Hey, you want nonprofits to act more like businesses? Then treat us like businesses

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bitmoji-20151213223903A couple of months ago I was at a conference, and during lunch the keynote speaker got up and paced the stage and mentioned several times about how we nonprofits need to be more like for-profits. Despite the two drinks I had had that morning—stop judging; it was a Saturday—I found myself getting more and more irritated. This happens over and over. Seriously, if I hear one more person blather on and on about how we primitive, inept do-gooders should learn from our sophisticated siblings from the business sector and get into earned-income and blah blah, I’m going to roll my eyes so hard that they will pop out of my head, and then I will have to find them to put them back in my eye sockets but I won’t be able to see so I will have to feel around on the floor to find them while freaked-out passers-by scream all around me.

Our nonprofit sector has an identity issue, and I think we should resolve this if we are going to reach our potential. Are we nonprofits businesses, or are we something else entirely? I’ve talked to lots of nonprofit leaders who are proud of their work and who say, “Nonprofit businesses are businesses! But instead of making money for our stockholders, we create dividends in benefits to the community!”

But lately, I’ve started wondering if perpetuating this philosophy is actually harming us. Ideally, yes, we are businesses, and we should be accorded the same level of respect. But the frustrating reality is that we are judged as businesses without given the rights and resources to fully operate as businesses. If funders and donors and society want us to be like businesses, then fine, but we also need the following:  

Invest significant funding: For the past few months, I’ve been using Bitmoji, an app that turns people into hilarious—and slightly creepy—cartoons. Guess what? Bitstrips, the company behind this app, got $8M in funding in 2014. That’s right, 8 million. From ONE funder. $8,000,000 in one year for an app. That turns people. Into. Cartoons. Meanwhile, most of us, who are helping homeless veterans and hungry families and changing unjust laws and saving rain forests—we never ever get anywhere near that. Last week I found out my org is getting a $25,000 grant, about 3% of my budget, and I collapsed on the floor, weeping unicorn tears of joy. Sigh…the things so many of us could do if we got $8M upfront…

Make funding decisions faster: I don’t know how fast banks and Venture Capitalists take on average to make an investment, but here’s one VC’s answer: “For a Series A deal, I’d put the average at 4-6 weeks between term sheet signed & money in the bank.  This is inclusive of final due diligence, lawyers bickering, etc, which can take a lot longer in subsequent rounds.  YMMV.” That acronym, by the way, I just learned stands for “Your mileage may vary.” Four to six weeks is probably not the norm. It probably takes a little longer. But nowhere near as long as what we nonprofits deal with when waiting for investment decisions, anywhere from 3 months to 12 months to whenever Saturn is in Scorpio.

Get over overhead: The holidays are coming up, and that means there are going to be insipid, ignorant articles advising people to donate money based on organizations’ overhead percentages. Why are we still even talking about this? Do we care how much Toys ‘R Us spend on electricity and copy paper when we buy a My Little Pony Friendship Is Magic action figure? Do we care how much of our $1 go to the salary of the CEO of Bitstrip when we buy an add-on package? If for-profits are allowed to spend money on advertisement—99.9% of the ads on TV and in print are about for-profit stuff!—then why shouldn’t we nonprofits? If for-profits can have decent work spaces and competitive salaries, why shouldn’t we also? A colleague pointed out that tech workers are making salaries close to 300K to engage in various projects, many of which fail, while many nonprofit folks make a fraction of that doing things most of us would agree are important to society, and we have to defend our wages each day.  

Focus on results: One of the few times I’ve thought about quitting my job or even the sector—and pursuing my dream of writing and directing “Nonprofit: The Musical”—was when I was forced to spend 10 hours trying to fill out a funder’s financial report that requested a breakdown of how much that funder paid for every line item. If a business is doing well while treating workers fairly and not harming the environment, then why should anyone give a crap how it’s spending money? Same should go for a nonprofit. Want us to act more like businesses? Then society should focus on the results and stop micromanaging us nonprofits so we can do our jobs.

Get over sustainability: No one goes into an Apple store and say, “How are you going to sustain your business after I’ve bought my iPhone and I’m no longer here?” If a product is good and you want the company to keep making it and developing new models, then you buy it and you tell your friends about it, that’s how the business is sustainable, the end. Same should go for nonprofits. If services are good, support the nonprofit so it keeps providing them. The end. (See “Why the Sustainability Myth is just as destructive as the Overhead Myth.”)

Increase funds to parallel results: As I mentioned in “Dear business community, please remember these ten things about nonprofit work,” a huge difference between the two sectors is that for nonprofits, the more successful we are at achieving results, the more expenses and liabilities we incur without an equal increase in revenues. An afterschool program does well and triples the number of students it serves, for example, doesn’t automatically get triple the funding/donations it receives; if anything, it will still struggle to keep existing revenues sources, as few funders do multi-year investments. If you want us to act like businesses, then prepare to increase investments as results and demands increase.

Accept risk and failure: For some reason, it’s OK to invest millions into Google Glass, or the Amazon phone, or the various buy-outs of smaller companies, or whatever, only for them to fail, lose a ton of money, and then chalk it up as a normal part of business. And yet, society invests much smaller amounts to solve complex entrenched social problems, expects miracles, and gets disappointed when we don’t meet outcomes. It’s going to take a while, and significant resources, and the acceptance of failure if we have any hope of solving serious issues like homelessness and human trafficking.

Speaking of failure, as I mentioned in “Dear business community, stop thinking you are better than us nonprofit folks,” about half of all new businesses fail after four years. Some estimates are as high as 80% failing after 18 months. (And “incompetence” accounts for 46% of the failures.)

Given all these statistics about for-profits, and restrictions on nonprofits, should we really keep insisting that we are businesses, that we are pretty much the same as for-profits, but different? Can we just not be the awesome unicorn sector that we are? Do we need to compete with for-profits on their terms when we are so different? I am open to counterarguments, but right now, I don’t see the advantages. If we want to be seen as equal to, and treated with the same considerations as, for-profits, then we need to fight for the above demands. Society needs to provide nonprofits with the same level of funding, speed of investment, flexibility, autonomy, and acceptance of risk and failure, or else stop trying to get us nonprofits to be more like for-profits. You can’t have your nonprofit cake and yet withhold your for-profit icing. Either we are fully businesses, with all the rights that entail, or else we are beautiful and complex snowflakes of equity and justice and need different considerations.  

Until we resolve this, until society’s priorities shift so that we invest $8M in improving the foster care system or helping our veterans before—or simultaneously as—we put it in an app that turns people into cartoons, then when it comes to us nonprofits’ being able to help solve society’s problems…well, YMMV.

mic drop

 

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  • jaebre

    Perhaps related to “Invest Significant Funding”, but…

    Commit to multi-year funding: Venture capital firms don’t just pull funding after one year for no good reason. I’m tired of hearing funders say that they will only support a given organization for one year in order to maximize the number of orgs they support. That’s very charitable, but it’s also extremely ineffective and inefficient. Nonprofits are having to reinvent their cash flow wheels every year because of this “hit-and-run” style of funding. It’s hard to focus on long-term program goals when 90%+ of your funding is short-term. It takes time to develop good products. That’s just Business 101. Invest in R&D upfront, get good products later. I think funders underestimate how much time we spend on the administration of funding. To get funds, you have to write proposals. Once you get the funds, you have to account for the funds. And when the funds are spent, you have to write a report about how they were spent. Imagine how much time a three-year grant commitment would save. Instead of writing three proposals and three final reports, you write one proposal and one final report (with maybe a couple of shorter interim reports in between). HUGE time-saver. Time that could be spent on, you know, making the product better.

    • House0fTheBlueLights

      Even the ones that you know are going to fund you for several years make you treat them like they could disappear at any time.

  • The Cause Catalyst

    Hi Vu,

    Great perspective. As someone who comes from the business sector and now works with nonprofit organizations, I agree with many of your points; however, there’s one key gap in the nonprofit sector that makes it challenging for “investors” to act. As a stakeholder with multiple levels of involvement, I am often disconcerted by the lack of clear outcomes. In any for profit business, you don’t launch without expected outcomes/metrics – qualitative and/or quantitative. These usually evolve and change along the way, but there is always a way for investors to gauge ROI and impact.

    Many nonprofits still don’t have these outcomes defined nor do they have consistent processes to evaluate and evolve. In the absence of a clearly discernible way to determine “success” funders are forced to ask for breakdowns or make (often detrimental) assumptions. Perhaps as more organizations make outcome measurement part of their culture, many of the above behaviors will also resolve themselves?

