3 Reasons Why Nonprofits Cannot Operate Like Businesses

Now now, before you get all up in arms, we’re not saying that non-profits should never act like a business. We did see Dan Pallotta’s Ted Talk – The way we think about charity is dead wrong – and we talked about it in this previous post. The point here is that nonprofits cannot always act like a business because of some key distinctions between the two.

What is a non-profit business? Logically, you’d think, it’s a business like any other, with the exception that its mission is not to make money but to do some form of public good. In order to fulfill its mission, profits from the non-profit go, not into the hands of its owners or stock holders, but back into the organization itself.

If that’s the definition of a non-profit then, logically, business principles should be used to structure, manage, and finance a non-profit.
Because they think logically, many boards follow this line of reasoning – and hire business people to manage the non-profits for which they are responsible. Additionally, they make a point of including business people on the board, whose job will be to ensure that the organization follows typical business practices.
Every now and then, this approach works well. More often, however, it doesn’t.
Why not?

The reality is that the vast majority of non-profits – even many of the larger ones – bear very little resemblance to a typical business. Here are a few reasons for those differences.

1. The Staff Have Different Motivations and Values

The staff at most non-profits choose to work at the non-profit not because they are able to make the most money in the least amount of time, but because they care deeply about the mission of the organization. In fact, many staff members could make more money working elsewhere. They choose to forgo higher pay and shorter hours for the pleasure and/or personal satisfaction of being part of the non-profit.

Because of their dedication and sacrifice, staff at many non-profits feel a very personal interest in the processes and outcomes of their organization. They are more likely to connect emotionally to the activities in which they engage, the people they serve, and the processes used to achieve organizational goals.

For some, this emotional connection started in childhood – and their work is the culmination of a lifetime of dedication.

While non-profit managers may have a strong ego investment in their position (much as corporate managers do), they are also very sincere in their concerns about the content of what they are doing. In other words, a manager at an art museum is likely to feel very passionate about art, its impact on the world, and the importance of proper art conservation.

A manager at an insurance corporation is likely to feel far less personal investment in or passion about insurance.

Lower pay and higher personal investment means that staff are often motivated less by higher pay cheques and more by opportunities to make their mark on the organization or its outcomes.

Imagine Joe, who runs the office of a local animal shelter. He could make more working for a corporation, but he cares deeply about animal welfare. What motivates Joe to work his hardest and stay loyal to the organization? Sure, a little more money would be great – but more importantly, he wants the opportunity to help design and implement better living quarters for the animals in the shelter. That’s because, for Joe, it’s the involvement with animals that brought him to the shelter – not the opportunity to make as much money as possible as an office manager.

What happens if you bring typical business management tools to the non-profit setting? All too often, people like Joe are told to keep out of the day to day work of animal care and focus on office management, thus utterly undermining his reason for being at the shelter. Offer him money instead of a chance to make his mark, and he may decide he’d be better off at a corporation.

2. Non-Profits Succeed Because of Volunteers

Imagine the Acme Furniture Company asking volunteers to come in, week after week, for no pay, to stuff envelopes. Sound likely? Of course the answer is no. Most non-profits depend upon volunteers for all sorts of necessary work, ranging from serving soup at a homeless shelter to stuffing envelopes for the senior centre to ushering at the community theatre.

Volunteers are not staff, and can’t be treated like staff. Not only are they working for something other than cash compensation, they must also, in many cases, be handled with kid gloves.

What kind of compensation are volunteers seeking? Top of the list of reasons for volunteering are social connections, a sense that they are needed, a good feeling about giving back, and, of course, appreciation. That means that non-profit managers must ensure that their unpaid “employees” have social time, are given work that really matters to the organization, see the outcomes of their labour, and receive both informal and formal thanks and appreciation. Most successful non-profits also offer perks to volunteers that range from discounts on events or products to volunteer luncheons or galas.

Why treat volunteers with extra respect and appreciation, even if they’re not doing a stellar job of work? Volunteers are the heart and soul of the non-profit world – and they may have the capacity to give back in significant ways.

Even if Mrs. Jones is the most annoying individual in town, non-profit managers must find a way to endure her company while finding work for her to do and thanking her profusely for her time. After all, Mrs. Jones is working for nothing – and there is a good chance that, in addition to donating time, she will dig deep into her pockets.

Volunteers can also be an integral part of an organization’s mission. In some settings, such as hospitals, volunteers serve in roles such as concierge, counsellor, aide, and receptionist. At arts organizations they may staff the front desk, act as docents or ushers, take or sell tickets. These are all important functions which, in a business setting, would be handled by paid employees in a hierarchical office structure.

3. Non-Profits Thrive on Financial Hopes and Dreams

Businesses should plan their budgets based on solid market research, and a good understanding of their product’s value to the public. Their income comes directly from sales, and while sales goals are imprecise, they are usually based on a good knowledge of the market, the competition, economic trends, and so forth.

While non-profits have many of the same concerns as businesses, their income stream is very different. Few non-profits actually balance their budgets on income: the cost of running a theatre, a homeless shelter, or a senior centre is not covered by ticket sales, government subsidies, or low membership fees. Instead of basing their budgets on hard sales figures, therefore, non-profits build their budgets on “soft numbers” – funds they hope to raise through a combination of grants, annual giving, sponsorships, bequests, and other philanthropic donations.

Fundraising has a lot in common with sales, but it’s not the same thing. So much is based, not on reasonable expectations of making a deal, but on a volunteer’s ability to capture the heart and imagination of a potential donor.
How do you make smart budget plans on the basis of a foundation or individual falling in love with your mission? It isn’t easy. Yet that kind of pie-in-sky, what-if thinking is just what’s needed in the fundraising function. A fundraiser who doesn’t believe in the story she’s telling will never be able to complete a campaign.

Of course even non-profits need to run in the black. But the process of making that happen is not as simple as balancing the books.

The Non-Profit Difference

What do all these differences mean? For non-profit managers and board members, understanding those differences is critical to managerial success. The manager or board member who sees no difference between a non-profit and a for-profit corporation is missing the whole point of non-profit work.

Yes, the bottom line matters. Yes, budgeting is important. But for the staff, volunteers, and clients or members of the non-profit, it’s all about the work itself. After all, why work for less, or nothing, unless the work is reward enough in itself?

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