Nonprofits and Businesses: Two Completely Different Birds of the Same Feather

With many nonprofits running inefficiently and ineffectively, you often hear people talk about how nonprofits should operate more like businesses. As it turns out, that’s not always the best approach, as Mark Holmgren explains.

There are many fundamental differences between NPOs and businesses, not least of which is that nonprofits are not in it for the money—they’re in it to make a difference. That’s not to say that for-profit companies are heartless or only in it for profit, but rather that they by definition must make a profit to continue to grow, create jobs, innovate, exist etc. For nonprofits, money is a means to an end rather than an end in and of itself. Fundamentally, NPOs measure their success differently.

That being said:

1. Nonprofits Must Measure Success

The problem of measuring the success of nonprofits is a real one. As Holmgren explains, nonprofits typically don’t measure success in terms of shareholder value or sales, but rather in social capital—a murkier metric; the impact of their good works. You can’t measure the impact of a dog shelter rescue finding a loving “forever home” in dollars.

But like businesses, nonprofits cannot be driven by stories and feelings alone. Numbers cannot be ignored or underestimated. Whether that be dollars raised, dogs saved or houses built, people want to see success quantified when choosing where to donate their money. NPOs need to paint a vivid picture of how they’re making a difference, and that includes measurable success AND success that’s harder to measure—success measured in smiles and good feeling.

Holmgren also talks about competition and how nonprofits don’t compete to get ahead, but rather must fight to survive, which brings me to my second point:

2. Nonprofits Must Still Be Lean, Mean, Competitive Machines

The private sector is driven by aggressive competition as firms constantly vie for customers and sales. It’s a rough and tough game, and one that you must seek to be the best at to meet consumer demand and survive. The upside to this is that the private sector is a lot more forgiving of failure. If your startup fails, you just get a new idea, some new capital, and you go at it again.

Nonprofits, on the other hand, don’t compete to be the best game in town. After all, we’re all on the same side, right? Yes, but that doesn’t mean they don’t have to be competitive, and here’s why:

In a competitive marketplace, the strongest and most innovative survive, while most ventures fail. Most nonprofits, however, struggle on, even if they’re leaking money like a sieve. NPOs don’t usually close up shop or get bought out. As Holmgren explains, there’s “no market for philanthropic stock, almost no liquidity for social capital.”

Nonprofits must not only compete with other nonprofits for grants and donations, they must compete with themselves to innovate and be cost efficient. An inefficient, struggling “mom and pop” nonprofit might have a great mission and be in it for the benefit of others, but they won’t do a whole lot for the cause if they can’t cut waste, fundraise, innovate, or keep up with the rest of the team in the nonprofit world.

NPOs and for-profit companies have different goals, different metrics for measuring success, different practices and different audiences. They’re completely different, but that doesn’t negate the fact that nonprofit and for-profit organizations can learn from each other. They’re completely different birds of the same feather. Some of the same principles that make businesses great can make nonprofits just as awesome.


Will Folsom

Will is everyone’s favorite intern on the Hub team. Tucked cozily in between his colleagues’ desks, you can find Will researching, writing, and drinking coffee from his John Wayne mug. Will brings his humor, youthful energy and a fresh perspective to the Nonprofit Hub team. He is passionate about history, marketing and bringing to light new ways in which nonprofits can succeed.

October 8, 2014

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