    • DebDijour

      In the grants that I write, it is usually a required disclosure to outline the outcomes in a measurable way to the possible funder. I am baffeled that you are having difficulties with that piece of the puzzle.

      • The Cause Catalyst

        That’s great
        to hear DebDijour, glad your organization is on top of that. However, many of the nonprofits I have interacted with are not measuring outcomes, often a grant is what drives them to begin that process. Research and Articles in many leading publications like Chronicle of Philanthropy, NPQ, Bridgespan etc. continue to highlight the progress that’s being made as well as the significant gaps that still exist

        • Ben Alexander

          “often a grant is what drives them to begin that process. ”

          Yeah, of course. Doing any kind of data collection costs time and resources. Even tracking attendance and logging the data in an accessible way takes staff time.

          Actually useful data measuring the impacts we are trying to have requires, for most nonprofits, hiring or finding a consultant who can help design the thing, typically doing more programs than usual to get some statistical power, a whole bunch of time and effort collecting data, then more time and effort at the back end compiling it and presenting it. And after all that, it’s pretty likely that we find that, no, running three after-school sites each week did not make a statistically significant impact on the local unicorn population, which of course reads to funders as “this doesn’t work, stop giving money here,” when what it actually says is “this goal is very ambitious, please renew your $10,000 gift to help us bring unicorns back.”

          I don’t mean to be rude (I do mean to be pretty flippant), but you comments just frustrate me. Many of the local funders around here have caught the outcomes bug, and lots of programs are trying to track 6-8 different measurements for tiny-but-probably-effective programs, creating really significant burdens for nonprofits. And these are for grants of $5,000-$25,000. So a funder wants to give $5,000, and expects that we will have (and capture using data) a measurable impact on countywide obesity, high school graduation, property tax rates, self-efficacy, school attendance, blah blah blah, that we will spend at most $500 on rent, utilities, transportation, admin time including grant reporting and every other kind of supporting cost, that we will do these wonderful things in a politically sensitive neighborhood, and of course that we choke down this, ah, filth sandwich with a smile.

          EDIT: TL;DR version: grumblegrumblegrumble!

          • The Cause Catalyst

            Ben, I hear your frustration and I agree with you and many of the others that measuring outcomes in the nonprofit environment is far more complex and challenging than the for profit. There also isn’t a “one size fits all” solution.
            The fact however is that it is becoming increasingly asked for and is not likely to go away. Conversations like these are great, because the solutions can only come from within the community. And the more we discuss it, the greater the chances that we’ll find new approaches to communicate impact.
            Returning focus back to Vu’s great blog post ….

          • http://sheenatabraham.wordpress.com Sheena

            This was a great conversation. There’s the tension of needing the freedom, creativity and financial resources to run strong programs that benefit the community vs. identifying, tracking and reporting measurable/meaningful results that strengthen funder confidence and having the finances to do so.

        • DebDijour

          I hope you are letting people know where you find the deficiencies in their work. It would be very helpful for organizations, most want to improve.

    • toriadoria

      I get it, but it’s just harder to measure societal-level outcomes than product-level outcomes. I can easily tell you have many people participated in our leadership development programs (as Apple can tell you how many iPads they sold), and how much tuition they paid (as Apple can tell you how much they earned from their iPads), and what the trends for applications and tuition payments and evaluation scores and etc. are.

      But none of that is really what we’re after. We’re after transformational change in the communities where these leaders serve, and we’re just never going to be able to measure that in a meaningful way. For a bunch of reasons: first, folks would have to agree on what positive change looks like; then the whole field of social science research would have to figure out how to capture the positive change that’s happening, and how to figure out how much of it can be attributed to our program. And then we’d have to do that in the dozens of communities in which our participants work – and we’d have to pay for that evaluation while still, you know, running our program.

      We’re lucky that we actually have a great research institute built into our organization, so we have way better resources for this than most nonprofits. But, yikes, it’s asking a lot.

    • verucaamish

      One challenge with outcomes for those of us in nonprofits is that the process ones are as important as the outcome outcomes. Also, with for-profit businesses, outcomes are pretty defined AND malleable. The final outcome is to be profitable (or if you’re a corporation to increase shareholder value). Beyond that, there’s no mission for-profits are tied to. Can anyone say what AOL actually does these days? Was there any real reason for GE to own NBC other than “to make money?” Nonprofits can magically change everything we do. If our mission is to make the lives of LGBTQ people better, then the we can’t just start doing social enterprise just because that would make money. My husband ran a community arts center and he probably would have made a ton of money if they did homework support in their afterschool program but the board said that it wasn’t relevant to their mission of promoting the arts.

    • http://www.bicyclemeditations.org cpetersky

      Fund the measurement of outcomes, and they can provided. It irritated the crap out of me that it wasn’t enough to provide food, transportation, housekeeping, yardwork, companionship, and other services for frail and disabled seniors. I had to provide “outcomes”. We deslimed 60 seniors’ decks, stairs, and walkways each winter – but that wouldn’t be enough for the likes of you. No, I’d have to devote a third of our operating budget for a study to *prove to you* that this work would mean fewer falls broken hips and therefore lower medical bills to the government health care systems and better quality of life. It just wanted to make me weep. Can’t you accept that it’s a good thing for seniors not to fear that they’ll fall on their slippery walkways? I can tell you how many were done. That they can get to medical appointments? I can tell you how many miles they were driven. That they have a friend in the community? I can tell you how many hours of companionship. Why isn’t that good enough for you?

    • Helen Lakeru

      I think nonprofits are more and more in tune with identification and communication of our outcomes. The difficulty is, once again the lack of financial resources to design and plan the outcome measure, then the actual measurement, documentation and dissemination of the information. All these things require a person or persons to compile the data and report on it. Many funders will not give you the money to do this part of the work. They want the hoop but won’t help you develop the muscle strength to jump through it!

  • http://www.shelterforce.org Shelterforce

    I agree so very very much! Thank you! (NB: I think you mean “for-profit” in this sentence? “Do we need to compete with nonprofits on their terms when we are so different?”)

  • Mya Stark

    typo alert: Do we need to compete with nonprofits on their terms when we are so different?

  • Brian Saber

    Amen! For some reason the for-profit world expects us to be creative, efficient, dedicated, well-run, etc. without any of the proper resources.

    Here’s a bugaboo of mine. All you tech people in your super-sleek, fun, motivating new-concept office environments…why don’t you build one of those for your favorite non-profit instead of expecting us to work wherever we can find the cheapest real estate, using your mismatched and broken-down used furnishings. And watch our creativity and efficiency soar. Yes, we’re wired a bit differently than you; we’re not motivated to make huge amounts of money. But that doesn’t mean we don’t respond to our environments!

    Great post!

    Brian Saber
    President
    Asking Matters

    • Robert

      You’re asking the wrong people. The techs don’t control those environments that’s the business people and the BANKS. DIrty secret – the banks won’t let landlords give you space. We had a glut of office space when our company last went looking and, yet, despite that glut the space was still extremely expensive. Why? Because the banks holding the mortgages were demanding certain rent rates. They would rather leave space empty than mitigate those losses with lower rents because they can keep the rents artificially inflated.

      • patb2009

        in part because the Fed keeps interest rates low, so the cost of carrying unproductive assets is low. The Fed illegally allows banks to operate real estate instead of clearancing it.

  • ParagCED

    Thanks for writing this. I think an important point, as well, is that courts have been protecting traditional for-profit businesses from real competition by tax-exempt organizations in inconsistently-defined “commercial activity.” So if a coffeeshop organized as a non-profit with federal tax-exempt status wants to offer a living wage, community-centered, local alternative to Starbucks even while hiring folks who have traditionally been left out of the economy, it could face a challenge to its tax-exemption because the courts have decided, without any legislative or regulatory basis, that tax-exempt organizations aren’t supposed to engage in so-called “commercial activity.”

    If you want nonprofits (particularly those with tax-exempt status) to truly be like business, let them compete with businesses freely and see what happens.

    • Robert

      I think you are mixing up non-profits and charities. A commercial entity can choose to operate under a non-profit business model and do commercial business. However, if it wants that magical 501(c)(3) tax-exempt status to function as a charity, that is another matter. I know several animals shelters that are 501(c)(3) entities that operate thrift shops to raise funds. 501c3 owns the thrift shop which is a separate corporation and taxed accordingly. A good lawyer/accountant versed in non-profits can easily set up such arrangements.

