By Lisa Greer, Rotary Club of Beverly Hills, California, USA
“WE ARE NON-PROFIT. We are not a business!” As someone who has served as a board member, adviser, and donor for nonprofits, I’ve heard a version of this sentiment more times than I can count. At a meeting, it might be someone’s response while discussing a financial or organizational governance issue of the nonprofit. The statement often carries a whiff of disdain.
As someone who also has decades of business experience, I think it’s time to examine the abhorrence of the for-profit world that is sometimes voiced in the nonprofit one. While the distinction in virtue between nonprofits and many profit-making ventures is clear, the scornful “we are not a business” attitude is used by some as a rationale for sidestepping the practices, standards, and protocols that are part and parcel of any for-profit entity. This is where nonprofits get into trouble.
Nonprofits and traditional businesses are not diametrically opposite entities. The financial website Investopedia.com says businesses can be “for-profit entities or they can be nonprofit organizations that operate to fulfill a charitable mission or further a social cause.”
Why deny it? Nonprofits are businesses. They have overhead and administrative costs. They compensate staff in accordance with labor laws. They don’t have to pay some taxes, but they do have to file paperwork. They have bylaws. They carry appropriate insurance and meet safety standards. They have boards of directors with fiduciary responsibilities to their organizations.
So why does it seem like so many nonprofits rail against anything that sounds businesslike? The view that businesses are bad and nonprofits are good is simplistic. Here are some common misconceptions I have heard that try to justify why nonprofits shouldn’t operate like a business — and my thoughts about why they don’t make a whole lot of sense.
Only for-profit businesses focus on money. For-profit business is about making a profit, hence the name. However, nonprofit businesses can (and often do) make money — they just invest it back into their mission. That mission, per their nonprofit tax status, is meant to benefit the public. How do you think nonprofits have endowments, for example, if their income isn’t greater than their expenditures?
Nonprofit folks are nicer and more caring than businesspeople. As the nonprofit organization Idealist states, “Difficult personalities, big egos, and office politics can — and do — exist in any professional environment. Perhaps a higher percentage of kindhearted people work in the nonprofit sector, but there is no way to measure this, and there are plenty of exceptions.”
Nonprofits are inconsequential in terms of the size of their workforce. Nonprofits employ more than 10 percent of America’s private workforce — providing more jobs than manufacturing, construction, or finance, according to the National Council of Nonprofits.
The 2021 Edelman Trust Barometer, based on an annual online survey conducted by global communications firm Edelman, found that businesses are now the most trusted institutions around the world because they are seen as both ethical and competent. NGOs are viewed as ethical but less competent. When people at nonprofits say they don’t have to, and shouldn’t, operate like a business, or that they should ignore accepted rules and standards of business practice, it reinforces that image.
So if people trust for-profit businesses more than nonprofits, why do some nonprofits continue to eschew business standards and practices?
An overly energetic expression of the “we are a nonprofit, we are not a business” attitude indicates that a person is thinking more about appearances than about the market forces and fundraising tactics that will make an organization successful, because the roads to success in the for-profit space and in the nonprofit space are very similar. Nonprofits — including staff, board members, and donors — must insist on operating like a business. They just have to be choosy about which businesses to emulate, and smart about which tactics to pursue.
Nonprofits that are poised for long-term success will do what good businesses do: pay their staff a living and competitive wage, train and support their personnel, embrace appropriate technology, welcome innovation, diversify their ranks, honor their volunteers, and do everything they can to be professional, honorable, and focused on results and their mission.
As a nonprofit, your work likely fights the ill effects of bad businesses. To win that fight, emulate the good ones.
About the author: Lisa Greer is a philanthropist, nonprofit adviser, meeting convener, and the author of the bestselling book Philanthropy Revolution: How to Inspire Donors, Build Relationships and Make a Difference. She is a member of the Rotary Club of Beverly Hills, California. Find her at lisagreer.com.