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Nonprofits don’t need to be more “business-like”

September 9, 2012

I’m guilty of saying it myself on numerous occasions, but I think it’s time we put the “nonprofits need to act more ‘business-like'” to rest.

I’m reminded of the recent Daily Show segment that applies Romney-esque “business” efficiency to federal governance, leading to the downsizing of several “under performing” states. Hedrick Smith writes of compassionate capitalism in the NY Times, but shareholder value has almost been interchangeable with business efficiency and performance for at least a generation. I’ve seen nonprofits act “business-like” during the recession, shamelessly using a competitive job market brimming with talent to justify below market rate compensation.

When some refer to nonprofits being more “business-like,” what they seem to mean is sustainable, effective and efficient. I think that’s what nonprofit consultant Caryn Capriccioso means, because her emphasis is on “earned income strategies” and “social enterprise solutions.” But like Charles R. Bronfman and Jeffrey R. Solomon, chairman and president of the Andrea and Charles Bronfman Philanthropies, many of us mistakenly conflate “discipline, strategy and a strong focus on outcomes” with “business,” just as we associate inefficiency and under performance with nonprofits and government. After all, a great number of businesses–and entire industries–are unsustainable and benefit from government subsidies and favorable tax policies.

Funders should want a good social return on investment, but it also requires patient philanthropic investment. And there’s really no bad investment–you only discover what does and doesn’t work. It’s just as valuable to know what doesn’t work and why as much as what does work and why–it keeps funders from repeating past mistakes.

While nonprofits should strive to be sustainable and outcomes-driven, that doesn’t mean they need to be more “business-like.” We rarely hear that businesses should be more “nonprofit-like” as Peter Drucker argued in the Harvard Business Review. As Drucker pointed out, nonprofits need management, but management doesn’t mean business. Drucker wrote “nonprofits need management even more than business does, precisely because they lack the discipline of the bottom line.” Instead, nonprofits are disciplined by mission and social impact–not financial returns.

And that’s the conundrum nonprofits face–to be driven by mission while simultaneously seeking financial stability despite a starvation cycle and scarcity mindset that discourages investment in the sort of processes and structures that optimize organizational performance. Is that really a recipe for business success?

One Comment
  1. It’s not so much that non-profits need to act like businesses, whose bureaucracies can be as bloated and sclerotic as any other institution’s. Rather, they should act more like entrepreneurs – embrace risk and seek scale. The structural problem with being a non-profit – in pure financial terms – is that it’s almost impossible to scale in any serious way and create rapid, dynamic change. The very nature of a non-profit structure means arithmetic, not exponential growth and impact. The bottom line instils discipline, but capital can also act as rocket fuel for change.

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