      • ParagCED

        Agreed, there is a distinction between a nonprofit corporation and an entity with 501(c)(3) status. But it is important to note that there are significant and arbitrary restrictions on the commercial activity that tax-exempt organizations are allowed to engage in, which is why they have to set up subsidiaries.

        In addition, whether they are required to pay taxes on various activity (as they would through a wholly-owned subsidiary conducting business not deemed to be substantially related to the parent organization’s tax-exempt purpose(s)) is a separate analysis.

  • Danielle Kempe

    GREAT POST!

    Also, I like your bitstrips style mic drop at the end.

    Thanks Vu for so eloquently explaining the issue.

    • Robert

      I have to disagree on the mic drop. This is a fantastic opening argument for a serious and pervasive problem. A last word, it ain’t.

  • Arthur Dent

    So, you do not offer any products.? You ask for donations, kind of like charity. I do not care what they do at Toys-R-Us because they have investors to answer to, if I am donating to a charity.. I am the investor. Do not blame us for researching non-profits that use more money on programming and less on paying staff. If you want to become for-profit and gain the freedom that goes with it, you are welcome to do so.

    • Robert

      What is the difference between programming and staff? Programming doesn’t happen without staff.

  • Perla Ni

    Great article! These are all excellent points. I especially relate to the sustainability myth. It’s a reason that I’ve heard one larger funder give to small, grassroots nonprofits, why they chose instead to fund a larger, national nonprofit. The risk-averse nature of that decision – only fund organizations that are big and “sustainable” means that small, entrepreneurial, grassroots groups in communities of color, frequently get passed over. It’s ironic that some funders seem to prefer to fund organizations that are well-funded and don’t really their money.

    I’m curious as to the root of the “risk aversion” since the money is to be given away with no expectation of a return.

    Is philanthropy an old boys club where funders simply give to people of their same socio-economic status and they feel comfortable with? Is giving to small, scrappy, nonprofits often led by people of a different socio-economic status or people of color too uncomfortable and scary for funders?

    I’d like to hear other people’s thoughts on this!

    • Robert

      Think of large funding organizations as pushers. They don’t really care about you, your org or your mission. They have a job to distribute money and they have metrics they must follow to enjoy promotions and and advancement. Thus, they take actions they perceive as “low risk” instead of “high gain”.

      This is the reason that I tend to push the non-profits I volunteer with to be more “business-like” – what I really want is for them to get the funding monkey off their back if they can. Chasing grants is a lot like being addicted to drugs. You learn to be grateful for the tiny acts of kindness from deep-pockets instead of being angry at their stinginess.

      Of course, not every organization can become self-sustaining. It wouldn’t take much for most non-proifts. Set aside an endowment and let them live off teh interest. How many non-profits operate for less than $500K a year? A lot. A $10M endowment with a 5% return could fund such an entity for decades. If it goes under, then the grantor can reclaim the endowment. But that’s not how they do it, is it?

      No, instead they make you jump through hoops for 10, 20, or *gasp* $50K and expect you to pay staff peanuts and work in spaces that would make them sick.

      If they really *cared*, if they really had *passion* for what you do, they would fund you in a heartbeat. Individuals can do that. Granting organizations can’t.

      • http://www.bicyclemeditations.org cpetersky

        “Set aside an endowment” – ha ha ha ha! I really did need a laugh this morning.

        • House0fTheBlueLights

          Of $10million. Because the unicorns have extra bags of money that they don’t know what to do with.

    • wordsonfire

      I just successfully argued to a major funder who normally only gives $10,000 to organizations my size that it was a larger risk that we would go away than it was we wouldn’t be sustainable. But I shouldn’t have had to argue it.

      • Perla Ni

        Thanks for sharing! Would it be accurate to pharaphrase like this? “if you want to increase the likelihood of us existing in the future, fund us.”

    • philanthropoid

      Philanthropy is voluntary. It is subject to fashion. Funders don’t want to be tied down to one charity year after year. Otherwise, they could just designate their money for that charity and retire.

      It’s also related, at least in human services, to the fact that the majority of the money for nonprofit work should be coming from government, and indeed does.

      The problem I have with this article is that it doesn’t call government to task for not fully supporting the costs of doing government work. A charity gets a discounted contract to deliver homeless services while a business, doing whatever and including human services, would be allowed significant profit. Wrestle with that concept–it will also lead you to consider whether or not a parity in funding would actually be a good thing or not because of the cultural changes that would ensue.

      • http://mcahalane.com/ Mary Cahalane

        There’s definitely a double whammy there. On the one hand, people who don’t like government spending will piously proclaim that problems should be taken care of by charity. On the other, they don’t want to support charity, either.

        • Rita Ulrich

          And, they think that charities should be run by volunteers – triple whammy!

          • http://mcahalane.com/ Mary Cahalane

            Yes! And confuse volunteering with skilled, professional nonprofit staff. We should somehow all do this work, spend years developing our skills – and do it for free. Because.

          • bralinshan

            Now REALITY: If people had more money in their own pockets….and gave less to the incredibly wasteful government….charities would have more money.
            Every vote for government takes money from you….ironic huh? And those evil conservatives? Turns out they give more than anyone! Who’d have thunk it?

          • http://mcahalane.com/ Mary Cahalane

            Giving is generally high in red states, true. Most probably goes to churches – which may or may not be working on social needs. Government is often the ONLY way to solve huge, systemic problems. And there’s no research I’ve ever seen that lower taxes results in higher charitable donations. If you’ve got something handy, I’d love to read it.

  • mark

    You are ignoring the reason that non profits are soooo.. much different than for profits. When we invest in for-profits we do so for the potential of realizing more value (thicker wallet) to us as individuals.When we donate money to Non profits we give our money with no hope of self gain. Therefore those of us who give our hard earned money have every right to judge a non profit any way we want, take as much time as we want to fund our decision, expect overhead to be as low as possible, expect that our donation does not go to an over paid CEO, that the gift will make a difference in the long haul, (it is sustainable). Right or wrong, we have made the decision that we will pay for things that benefit us directly and we will donate a chunk of our wallet ( which in effect is a chunk of our lives) to help causes we personally believe in. Your assertions ignore the reality of human existence, me first, you second. Sorry

  • Jenn Dean

    Right on! Your eloquent and articulate blogposts hit on all sorts of valid points. I know that Paul Shoemaker tries to shake up the funding world by admonishing them to fund more general operating and let the nonprofits do their jobs, and I also know that Jeff Clarke of Philanthropy NW has a similar bent. But how will real change begin to happen in the funding world? What will it take to create real lasting change in the funding world? And who can make that happen?

  • http://www.bigbrainedsuperheroes.org/ Meredith

    Vu-
    I’m reading this post at the same time I’m fighting with my inkjet printer that has one job—ONE JOB—and can’t even do that. Nonetheless, it got my money, so from a measurable outcomes perspective, it did do its job.

    Maybe we should start measuring how much money we nonprofits end up wasting on products from for-profit companies and charge them back for it.
    -Meredith

  • http://www.bonfils-stantonfoundation.org/ Gary Steuer

    Great post! Several years ago I attended an Alliance for Nonprofit Management conference, and there was a keynote speech by Paul Light that has really stayed with me. He said exactly the opposite of your “gouge your eyes out” speech. He said we should STOP harping on how nonprofits need to be more “businesslike” and recognize that, given the extra layer of mission and service objectives we have, we are pretty darn well managed. in fact, he goes further to say that many successful businesses these days are successful because THEY are more “nonprofitlike.” They have a mission that is about making the world better and they inspire their employees around that mission, they treat their employees with humanity, and they care about and truly listen to their customers/clients. And a BIG amen to your point about risk aversion in the nonprofit sector!

  • Miko Lee

    Vu this is so great! And Yes I want to see “Nonprofit, the Musical!” Do it!

  • Christine Soto

    this deserves a Ted Talk — get on that, Vu,would you, please?

