Critiquing My Blog: “All Nonprofit’s are a Business – Need to be Run Like a Business”

Critiquing My Blog: “All Nonprofit’s are a Business – Need to be Run Like a Business”

By: Eugene Fram

I encountered a torrent of comments from consultants, chief executives and staffers replying to the blog listed above. Following are some abstracts of support and questioning I received:

One could say this is true, if we know what is truth, but one should avoid ALL. … We are called to be faithful, not to be successful. Why do we… avoid all ethical questions? … Granted, one should hope to wind up with excess revenues at year-end but to affirm who you suggest doesn’t appear to be worked through.” Philip S. Wood, CPA.

Sorry I disagree. Many/most nonprofits are aimed at creating social good. To be run like a business means risk – (taking) decisions for the short/near term, based on financial tradeoffs. While I agree nonprofits benefit from excellent leadership, discipline, solid strategy and financial planning, they should be run as nonprofits. Linda Williams

If businesses exist to create and retain customers, then nonprofits exist to create and retain members. I think this could be a good learning for many of the nonprofits I have (encountered). This is terrific, but they cannot do this without capital. The more those inside the nonprofit are motivated by their own sprite of “contribution to the world,” the more they could undermine their ultimate survival. (Companies that focus) inside-out rather than outside in will run into trouble.
Elliott Schreiber

I work for an organization … that (has a) mind-set to a for-profit business, … keeping in mind our core values, mission and vision. …

• A research department … regularly checks to make our programs are successful. We follow clients for two years after receiving services.
• Though measuring programs, … our donors have confidence is what we do and we have expanded contacts in the community.
• Our strategy department ensures that expansion will not drain resources from other areas.
• Our direct service employees are results oriented and goal focused.
• Also we take our employees very seriously. We would hate to expand, hire people or have our staff relocate and then havet o close up shop one year later.
• We are more mission focused – we are fiscally solvent, jobs are not in danger and have the numbers to prove that what we do works. Catherine Hayley

My Reactions

Philip: You hit the nail on the head with you comments about “ALL.” I concede the adjective was not well placed. However, some businesses also have a mission or creed to generate social good, like Ben & Jerry’s Ice Cream. However, if you examine the product that emanates from the firm, one can easily view it as creating obesity. Businesses and nonprofits must be judged on their missions and how they execute them.
I would take Ben & Jerry’s over a commercial call center that says its mission is to help charities, but then takes, as fees, 75% of the money donated. Or it might be a nonprofit that gives excess benefits to its management. (The IRS now has become a watchdog over these giveaways.)

Linda: Some businesses also have a double bottom line. For example utility companies have to please their stakeholders and meet utility commission regulations. Unfortunately, the term “being run like a nonprofit has become a negative term and only a high senior nonprofit mangers, who execute the functions you listed at a effective and efficient levels, will contribute to improving the situation.

Elliott: In my opinion you are correct. Nonprofit strategic plans should always have a section showing the estimated economic impact of what is projected. For an example, according to Cynthia Montgomery, a Harvard business professor, a nonprofit hospital whose mission is to “save lives” will not succeed long term if it does not “save lives efficiently and effectively.”

Catherine: I just want to join the chorus of people who commented how fortunate you are to work with an organization with a structure that makes such impacts.
It really shows that many nonprofits need to move towards a business model.

As one other respondent stated, nonprofits in the 21st century need to be “SMART i.e., Sympathetic, Malleable, Active, Realistic and Timely.

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3 comments

  1. Whether nonprofits should act more like for-profits beckons a decision that should be driven more by stakeholder deference than personal preference. With charitable giving trending toward charitable investing, the pressure is on nonprofits to demonstrate businesslike market value that includes return on investment.

    My company, Saint Wall Street, has provided since 2009 training and technical assistance for federal grantees to demonstrate such value for their social services. Those that have done so have raised hundreds of thousands, and even millions of dollars in new funding. Several have said they were told by their funders that this kind of economic impact is exactly what they’ve been looking for.

    It is typical for businesses to measure effectiveness, strive to improve cost-efficiency, analyze cost-benefits, and present to stakeholders proof of return on investment. Of course, nonprofits don’t have to embrace what is becoming philanthropy’s new normal. As I kindly yet ever so honestly sum up in my trainings on Program Return on Investment: Nonprofit leaders will either do what it takes to make their programs sustainable, or soon go to work for someone who did.

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  2. I am intrigued by the topic and title and by the various comments. My background is for profit businesses, about 40 some years but often an officer in a non profit at the same time. Now for 10 years I have been with SCORE, the Silicon Valley chapter http://www.svscore.org where we counsel small businesse owners and want a bees. My experience says that non profits definitely have to be run like a business and their missions and goals do not excuse them from this responsibility to all their stake holders. Not a universal rule but use “reserves” and their change a good indicator as a substitute for net profit.
    However, I have a suggestion that I want to contribute that I did not see in this discussion. Whenever it is legal (by your charter or rules) charge for your services or products. As an exception to the for profit system, you need not price to value or to cost but any amount however nominal relative to the subject’s ability to pay. My years of experience have constantly reinforced the fact that people who have absolutely no skin in the game not only don’t value the service or product but very quickly assume it is an entitlement and become very distressed, angry and resentful if it goes away. In addition to this your employees or volunteers however well motivated tend to missvalue the service or product which further degrades the events.
    I know all the counter arguments but over the extended life of a non profit this is “rule” is born out. As in a for profit business, what the “terms of the service or product” , or how it is paid for (such as some labor or other activity) will vary widely but the vital part is that people make a committment or payment that gives them some contribution to the transaction.
    Bob Goedjen

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  3. I believe the problem with the “business focus” for non-profits has a lot do to with the misunderstanding of the concept. The internal organization required for a business to be effective in meeting its goals, properly fulfill its mission(s), retain its value (social, monetary – it varies), remain meaningful, grow and a few other things that escape me, do apply to non-profits. Our ROI is different because the nature of our investment is different. However, I still want to see the hours and energy I put to work transformed into real results out there in the world, not in the bank – it is ROI, nevertheless.

    Many nonprofits think “we are not big enough.” The lesson to get here from businesses is that having long- and short-term plans are essential for growth. If you are going to wait until you are “big enough” to do anything, how are you going to recognize when you are big enough or where “there” is if you have not set goals? And by the time you get “there” you will not have the infrastructure required to sustain the actions needed to implement the “plan.”

    I am a teacher, and I have to use education for analogy: We start teaching human beings to be adults in infancy, so when they are “there,” they know how to behave.

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