Finding the Right Business Model

Posted by Laura Otten, Ph.D., Director on May 9th, 2019 in Thoughts & Commentary

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The longer I have spent in the nonprofit sector while simultaneously working increasingly with for-profits, I have come to understand the great disservice that has been done to the nonprofit sector.  I see it akin to the media setting up women, back in the ‘60s and ‘70s, with the challenge of “can women have it all?” 

So it is with nonprofits:  we have been told time and again, and society generally believes, that the for-profit sector does things better than we do and therefore we should emulate them.  If we don’t, we are the lesser being.

Yes, we can, although perhaps not all at once.   Yet, as a result of the media’s hype of this burning question, so many women were plagued by the need to try to be “super women,” and left to feel like failures. 

People love to tell nonprofits that they should run like a business.  Fact is nonprofits are businesses.  They are mission-driven businesses, as opposed to for-profit businesses that are money-driven.  So, what folks who admonish nonprofits to run like a business are really are saying is “nonprofits should run like for-profits.”  The unspoken assumption in this statement is that for-profit businesses do it all correctly and nonprofits, well, they don’t do much right.  Nothing could be further from the truth, which is that the for-profit sector does not do it all right, or even necessarily any better than nonprofits.  In fact, in some cases, they perform worse than we do.

One of the first clues to the falsehood of that assumption should be the behavior of too many board members whose day job is as an employee of a for-profit.  Too often, we who work with nonprofit boards will wonder at the ability of these nonprofit board members to make decisions at the nonprofit board table that they would never make for their for-profit company.  Decisions made with no data or other information at hand, and without discussion and consideration. 

They allow underperforming and even nonperforming board members to stay in service long after they should have been fired.  I, and so many my peers, used to say, “they just go dumb when they sit down to the nonprofit board table,” or “they check their brains at the door” of the nonprofit board meeting.

I know now that we were being gracious and generous.  They were being neither; they were simply being how they are, regardless of whether they are sitting at the nonprofit board table or in their offices.  They are acting in the manner to which they are accustomed. 

When my husband would practice baseball and football with our son, he would repeatedly tell him, “You play as you practice.”  Practice routinizes the behavior so that come game time, you know no other way to be.  So it is with nonprofit board members:  they play at the nonprofit board table exactly as they have been practicing in their day jobs.

A conversation with a group of employees at a corporation with which we work affirmed for me that for-profits are no better at creating good, meaningful employee performance evaluation systems than are nonprofits.  And this despite the fact that companies more often than not have at least one, and more likely a team, of highly trained human resource professionals, a rarity at a nonprofit.  On top of this, they generally have the carrot of raises and bonuses for those who perform well, meet their goals; such carrots are, again, not often available at nonprofits.  And, yet, what I hear when I talk to for-profit employees about these systems is the same things I hear when I talk to nonprofit employees:  they are pro forma, meaningless, hoops that must be jumped through, all so boss’s favorites can be rewarded. 

While nonprofits have been struggling with measuring impact for years, at least they have been engaged in the struggle.  They understand the need to be able to measure their impact so they can share that information with clients, the media, donors, and so they have the data that will allow them to constantly be improving the services they provide.  Yet a recent panel discussion with four, large to very large for-profits, showed an amazing absence of metrics for assessing the “goodness” of their corporate volunteer programs, as only one of the four had any metrics whatsoever.  Give corporations sales goals or a bottom line to meet and they can wow you with their success.  But give them the kind of impact that nonprofits are expected to measure day in and day out and, well, most have nothing. 

I’ll tread lightly here, because strategic planning in the nonprofit sector is about a 50-50 proposition:  50% have one by which they live, 50% don’t have one or have one they don’t bother to live by.  Nevertheless, I couldn’t help but laugh when a student recently told me that the for-profit company for which she works has never had a strategic plan, even though its CEO founded a nonprofit which was led through strategic planning by this very founder/for-profit CEO.  

Where the for-profit sector could really benefit from taking a page out of our book and do something that would help their clients is to stop wasting so much money.  Granted, I would say that nonprofits need to learn to spend a little more, but for-profits need to learn to spend less money than they do and to stop wasting money. 

Several companies with which we work seem to make decisions, followed by investments of money, by how the wind blows and the CEO’s flavor of the month.  Today, tens of thousands of dollars go in one direction; the next week that is dropped and tens of thousands go out the door in another direction.  We have seen strategy follow money, rather than money follow strategy.  While the trend of redecorating office space every several years, and updating everyone’s computer equally often seems to have slowed to a longer cycle, there is no interest in a sofa with a stain or coffee on every other floor.  I won’t even bother to mention salaries, or what for-profit companies are willing to pay for all the consultants they bring to tell them how to run their businesses.

My message to all of my students—be they MBA students or Masters in Nonprofit Leadership students—is that neither has the best model, but blended together, taking the good and better from each, has the potential for making a great business model.

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.

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