  • Helen Lakeru

    If you’ve been in the nonprofit world for any period of time, you’ve read or heard people talking about how nonprofits need to behave and think more like businesses.
    The reality is we need to operate like businesses in a few ways: have an org structure, have adequate financial and people resources to operate, exercise strategic thinking and good judgment, provide something of value to our clients, make our case for support and demonstrate impact to our donors. The other reality is: we don’t deal in commodities, our investments are in people, our returns on investment are societal, complicated and often long term.
    I agree, we don’t receive investment money the way businesses do and yet, we are expected to produce quality work with few resources. Those who work in the corporate sector are stymied as to how to deliver “our product” once they realize there is no money to pay a graphic designer or a marketing firm or an accountant to do the work that is needed in a nonprofit. I would venture to say that because of this shortage, we often find ourselves repeating actions over an over again to get the money we need to operate and not lose what we have already gained (e.g. a valuable staff member)

    New businesses often receive the investment money they need (for a few years) upfront which allows them to hire staff, consultants, and other needed talent to launch product and create the company infrastructure that enables them to succeed and excel.- Yes they have to pitch to get funded but I would guess that the nonprofit world is a bit like finding a needle in a haystack when it comes to startup, seed and operating funds.
    We’re quite simply not valued as businesses are.. and therefore not treated well…perhaps some exceptions are the long standing, more established nonprofits that have proven their worth over the years or were “founded” with a lot of money upfront. When I learn the history of some of our local nonprofits it’s often clear there was a good deal of investment upfront that allowed planning and execution to get them off to a great start. Maybe it’s the reputation and credentials of the founder, the connections or someone very wealthy funded the start up and made it happen.
    Yes, it is rewarding work and most of us do this because we want to help other people and know that we can use our skills and talents to make a difference. At the same time, it is also very disheartening when the up-hills out number the stretches of time when you experience working with the appropriate resources. (and without having to circle back and justify the need or try to figure out how you can raise the needed money)
    Sigh…..

  • Scott Lundius

    Brilliant analogies, Vu.

    Yes!

    It’s up to us to change the dialogue. We are the content experts but far too often will defer to a funder’s expectations without question. After all, they’re the one’s with the money, right? Our investors, often with the best intentions, ask for outcomes that may be most familiar to them yet completely irrelevant to our efforts (e.g. my personal favorite: asking an after school arts program to report on participants’ college graduation rates as a measure of “programmatic success.”) It is ultimately up to us as leaders in the not-for-profit sector to inform our stakeholders what we have established as our own criteria for success and to back up those claims with defensible arguments based in a solid evaluation plan – a plan which includes verifiable processes that generate relevant outcomes, succinct and easily identifiable indicators, and a balanced interpretation of the findings.

    Just like in the business world?

    Let’s find out.

  • Sophia Katt
  • Brooke Smith

    Thank you for writing this! Related to risk + failure – the other things nonprofits don’t have that for-profits do is money for R + D: trying things out, moving into new ideas/approaches/programs/spaces and experimenting – seeing what sticks/works.

    Really appreciate all your blogs and thoughts.

  • Pjs Ontario

    I disagree with much of what he said regarding compensation. People who work in the public sector or in the nonprofit sector should not expect to receive seven figure salaries for running that organization. I also question the idea that the org would suffer hiring someone for $100,000, which is a decent wage in any field. A 40 hour work week with an income of $100,000 is equivalent to a doctors income on an hourly basis.
    Charities are charities because people give money, not because they receive something in return for their money. It is because I get nothing in return for my money that I expect much better bang for each buck. I don’t care what the Toys R Us CEO gets, as long as I don’t get ripped off when I buy a toy. (If I feel I am getting ripped off, I shop elsewhere, as will everyone else, and Toys R Us will go under.
    I do care about how much of my donation goes to some fat cat with an expense allowance. The same thinking goes with my tax dollars and crown corporations and government positions.

    WRT investment funding, the funding of investments for businesses, ventures, and start ups is with the expectation of a return on investment. If a nonprofit guarantees a return on investment to fund my retirement, then and only then will the big investments come your way. Yes, I donate to charity. But I also have to live in my retirement years. THAT’s why investments exist.

    • Robert

      40 hour work week? The Executive Directors I’ve worked with live their jobs around the clock. 80hrs is a light week for them. Every one of them has been worth $100K or more though none got it.

      Then there is the rest of the staff. Many of them do unpaid overtime as well merely out of dedication. Then they burn out – they literally sacrifice their physical health due to their dedication. Every one of them has been worth more than they were paid. Non-profits run with fewer people than they need and those people are paid less than they deserve.

      I don’t think you can name a single for-profit CEO that I would find more valuable than any one of these people.

    • Barbara Saunders

      I still don’t get the distinction. If running, say, the Red Cross – billions of dollars, millions of people affected, hundreds of thousands of volunteers, thousands of staff, negotiating with parties all over the world, etc. — takes the same kind of skill and effort as running a comparable for-profit business, why are you so attached to the idea that this person should earn a modest salary?

      This is a bizarre prejudice. Why shouldn’t this person earn the same – or even more, if the work is supposedly more important – as the for-profit executive?

    • http://mcahalane.com/ Mary Cahalane

      Nonprofit work requires every bit as much skill and experience as work in the for-profit world. Why is it that nonprofit staff are expected to be basically volunteers?

      It’s dangerous to confuse volunteering (a noble, but entirely different thing) and working in the nonprofit sector. We are not worth less, we do not work less – and the problems many are trying to solve are both huge and existential for the people they serve.

      If you want an effective organization, you offer decent salaries, decent hours (40 a week is vacation for many) and stability. Then the organization can attract and hold on to talented people who are capable of achieving better results.

      I think the underlying problem here is a societal notion that the problems nonprofits solve are not ALL of our problems. That we’re not responsible for each other. That government – a reflection of all of us – should not be responsible… It’s always someone else’s problem. And when some do step in to work on it, they’re met with questions about why they ought to be paid.

  • http://www.henryhallan.me Henry Hallan

    I don’t know a whole lot about nonprofits but the freedoms you describe businesses having are contingent on them making a profit. Investors step back and let a profitable business run itself because they see the profit as proof that the business is well run. Businesses that are not making a profit get exactly the sort of investor interference, micromanagement and cost control you describe.

    I doubt that helps but it might help you to understand the thinking of your sponsors, at least.

  • Cliff Meyer

    Another difference between the sectors: in their vision statements, most nonprofits will describe a world in which they are no longer needed. That is not very business-like!

    • http://mcahalane.com/ Mary Cahalane

      Not all. But most SHOULD be aiming to no longer be needed. No more hunger? YES. That would be a huge win for society. But society in general doesn’t expect to help – enough – in that process.

  • wordsonfire

    Be still my heart! I love you. You just get right to the point. I once had a funder say to me “I notice you are wearing new shoes, that makes me concerned about my donor dollars.” As though it wasn’t enough that I was making a low five figure salary when I could have been making a mid-six figure salary. Just extraordinary. That being said, we’ve turned our non-profit into a “business.” We now earn over 70% of our revenue from someone who hires us because we are good at what we do (not many non-profits could provide such a service–we just got lucky to be in a service provider niche where no one else does what we do). And we have been asking for “investment” instead of grants. But you are absolutely spot on. Thanks for your words!

  • http://twitter.com/bkrudy bkrudy

    Fundamentally, the only difference between a for-profit and a non-profit is that nonprofits put their profit back into the business instead of paying stakeholders.

    I have worked with dozens of nonprofits, and the challenge is that most expect revenue to come from donors instead of from “product” like a typical business. The reality is that donors have hundreds (if not thousands) of options of where to donate their money. Like purchasing a product, what is in it for the customer — the donor. It needs to be more than just “feeling good” about themselves or “making a difference.” Any charity can provide that feeling, and all causes make a difference.

    For a nonproft to be truly successful they MUST recognize that their customer (donor) needs a benefit for their donation. And not just a t-shirt (they’ll never wear), or a copy of your monthly newsletter (that goes straight into the trash). They need to feel part of the cause. Name a project after them. Include them in your Annual Report so they can show their friends how philanthropic they are. Have them attend or speak at conferences. Invite them to dinners with industry VIPs. Or — invite them into the field to assist with projects.

    People want to contribute because they care. Get them engaged. Don’t just send them a generic Thank You letter with one line of personalized text. Yawn.

    Too many nonprofits DO forget they’re are a business, and the customer needs a benefit. The expectation that donors should just donate, and oh, please increase your generous contribution this year — those days are gone. They need something in return. What is it going to be?

    • smalltragedy

      Most customers have loads of options for where to take their business too. So this analogy makes no sense.What does a customer receive from American Airlines that is better than United? Either a lower cost, or better service. There’s not a single successful NFP that I am aware of that behaves in the manner you are suggesting, but there are plenty of companies where the difference between them is negligible and yet they still manage to turn a profit. So, again, I think the authors point is well made. This has as much to do with prejudice against NFP’s as it does actual differences in models.

