, “It goes beyond underappreciated. CEOs are often disdainful of not-for-profit management. They think it’s undisciplined, non-quantified…it’s harder to succeed in the nonprofit world.”
That’s true. I’ve been on both sides. As many of you know, I have been a successful businessman and also founded and grew a nonprofit to over $70 million in revenue.
Why Nonprofits Are Losing Territory To For-Profits
I think there’s a shade of gray that I would like to explore a little in this article. If you see the trends and what’s happening, there are definitely changes happening in the philanthropic sector. Additionally, more and more for-profit businesses are beginning to measure social impact and laws are being changed to accommodate. These laws are making it possible for businesses to also have social impact become a motivating factor in their business results, not just profit. This trend is accelerating in the United States.
I believe there are two key reasons for this: 1) consumers and customers are now demanding more of for-profit companies by way of social responsibility; and, 2) the nonprofit sector has had certain constraints and myths that have made them less competitive. So, now you have an environment where for-profit businesses and funders are thinking that, perhaps, for-profits can do it better.
For a variety of reasons, the nonprofit sector has seemed to take ownership of the “non” profit word and there has been thinking that they should do great amounts of work without any real investment in expansion and sustainability. There has also been a co-dependent relationship between major donors and nonprofits about operating revenue. It’s been a race to the bottom with regard to how little is spent on administrative costs versus direct program costs. Zero percent operating costs began to take hold, and we all know that it’s impossible to run any business–including a nonprofit–without spending on the infrastructure.
What For-Profits Need to Understand About Nonprofit Work
With the loss of credibility that for-profits seem to have for their nonprofit counterparts, there is also a great deal that the former needs to know and understand about the social sector.
Going back to Novelli’s words, which make sense, for-profit businesses are usually very straightforward. They are selling a product or some sort of service. This is not typically the case in the social sector. Nonprofits are trying to make an impact and looking to change behavior.
Take an environmental organization, for instance, they are looking to get their followers and the general public to lower their carbon footprint. A school is looking to get all students to be well educated, particularly in the core areas such as math, science and reading and to have them score well on mandated tests. A cancer organization is perhaps seeking to provide inspiration and hope to those who have the disease and their families. For-profit executives do need to understand this is not cut and dry and often there are many factors playing into success.
The additional issue nonprofits have, and more so today because of the ability to gather vast amounts of data rather inexpensively is impact. When businesses are looking at their metrics, they can see the volume of products or services sold. They can see their profits or losses. Measuring impact is much more difficult. How do you, for example, measure impact for youth service organizations geared toward leadership, for example? How do you accurately measure the impact of schools on education without taking into account the circumstances (e.g. parental, socio-economic) of students, particularly those who live in under-served communities? It’s not that straightforward.
This disconnect can have adverse repercussions with for-profit businesses and donors not being fully vested, frustration about “results” and mistrust.
As more and more for-profit businesses step up their social responsibility programs and initiatives, some consideration needs to be given as to why some of society’s challenges have been so intractable. There needs to be thought around how to integrate what nonprofits know and have learned along the way without thinking you need to throw out the baby with the bath water.
© 2015 Wayne Elsey and Not Your Father’s Charity. All Rights Reserved.