Should A Nonprofit Be More Like a Business?

PowerTools 2016

November 16, 2016

1

What Does this Mean?

2

Businesses Defined

For-profit:

• Established to earn profits

• Distribute profits earned(shareholders, partners, members)

Nonprofit

• Established to benefit broad community

• No distribution of earnings to owners

3

Legal Parameters

• Organized in accordance with state laws

• Registered to conduct charitable solicitations

• Approved for tax-exempt status by the IRS

• Annual reporting requirements

• Appropriate updates

4

A Successful Business…

• Creates and delivers something of value…

• That other people need or want…

• At a price they’re willing to pay…

• In a way that satisfies the customer’s needs and expectations…

• So that the business brings in enough profit for it to be worthwhile for the owners to continue operation.

5

The Business of Changing Lives

• Your nonprofit is (in most ways) a business. That doesn’t mean acting like a factory or relentlessly chasing profit.

• But it does mean

– creating something of value

– changing lives.

– investing enough in your organization so it can continue to make the world a better, more amazing place to live.

6

How are nonprofits different?

• Purpose

• Ownership

• Control

• Revenue

• Accountability

• Impact

Common Ground

• Clear mission statement

• Strong leadership

• Sound operational structure

• Effective management

• Accountability

• Internal controls

• Performance monitoring

• Pursuit of capital

8

Sound Business Basics

• Good money management – Cash flow: making money vs. profit

– Transparency

– Reinvestment

• Professional staff

• Sound business plan

• Realistic strategic plan

Human Resources

• Recruit the right people

– Leaders

– Managers

– Staff

– Volunteers

• Build the organizational culture

– Commitment to the mission

– Diverse backgrounds

– Appropriate skills and talents

10

Critical Focus

Strategic Foundation

Sound Business Plan

• Get strategic clarity

• Determine strategic priorities

• Understand resource implications

– Human resource investments

– Infrastructure investments

– Financial implications

• Stay on track

– Program milestones

– Operational and financial milestones

13

Comparative Plan Focus

• Strategic plan: what’s next

– Future focus

– What needs to happen to achieve success?

– How will success be measured?

– What resources will be required?

• Business plan: who/what/how/where/when

– Immediate focus

– Tasks, milestones and goals

– Potential for success

– Environmental and competitive risks

14

Established Metrics

• How do you know you’re on track?

• How do you forecast financial trends?

• What are key metrics?

• How do metrics guide performance?

Customer-centered

• What is our client profile?

• Who are our typical donors?

• What are their priorities?

• How do they get information?

• What do they expect from us?

• Who gives?

• Who is likely to give more?

• How do we identify the most likely prospects?

Appropriate Overhead

• Should it be high or low?

• It all depends

– on the work being done,

– on the context,

– on the industry (or field),

– on the competitors (or other players),

– on the stage of evolution of the business (or nonprofit).

• Focus should be on results 17

Systems Impact

• Impact through purpose – think big

• Impact through talent (think Google)

• Impact through innovation (think long-term ROI)

18

Questions to Consider

•Have we identified a clear problem or need?

•Do our programs make other people’s lives

richer?

•Does the way we communicate make our

donors feel valued?

19

Measure of Success

• For–profit: money for shareholders

• Nonprofit: money for mission

20

View Your Nonprofit Like a Business

• Nonprofit perspective

– Mission

– Passion

– Dedication

• Business mindset

– Money

– Paperwork

– Procedures

21

Obstacles to Business-like Behavior

• Reluctance to invest significant capital over the long term

• Overhead challenge

• Focus on expenses vs. results

• Aversion to risk

• Intolerance for failure

• Emphasis on sustainability

22

What Business Can Learn From the Nonprofit Sector

• A company’s social values are cornerstone of its appeal to constituents (customers, employees, stockholders)

• The best employees are a lot like volunteers (motivated by purpose, community, recognition)

• Customers are like donors (ladder of engagement, appreciation, stakeholder benefit)

23

Bottom-line Basics

• Deliver value that others want

• Tell people about the value (marketing)

• Sell this value (generating revenue)

• Deliver the value

• Manage your finances

Contact Information

Ronnie Hagerty, Ph.D., CFRE

Nonprofit Connection United Way of Greater Houston

rhagerty@unitedwayhouston.org

www.unitedwayhouston.org Nonprofit Connection tab