  • http://okazu.yuricon.com Erica Friedman

    Watching a local non-profit cannibalize their business in order to be “more like a business.” Down to skeleton staff, because they are a social service NOT a business and don’t have a way to make money. NPOs are not businesses for a reason.

  • Daphne Schneider

    If you haven’t read it, check out Uncharitable by Dan Pallotta. His thesis is much like yours, and he comes down very hard on the whole issue of judging non-profits by how much they spend on overhead, rather than on results.

  • Grego Dow

    I don’t know how often I have heard “we need to treat this like a business” when working in the non-profit sector. It always irked me when people were involved in a charity/non-profit with the focus on the “bottom line” (being, numbers/profit) but the problem is, whatever issue the non-profit is addressing is the bottom line. If you are working with low-income families, regardless of the profit you make, the bottom line for that organization is the impact you have had on the families you serve. And if you do not serve as many families in one year versus the year before, you have not failed, those families you did help are now NOT “less impacted” because you served less. It is such a different mind-set you have to bring into this sector…truly the magical unicorn, as reaching more families does not equate receiving more funding…and serving less in one year does not equate failure of your mission or your organization. When there is less to serve, your invest more into those few. Your impact is greater, you still maintain your mission. And on the flip, when there are more to serve, you just work yourself harder to maintain your impact level on the families, despite funding and despite adequate resources. Thus the phenomenon of burn-out in this sector. The bottom line is your impact not your profit. But I think I’m preaching to the choir here. 🙂

  • Shirley Márquez Dúlcey

    Unfortunately, nobody is going to Get Over Overhead soon because some egregiously inefficient organizations have poisoned the well. There are alleged charities that spend over 90% of their income on fundraising and office expenses, with only a pittance going to the actual cause. At that point what you are actually running is a full employment program for the principals and employees, with a bit of charitable whitewashing to make the marks, er donors, give you money.

    Here is a link to a list with some bad examples: http://www.tampabay.com/americas-worst-charities/

  • bk425

    I’m a part time volunteer leader in an educational non profit (elected by members). I -really- wanted to go with the headline on this, but here are some nits i have with your story:
    1- “Do we care how much Toys ‘R Us spend on
    electricity and copy paper when we buy a My Little Pony Friendship Is
    Magic action figure?”

    Absolutely we do, and that’s part of why Toys R Us is shrinking while amazon scoops up their customers. Because that brick and mortar cost is reflected in the price of what they sell. And consumers are -brutal- on price shopping.

    2- “Do we care how much of our $1 go to the salary of
    the CEO of Bitstrip when we buy an add-on package”

    Again, yeah; CEO pay is hugely controversial right now.
    http://lmgtfy.com/?q=news%3A+CEO+pay+to+high

    3- ” A colleague pointed out that tech workers are making salaries close to 300K to engage in various projects, many of which fail, while many nonprofit folks make a fraction” You’re friend should re read that linked article, developers in the most competitive market in the US make half that (according to your article). My day job has been in technology for more than 2 decades, I just finished a 9 month contract doing XML and account management and I made about half that developers average (have I mentioned I’m available…?) So, (my free advice) don’t compare yourself to some Google exec. your rate of pay doesn’t mean your work is unimportant.

    • smalltragedy

      I have worked 20 years in NFP and my rate of pay is 1/3 less than yours. And I am in senior management. So, tell me again how it compares?

      • bk425

        ? I did not say it compares. I said 300k is off base for tech work. And I said we (NFP) shouldn’t equate pay with “importance”

        • smalltragedy

          I’m simply pointing out that what you consider nominal pay is high scale for NFP employees. I agree, pay isn’t equated with importance. Which is partially what the article is about. I spend a great deal of my time justifying what I do to people who make a lot more $ than me because they think I am an idiot because I make so little $. It’s annoying. If I wanted to make $ I would be in a different line of work.

      • Cassidy L M Bell

        So.. I was under the impression that folks in NFP are in them because they care about the cause, though clearly they still need to make a living. Perhaps if now you only care about whether or not your salary stacks up against a (pay attention here) FOR PROFIT (see, that was important because they whole point is that they exist to make money) you’re in the wrong business.

        • smalltragedy

          Yeah… I see what you did there. You proved my point. You can’t tell me that I should run my NFP the same way a FP is run and then tell me I’m an idiot for caring about money. I agree with you… I don’t do it for the money. But stop telling me how to run my business and what’s important to my business when you clearly don’t know my business.

  • Justus Eisfeld

    One of my pet peeves as a serial founder of successful new organizations is the incentive for entrepreneurship in nonprofits. Starting a new organization from scratch often involves a year or more of unpaid work, And being severely underpaid for the first few years of running the organization while building trust with funders. In businesses that may be the case as well, but the crucial difference is the payout once the startup phase is complete: in a for-profit setting, the entrepreneur either makes a profit and recoupes the startup costs that way, or sells the company, again with a profit large enough to cover the startup expenses and a reward for the risk taken. Nonprofit entrepreneurs get a non-monied award at best, and more likely just a wet handshake. In short there is no incentive for innovation or risk taking.

  • patb2009

    whenever someone says “Government should run like a business”, the first thing i say is “What ROI should govt have?” if they answer anything other then 0%, I know they are clowns.

  • ronwf

    But here’s the thing – you’re a not-for-profit. The reason that those questions are not asked of a for-profit is because of the question they’re asked and you’re not:

    “How much money are you going to make for me?”

    The farther over “0” the answer is, the less concern people have about all those other questions. Let that answer be “0” – or far closer to “0” than the investors could have gotten from some other investment – and they’ll get asked those questions as well.

    Your answer is “0”. So you get asked those questions.

  • Ken

    So what you are saying is that it’s society’s fault. Hmmm. When has IBM or Apple ever said that?

  • http://www.malesurvivor.org/ Christopher M. Anderson

    I just did some quick math as part of drafting my annual report. In 2015 MaleSurvivor (the organization I am the ED of) provided a direct service – either a healing workshop, awareness event, or professional training – to more than 5,500 people last year. We did this with a full time staff of 2, dozens of incredible volunteers (both clinical and laypersons), and a budget of less than $300,000.

    This means we provided our services at an average cost of less than $60 per person.

    I’m not saying this to brag. Believe me, from my perspective this isn’t something to be celebrated. The limitations and obstacles this causes us are almost insurmountable. And yet, instead of caring what we manage to accomplish in spite of those obstacles, I find myself constantly stressing out about not being able to justify to funders that we aren’t wasting their money.

    I wish I had a solution. I wish someone had a solution. Short of whole scale social and economic rebooting of the US non-profit sector, I don’t know what we can do.

    Christopher Anderson
    Executive Director, MaleSurvivor
    http://www.malesurvivor.org

  • Sandie Mullin

    If you write “Nonprofit: The Musical,” we will come…

  • Ummm…

    I don’t usually respond to articles, but umm… nothing about the above is correct. Like. Literally. Nothing.

    (1) Significant funding? Most for-profits (mine included) will never see $1M raised, and certainly won’t see it raised by one person. Your anecdote about ONE business in the for-profit realm can be paralleled by so many nonprofits who make bank just by knowing the right legislators every year.

    (2) Faster funding decisions? It’s called due diligence. It takes months in both for- and nonprofit. The term sheet is when it’s OVER and they are saying yes to you. Then, yes it’s another 4-6 weeks. Meanwhile, when nonprofits are told yes, they get the money immediately.

    (3) Focus on results? Every for-profit has to not only do an annual report like nonprofits, but have a monthly meeting with their Board of Directors (who can fire them if they don’t like what they see), and a quarterly meeting with all of the shareholders. So yes it takes a ton of time.

    There is more I could rant about, but the general problem is this. It’s not that you want to be treated EQUALLY, it’s that you want to be treated like you’re SPECIAL. No one cares that you want to save the world. We all want to save the world. You need to show that you have the business acumen to carry it forward — regardless of if you are a nonprofit or for profit.

