Let’s Stop Assuming Non-Profits Should Just Be Run Like a Business.

It is not uncommon for business leaders or entrepreneurs to suggest that charities need to behave more like business. Of course non-profit operations should be based on sound financial and management principles and practices, but I suggest blanket statements like “be more like business” ignore some fundamental differences between private and non-profit sector organizations.

Often this advice is offered pejoratively, as if such business-minded people believe that non-profits lack business-savvy and consequently are inefficient or at least could be run much more effectively.  There’s another angle on this: business-savvy tends to be about sales and profits and doesn’t automatically provide for a comprehensive or fully relevant driver for doing philanthropy.

When business leaders cast their “non-profits should be more like us”  into the philanthropic sea, I am often surprised – and a little dismayed – by the number of non-profit leaders who nod their heads up and down in agreement.  I don’t know what troubles me more: the banker who thinks banking qualifies him as an expert in non-profit leadership and management or the non-profit executive who actually believes her sector should operate more like a bank. I have a feeling that few private sector folks would do much more than chuckle if advice was offered the other way around, even though such advice might be worth considering.

In reality there are sectorial differences that should be understood and considered before making such carte blanche judgements.  In an article written for Forbes in 2013, Tom Watson addresses those differences.

I summarize:

  • The philanthropic marketplace is dramatically different from private sector markets. The latter lends itself to measurements that are not applicable to what is known as “social capital.” How does one definitively measure the dollars and cents of social capital?
  • In the private sector we assess results or impact through such metrics as shareholder value, sales, the stock market, housing start-ups, and so on. All of these metrics can be assigned comparable numbers over time. It’s a lot murkier when it comes to assigning measures to social indicators of success. What numbers can be used to identify personal changes brought about by counselling or one’s process of healing from trauma? I am not saying there are no measures, but they aren’t as straight forward. As Watson writes, “The [social] return on investment will always have some haze beyond the spreadsheets.”
  • Motivations are different as well between the two sectors. One’s desire to give to charity or to get engaged financially or otherwise in social change are not the same motivations that drive entrepreneurs to create profitable businesses. In fact, the competitive nature of the private sector often includes a conquering mindset. One’s success in the private sector is tied to winning the battle for consumers and driving competitors away, if not out of business.  Charities don’t measure their progress in terms of displacing other charities or increasing market share.  They do compete for grants and for donor dollars, but not in a way that attempts to demonstrate the inadequacies of other charities.
  • Watson points out another fundamental difference: “Capital markets tolerate failure at a much higher rate than would be acceptable to non-profit donors. Most business ventures fail. Most non-profits do not – or rather, more accurately, they do not close their doors, merge with other organizations, or write down lost venture funding. In the worst cases, they tend to soldier on, withering slowly as their appeal to private donors and other funders diminishes – and their impact falters. That’s because there is no market for philanthropic stock, almost no liquidity for social capital.”

Another major difference has to do with what drives an organization’s resource engine. In business, customers drive revenues. Strategies are developed to address the needs of various customer segments and these strategies are designed to generate optimal revenues from those segments. At the same time the costs of engaging customers are managed as much as possible to ensure that profits are as high as possible.

Generally speaking, non-profits do not have these types of customers. We do have clients (we call them “participants” at Bissell Centre) and donors. While we should provide stellar service to our “customers,” our clients are, in a financial context, cost centres. We do not make money from them directly. It is true that some organizations charge user-fees but the majority of the time such fees do not cover the full cost of service, much less produce a profit.

One might see a donor as a customer, but I think it is inappropriate to equate being a donor with being a customer. The exchange a donor is looking for is not the same exchange a customer seeks. Their donation is purposed to benefit others, typically those less fortunate than they are. What they wish to experience is the satisfaction of seeing positive results for others, not themselves.

Watson’s perspective suggests that business people might better serve their non-profit colleagues by providing their bright minds and experiences to non-profit organizations within the context and environment non-profits experience, rather than assume what is good for the private sector must make sense for the non-profit sector.

I have worked with many community and business leaders who understand this. Our success together has not happened because of an “I know more than you” mindset. Rather, we have clicked because we have come to the table with what we know and a desire to learn what others know, no matter what sector they come from.

The truth is that all of us need to think and act more like one another do. It just depends on the context really. I do believe there are many private sector practices that can help non-profits, whether they are financial management processes or tools or methods of developing strategy. I have helped a couple of non-profit organizations adapt the Balanced Scorecard to their operations and I have referenced many HR practices, risk management approaches, customer service functions, and other private sector elements in the development of our own at Bissell Centre.

In this day and age of dissipating customer loyalty, businesses might be better served if they treated customers like well-run non-profits treat donors. At Bissell Centre, for example, every donor receives a thank you phone call from a volunteer or staff member, regardless of the size of donation. We don’t ask for more money, don’t pitch any further involvement; we just say thank you for believing in our work. Saying thank you is our way of recognizing the relationship we have with the donor and hopefully that simple act of saying thanks sends our intended message: you matter to us. Most businesses I buy goods and services from don’t make me feel that way.Often it is quite the contrary to be frank.

Non-profits put mission first before money. While it is true non-profits require revenue to do mission work, we believe an individual’s alignment with our brand should be clearly mission-connected, not an alignment based on transactions.

People wish to feel engaged in life and that includes their work life. Dan Ehrenkrantz wrote a piece earlier this year in Forbes Magazine, “Why You Should Run Your Business Like a Non-Profit.” One of his suggestions to business leaders is to treat employees like volunteers.

“Your best employees are a lot like volunteers: They have other options and can leave. This is especially true in fast-growing fields such as health care, environmental science, and technology, where demand outstrips supply and new knowledge is scarce and valuable.

“Most businesses mistakenly assume that their most valued employees will stay put and stay happy if they pay them enough. But research indicates that salary is not the most effective motivator, and the cost of disengagement is high.  A 2013 Gallup study showed a direct link between employee engagement and shareholder return; companies where 90% of employees felt engaged had earnings per share 147% higher than their competitors in 2010 and 2011.”[1]

There are lessons to be learned everywhere, no matter what sector we are in or looking at. Operating with a bias that has one sector being better than another is not only a misguided bias, it narrows our capacity to learn from one another.

 

[1] Retrieved from http://www.forbes.com/sites/forbesleadershipforum/2014/02/26/why-you-should-run-your-business-like-a-nonprofit/ September 28, 2014.

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