    • smalltragedy

      Not entirely true. The people on Boards of non-profits (generally for profit business owners) consistently expect non-profit leaders to jump through hoops that they would never jump through themselves. I would suggest that the authors points are exaggerated, but the thesis still ultimately stands. The difference is the banks and the VC’s aren’t acting because they want to “save the world” they want a prominent return on their investment and give start ups loads of leeway for their failures. Mostly, any NFP failure is looked at as a character deficiency. The overhead point made above is the perfect example. A start-up that is losing money has significantly higher overhead than is healthy, but no VC will say boo about it. But every grant given a NFP has to prove that they have no overhead. There’s no such business, NFP or FP that has no overhead. But NFP’s are somehow expected to keep there’s at rates so low they make for miserable work environments and low morale. This isn’t asking for special treatment. It’s asking that rhetoric match behavior.

  • Nick D. Anderson

    Yes! Nonprofits should be encouraged by all to take risks, hire exceptional talent and invest in research and development.

  • smalltragedy

    I think it’s hysterical how all these business people are saying this article is wrong. Further proof that maybe the writer has struck a nerve.

  • Christine Goepfert Rontal

    Loved this. Just started consulting in PDX focused on advocating for the shifts in nonprofit culture mentioned in your article as well as to operationalize and evaluate grant proposals and strategic plans. I looooooved this article. Loved it! So great to see a kindred spirit out there.

  • Don

    Your comments reflect a broadly held point of view. Perhaps there is another way to look at the things that bother you.

    I embrace my critics rather than criticize them. It is easy for anyone on the outside of any organization to point how the organization could do a better job if only they were better at emulating some part of another organization. Like all critics, their ignorance is troubling and the valid bits of wisdom are more troubling (Who wants an outsider telling you how to run the show?). However, when you listen to them
    with an open mind you can find those bits of wisdom helpful.

    The important thing to remember about critics is that are passionate. Think about the dance critic who sees several different performances each week and has many ‘helpful suggestions’ to make about each. You have to really love dance to sit there and analyze every move, mote, and bit of scenery, be disappointed by the performance, and wake up tomorrow morning and do it again. The dance critics care about elevating the art of dance. If the dancers ignore the critic, their careers will stall. If the directors ignore the critics, they will eventually lose their audience and be out of work. If the theater owners ignore the critics, they will go bankrupt.

    If nonprofits ignore their critics or try to silence them, they will lose donors and other supporters (referral sources, advocates, volunteers, etc.), clients, and community support. Every year many nonprofits close because they thought they knew better than their critics did.

    You quoted someone saying, “Nonprofit businesses are businesses! But instead of making money for our stockholders, we create dividends in benefits to the community!” Everyone can embrace that until they ask a nonprofit to provide evidence of the benefit. Remember the stockholder has two forms of evidence (the rising value of the stock and the dividends). The corporations also have a long history of paying dividends and rising stock values. Those who are unable to provide durable evidence (year after year) find it hard to attract stockholders.

    Stockholders know the difference between transactions and transformation. Sears sells millions of items every year. However, it is unable to transform its business to serve our changing society. Therefore, even though it handles many
    transactions it has declining value, fewer stockholders, and a lower reputation. Apple sells millions of iPhones every year. Apple is able to transform its products every year to make them more attractive to its customers. The growing number of people with Apple products is evidence of Apple’s transformation and growing sustainability. Apple has passionate customers and stockholders. Apple has a good reputation.

    Nonprofits need to be able to provide meaningful, measurable, and durable evidence of how they are transforming their clients to create greater value for their community. Feeding a 1000 people every month is great transactional evidence. However, feeding a family for a year does nothing to transform the community. In
    fact, it has a negative impact on the community. While the family is well fed, it is also now dependent on a charity for its survival. The value of the family to itself or its community remains unchanged. Until the family’s value to itself and the
    community has increased, the nonprofit has no evidence of its ability to
    transform the community. Like Sears, the nonprofit has yet to earn growing support and the nonprofit should expect to experience declining support. It is unlikely that clients, donors, or the community are going to be passionate about that foodbank.

    Here are some thoughts for you under your heading “Make funding decisions faster:” My experience with VC (venture capitalists) is that funding happens within
    90 days or it never happens. My experience with fundraising for nonprofits is that it should take the same amount of time. In other words, if you can’t ignite the same enthusiasm in a high-value donor as the entrepreneur does in the VC, you are unlikely to close the deal, at least for any significant dollar amount. It is important to keep in mind that if you are talking to a high-value donor, the donor may also talks to VCs. Your competing for the same dollars.

    Let me tell you a story. There is a man we will call Sam. He has about $400 million in assets and only intends to give his children $10 million each. The rest will go to charity before or after his death. While having lunch with Sam a nonprofit executive interrupted our lunch and asked for a meeting with Sam. Sam said he had a busy schedule but would be happy to write a check for $5,000 on the spot. The executive happily agreed. Sam usually makes charitable contributions in
    the millions. All he was doing was politely saying he had no interest but was willing to pay to keep his calendar uncluttered.

    If the executive had turned down the check and said he wanted advice from Sam. The story would have ended differently. Sam wants to be valued for his knowledge and how much he cares about his community. Sam wants to partner with nonprofits to change the community rather than give them money so they can change the community. If you can ignite Sam’s interest, you will never want for funds. He will give and recruit others to give. Otherwise, he will give you a polite no in the form of a check for a small fraction of what a yes could be worth. In
    short, asking for Sam’s help instead of his money, captures Sam’s heart. He quickly decides to help and generously responds to the need for his help (wisdom and funds).

    In short, if you can’t attract the donor’s interest, you will never capture his or her heart. If you can’t close an ask in 90 days, there are two potential problems. You are using the wrong pitch (not talking to the donor’s heart) or you are pitching to someone who have very little interest in your mission and is going to eventually give you a polite no (small donation compared to what they could have done).
    Either way, it is time to disengage, learn from the experience, and find a new prospect.

    Here are a few thoughts for you under the heading “Get over overhead”. The only reason donors use overhead to measure the effectiveness of a nonprofit is because nonprofits fail to talk about other more meaningful measures. If
    the donor is evaluating your organization based upon overhead, they are telling
    you it is time to rethink the pitch that started the conversation. Give the world evidence that demonstrates your nonprofit is effectively transforming the lives of your clients and adding value to your community. Provide the data that shows you are scaling your operations (the year-on-year trend line proves more people are being transformed at a lower cost per transformation or there is greater depth and breadth to the transformation to justify the cost increase per transformation). Focus the discussion on the value of transformation and no one will care about the cost of janitorial services. The ultimate goal is to demonstrate value (as the listener measures value) for money. When all you talk about is transactions (number of clients served), the cost of doing everything matters because the only way to make sure costs are justified is to examine every expense. When you are Apple, the way to make money is to transform your products (results) so that they create more value and no one will care how much a product costs. The evidence you present (transactional or transformational) tells the world which business model to use when evaluating your nonprofit.

    Here are a few thoughts for you under the heading “Focus on results”. Foundations use line items to evaluate the use of their money because nonprofits in general do a poor job of talking about results. Results are what is produced. When you hand out bags of groceries, you produce nothing. Since nothing was produced, the funder’s only choice is to ensure that the money was spent carefully. When you create an upwardly mobile person, you create something of great value. Produce an upwardly mobile person and no one will care what it costs because that person will be so valuable the cost will be immaterial.

    Here are a few thoughts for you under the heading “Get over sustainability”. Perhaps there is a difference between shoppers (clients), people who buy Apple products, and stockholders. After someone buys a new phone, they are
    unlikely to care if Apple is still in business tomorrow. All they care about is that when they want a replacement phone, someone is offering a better phone than the one they have in their hand. The stockholders care deeply about the sustainability of Apple. They want the Apple stock to fund their retirement. Therefore, Apple must be highly sustainable or the stock price will drop because no one wants to invest in a company that is unsustainable or has declining sustainability.

    If you treat you donors like customers, they will behave like customers (donate anywhere, give in proportion to what they think your services (not your mission) is worth, ask about costs, etc.). If you want them to behave like stockholders
    (loyal, passionate, etc.), provide them with the same information every
    publicly traded company provides (where is you nonprofit going, what will it do
    to be the best, what evidence does it have that it is currently among the best,
    what evidence does it have that it is effective, what is the value that it is
    creating, what evidence does it have that it is creating value, etc.). Just like Apple creates value its stockholders appreciate. Your nonprofit must create value its community appreciates.

    Here are a few thoughts for you under the heading “Increase funds to parallel results”. If people value your success, you will find that the funds parallel the results. If you are having trouble funding your success, you need to adopt the funder’s definition of success or find funders who value what you define as success. It is the funder’s money, they should be able to define success. You don’t eat in restaurants just because the chef wants you to ou eat there because you are receiving value for money as you define value for money. You errand your money, so your errand the privilege of spending it the way you want. Your donor’s errand their money, so they have errand the privilege of donating anyway they want. Your, like the chef, must cater to the source of the money.

    Here are a few thoughts for you under the heading “Accept risk and failure”. Every stockholder cares that about every failure. They also criticize and vilify each
    failure. Several highly paid executives are fired each year because of too many failures and an insufficient number of successes. If an executive (nonprofit or
    for-profit) still has a job after a failure, the failure has been accepted as a
    normal event. In that case, the critics are just expressing their justified concerns.
    They don’ t want the executive to be fired and they certainly don’t want
    the nonprofit to fail. They care so much they want to ensure that the failure is properly analyzed and noted.

    Take a moment and look at the lost opportunity. Your critics care deeply. Here is your opportunity: Figure out how to turn the critics into donors or if they are donors thank them for their loyalty, generosity, passion, and concern. You already
    know that people who are passionate and concerned make the best donors. Every one of your critics should be a donor.

    The reason for-profits fail at a higher rate is that small for-profits seldom have an independent board. Nonprofits should be thrilled that their boards help to insure that even the smallest nonprofits have a better survival rate than equal sized for-profits. Find other ways to leverage the other advantages your board could provide then you can beat the for-profits in area like funding, sustainability, supporter engagement, and value creation.

    Here is my answer to your question: “Do we need to compete with for-profits on their terms when we are so different?” Yes, for two reasons.

    1 – Every dollar bill is identical. If you want a dollar from someone, you have
    to prove giving to you is the best choice they can make. So why is your nonprofit better than buying a beer, investing in company x, going on vacation, saving for retirement, or sending my child to college? How much I give you tells you how much I value you. If you want more, prove you are more valuable than my other options.

    2 – Nonprofits are identical to for-profits with one exception: Taxes. That single advantage is potentially worth a large percentage of your income each year. With that single advantage, you need to ask yourself, “Why aren’t nonprofits wiping the floor with for-profits instead of whining about the how unfair it is to be compared
    with for-profits?” Nonprofits have a significant advantage over for-profits but the world looks down on most nonprofits. That seems to indicate that nonprofits have a significantly underutilized advantage. Make it your goal to have for-profits looking up to you for advice and use your nonprofit as a model for their improvement.

    Now you know why Mayo, Harvard, and other wonderful nonprofits are able to outperform for-profits every day. By the way, those two have always been better
    than comparable for-profits. They have a culture of excellence. Is your nonprofit’s
    commitment to excellence the same as theirs (no exceptions, explanations, or
    excuses, just yes or no)?

    The formula for success in our society is easy – do something meaningful, measureable, and durable as defined by society and you will be highly rewarded, highly sustainable, greatly appreciated, well respected, and adequately
    funded. Do anything else and you will always be struggling.

    The problems of our society are much tougher to solve than how to create a smart phone but creating a smart phone is hard than picking up trash. Regardless of how hard or easy it is to fulfill your mission, you decided to do it. If you want an easier job, fill out an application. The fact that you are doing your current job says you can do a lesser job if you want to. So ask yourself, “Am I passionate enough to
    keep doing this job or is it time to do something of less valuable for society?” Once you have answered that question stop spending time talking about what you don’t have or don’t like and get on with changing the world. If you do the right
    thing, at the right time, in the right way, and for the right reasons, you will
    always have everything you need to be successful. No one can guarantee that you will always realize that what you need for success is within reach but if you look hard enough you will find what you need.

    You got up this morning to change the world. So did I. Let us be about it!!

  • Teresa

    The gist of this article is right on – changing the mind maps that currently exist into a new awareness of what it means to be a nonprofit. However, I want to make a distinction – nonprofits are businesses with customers, revenues and expenses, but that doesn’t mean they should be treated exactly like for-profits. I advocate for using business strategies and concepts in nonprofits to aid in planning, managing and decision-making. I have come to this realization after working in the nonprofit sector for 8 years and having earned my MBA. My experiences working in several nonprofits is that they were not well-managed, did not have solid decision-making skills, and struggled to keep good staff on hand. I think nonprofits can pull from the business sector to help strengthen what they already have. Using analytics, a values-based but business approach to strategic planning, systems improvement through a nonprofit perspective, balanced scorecards, project management strategies. Nonprofits should be open to moving in a direction towards using business concepts and strategies as they work to meet their missions – but this does not mean they are businesses. This does take resources, of course, and not every nonprofit has access to such resources. But what if we focused on providing resources and training to nonprofits to use what business concepts and strategies that nonprofits believe fit best with their values and culture to aid in streamlining work. I think our first step is to find ways to provide these resources to nonprofits.

    • House0fTheBlueLights

      They struggle to keep good staff because they can’t pay enough because of the vicious funding cycle. I’m a non-profit start up specialist and I don’t see more problems with under-capitalization than I do with lack of business acumen. But the system doesn’t allow us to capitalize.

    • Gio

      Teresa, you absolutely nailed it with your thoughtful contribution here regarding the need for operational excellence within the non-profit model.
      See my comments posted separately today, December 17.

  • Jason Jehosephat

    There’s plenty of merit to the above, but I have a comment about

    “Do we care how much Toys ‘R Us spend on
    electricity and copy paper when we buy a My Little Pony Friendship Is
    Magic action figure? Do we care how much of our $1 go to the salary of
    the CEO of Bitstrip when we buy an add-on package? If for-profits are
    allowed to spend money on advertisement—99.9% of the ads on TV and in
    print are about for-profit stuff!—then why shouldn’t we nonprofits?”

    This isn’t a valid comparison. When I buy something, the utility I get from the purchase is embodied in the merchandise. That merchandise is the same regardless of how the price I paid for it is applied to costs and profit. When I’m contributing to a charitable organization, the utility I get from my contribution is embodied in the amount of good that my contribution does. If two organizations do exactly the same work, and a $100 donation to one results in food to a family of four for 5 days while a $100 donation to the other results in food to a family of four for 1 day because they spend more of my donation on PR and executive salaries, which one do you think is going to get my money?

    I understand that it’s more complex than that. From the non-profit’s perspective, more PR and pricier execs may result in more money overall for the provision of services. But it also might be that the organization with the lower overhead is more effective per beneficiary, and that it might be better to have ten of then than one of the high-margin operation. In any event, your dismissal of donors’ interest in weighing the effectiveness of their contributions is unwarranted and unwise.

    • http://mcahalane.com/ Mary Cahalane

      And then you have the second one, with little to no overhead, losing impact because they’ve closed – because not paying people and expecting great results runs the organization into the ground.

      Overhead just isn’t a good measure of impact. The problem is that with such a variety of missions and goals, finding on simple way to communicate impact is difficult. That old overhead ratio was so easy – even if it hurt nonprofits and the people we serve.

      But as others have said – we can begin to come up with good ways to measure and communicate impact – but we need the funding to do it.

  • http://mcahalane.com/ Mary Cahalane

    You are my hero.

  • House0fTheBlueLights

    Only nonprofits are expected (required!) to grow from current revenues.

  • Cassandre Miller

    The day you have the laws to follow that a business has…I have no problem doing that…until then…this article is a joke…

  • Economist2011
  • Emillia Noordhoek

    You are breathing new life into this unicorn who was getting dull and losing her sparkles! YAY for you getting your brave on and saying what so needs to be heard … I feel like we are performing open heart surgery with a pocket knife most days and when our patients not only live, but thrive, do we get a greater amount of funding because of our success? No we have to look to other funding sources because our success means that funder is no longer needed…
    I cannot keep waking up in the middle of the night wondering if I will have the funding to pay my amazing unicorn staff- who deserves so much more than they are making in the first place….
    Mahalo and Mele Kalikimaka- Thank-you and Merry Christmas….
    tropical, hula unicorn

  • Gio

    Teresa, you absolutely nailed it with your thoughtful contribution here regarding the need for operational excellence within the non-profit model.

    In addition to a near 30-year private sector business career, I’ve also built
    in parallel a separate 25-year career volunteering my expertise and experience
    in non-profits.

    Improving the strategic/tactical/operational business models via continuous
    improvements to resources, systems, and processes ensures execution of
    mission/vision/strategic initiatives and delivery of operational excellence.

    Note on LinkedIn the growing number non-profit job postings seeking volunteers
    with specific subject matter expertise and/or breadth and depth of expertise
    and experience. If I can’t give my money, I give my subject matter expertise
    voluntarily to help non-profits improve day-to-day operations in support of
    improved processes and business models.

    Teresa, thanks for prompting deeper thought regarding the need for non-profits
    to not only seek increased funding but to also seek subject matter experts to
    help deliver operational excellence.

  • Gio

    Teresa, you absolutely nailed it with your thoughtful contribution regarding the need for improved operational excellence in the non-profit business model.

    In addition to a near 30-year private sector business career, I’ve also built
    in parallel a separate 25-year career volunteering my expertise and experience
    in non-profits.

    Improving the strategic/tactical/operational business models via continuous
    improvements to resources, systems, and processes ensures execution of
    mission/vision and strategic initiatives and delivery of operational excellence.

    Note on LinkedIn the growing number non-profit job postings seeking volunteers
    with specific subject matter expertise and/or breadth and depth of expertise
    and experience. If I can’t give my money, I give my subject matter expertise
    voluntarily to help non-profits improve day-to-day operations in support of
    improved processes and business models.

    Teresa, thanks for prompting deeper thought regarding the need for non-profits
    to not only seek increased funding but to also seek volunteer subject matter
    experts to help deliver operational excellence.

  • Gio

    Teresa, you absolutely nailed it with your thoughtful contribution regarding the need for improved operational excellence in the non-profit business model.

    In addition to a near 30-year private sector business career, I’ve also built
    in parallel a separate 25-year career volunteering my expertise and experience
    in non-profits.

    Improving the strategic/tactical/operational business models via continuous
    improvements to resources, systems, and processes ensures execution of
    mission/vision/strategic initiatives and delivery of operational excellence.

    Note on LinkedIn the growing number non-profit job postings seeking volunteers
    with specific subject matter expertise and/or breadth and depth of expertise
    and experience. If I can’t give my money, I give my subject matter expertise
    voluntarily to help non-profits improve day-to-day operations in support of
    improved processes and business models.

    Teresa, thanks for prompting deeper thought regarding the need for non-profits
    to not only seek increased funding but to also seek volunteer subject matter
    experts to help deliver operational excellence.

  • Rob Mitchell

    All readers and commenters should consider Dan Palotta’s TED talk https://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong?language=en

  • Gio

    Teresa, you absolutely nailed it with your thoughtful contribution regarding the need for improved operational excellence in the non-profit business model.

    In addition to a near 30-year private sector business career, I’ve also built in parallel a separate 25-year career volunteering my expertise and experience in non-profits.

    Improving the strategic/tactical/operational business models via continuous improvements to resources, systems, and processes ensures execution of mission and vision and strategic initiatives, and therefore delivery of operational excellence.

    Note on LinkedIn the growing number non-profit job postings seeking volunteers with specific subject matter expertise and/or breadth and depth of expertise and experience. If I can’t give my money, I give my subject matter expertise voluntarily to help non-profits improve day-to-day operations in support of improved processes and business models.

    Teresa, thanks for prompting deeper thought regarding the need for non-profits to not only seek increased funding but to also seek volunteer subject matter experts to help deliver operational excellence.

  • jcmets4112

    There is no person named “society.”

    And this cuts to the core of your flawed understanding of these issues.

    VCs sink millions into speculative-but-promising things like Google Glass because there is a huge *personally realizable upside* for the investor.

    A VC wont sink millions into “complex social problems” because he wont DIRECTLY get anything back — even if the social problems are solved.

    Which they usually aren’t, as truly complex social problems are about MUCH more than money.

    If nonprofits want bigger funding, they need to structure their operations in a way that provides the promise of huge returns. At least, returns commensurate with those available in Silicon Valley.

    Without that, all the pleading in the world will fall on “society’s” deaf ears.

  • http://kumbolo.tumblr.com Asim Fayaz

    I founded and led a nonprofit for over two years in Pakistan. I couldn’t agree more with the way you broke things down. Perhaps, one addition would be “help with sourcing good talent”. When I look at VCs here in the valley, a big service the better ones do is help find good talent. Donors on the other hand seem to forget about you once the money is out of the door.

  • hunvreus

    You posture your diatribe as a comparison between nonprofits and businesses, and yet you compare them to complete outliers in the startup world:

    1. Startups aren’t businesses. Some of them graduate to be businesses, but most are not and never become one; they simply die before getting there.

    2. The examples of salaries (300K) and funding ($8M in a few weeks) are not averages, not by a long shot. Yes, if you are a senior engineer (5+ years), with unique skills, working at one of the big ones (Facebook, Google, …) you may pull in a 250K in the Bay Area. Most startups never raise even close to these amounts, and the vast majority of people working at startups would not even dream to get these salaries.

    3. You don’t get $8M being sent your way with no demand of accountability. You often only get it spread over time, and with it comes a huge amount of overhead (board meetings, regular updates to investors, huge accounting headaches). Getting these $8M in the first place is a huge time suck. It takes months if not years sometimes to convince people to invest and get it in the bank.

    4. Keep in mind that most startups fail, and while failure is advertised as more acceptable, it still hurts like hell. Financially, professionally and personally. You don’t simply fail and move on with your life (unless you’re at startup #4, with a couple successful exits under your belt).

    I’ve seen non-profits with obscene amounts of money being wasted on flying people around, investing in the wrong projects and organizing PR campaigns to look good in front of the donors. I’ve seen people making salaries way above what any reasonable business would pay for the amount of work they do and their skill-set.

    Most startups die, most of them without ever raising significant amounts of money, and most people involved in them don’t make much money (if any). If they do raise money, they have to deal with investors and lose some of the control on what they do.

    And yes, I do think nonprofits could help being run more like for-profits. Starting with having clear KPIs to evaluate the impact their work has. It doesn’t even have to be perfect at first (most businesses don’t get it right at the beginning either), but having at least a discussion on what success looks like, rather than an afterthought for the sake of the donors.

    I’ll give you that I think nonprofits should have more flexibility in how they leverage their funds; if something doesn’t work after a few months, they should be able to “pivot” and try something different. But my experience has been that a lot of times, the very people working at these nonprofits will just refuse to take the risk of failing in the first place.

    I’m not sure where we go from there, but I think we’ll see more nonprofits being postured and run as startups. Some already are, think Watsi (https://watsi.org), 80,000 hours (https://80000hours.org/), New Story (https://newstorycharity.org) or Bayes Impact (http://www.bayesimpact.org/) and they seem to be doing wonderfully.

  • Mick

    “But the frustrating reality is that we are judged as businesses without given the rights and resources to fully operate as businesses”. That’s a problem right there with the NFP sector. Rights and resources aren’t ‘given’ to you, they’re earned. If you’re not being afforded the resources you think you deserve, then change it, don’t ask someone else to do it for you. The virtuous nature of an NFP’s mission doesn’t mean they’re not in legitimate competition with all other organisations for rights and resources.

  • Uni Cornio

    Woot woot. Reminds me of this quote from one of my favorite researchers, Jim Collins, in Good to Great for the Social Sector. “We must reject the idea—well-intentioned, but dead wrong—that the primary path to greatness in the social sectors is to become ‘more like a business.'” (BTW, love your bitmoji. Can’t wait to hear how much of the time you don’t have you start to spend on changing outfits and awaiting the Friday pack’s arrival.)

  • http://www.sm4good.com/ Timoluege

    Of course, closely related to the mantra of “Nonprofits should be more like businesses” is the suggestion “Nonprofits should be run by people who come from the business world”. The example of the American Red Cross (https://www.propublica.org/article/the-corporate-takeover-of-the-red-cross) shows that that is not exactly a surefire solution, either …

  • Haley

    I am currently taking an English class with the Community College of Aurora, and for our research assignment, I chose to write on the differences between nonprofit and for-profit organizations and why nonprofits should think more like businesses. After my research, I have found that keeping a balance is most important and that there are business attributes a nonprofit can not replicate. For example, while nonprofits should embrace the enthusiasm for innovation, like a business, a nonprofit has two audiences to keep in mind. The recipients of their services and the donors. Businesses on the other hand only need to pay attention to one: Their customers. Innovation is very beneficial; it impacts both the nonprofit itself and the sector as a whole. But an organization needs to remember they have to persuade donors to invest in their projects, and in the nonprofit sector, persuading donors to invest in a high-risk project can be extremely challenging.