Should You Run Your Nonprofit Like a Business?

At some point in our work with clients, we typically get the question: “Why can’t this nonprofit be run like a business?” – likely because hundreds of articles have been written on this topic.

I find this line of inquiry frustrating because it assumes nonprofits and for-profits have the same aims and methods.  It sets up a false comparison that ultimately leads to disappointment and marginalization. Nonprofits are incorporated in their states as tax-exempt corporations, but they are not direct analogs to for-profit corporations. Nonprofits have a different business classification with their own compliance requirements.  Nonprofits have different governance structures, bottom lines, reporting obligations, legal restrictions, funding models, and more. They are required to work to advance the common good, while corporations pursue profits for shareholders. I could go on and on with examples of how these entities are not the same. And because of these differences, they simply do not—and cannot– operate in exactly the same ways.

And yet, so many well-meaning folks are pushing nonprofits to act like they are something that they are not, essentially trying to fit a square peg into a round hole. The admonitions to run nonprofits like businesses are too pat and simple—overlooking the complexity of running a tax-exempt corporation–and damage the reputations of nonprofits.  The “run it like a business” snobbery can leave the impression that nonprofits are less-than when really they’re meeting very specific and complex business demands in very restricted circumstances.  Nonprofits should not be trying to map private sector practices that are irrelevant to the nonprofit sector onto their organizations – because this just doesn’t work.

Nonprofits should, though, operate professional, effective, efficient, and ambitious enterprises.

Operate as a Business

Instead of trying to run nonprofits like a business, I advocate for nonprofits to operate as a business. What do I mean by this? Set up and deliver on high performance and professional standards that make sense for the nonprofit corporation. Nonprofits should be managed like the mission-driven incorporated entities they are:  Setting targets, assessing their work against metrics, and running efficient functions that deliver on mission. Nonprofit operations should be professional and savvy, innovative and cutting edge, sustainable and scalable.

So, what does this look like in the nonprofit sector? Here are some examples of what operating as a business looks like:

• Responding to market needs and creating sustained value for customers
• Having a strong brand and delivering clear messaging
• Maintaining strategic clarity and driving results
• Planning and budgeting to accomplish enterprise objectives
• Innovating and continuously improving
• Maintaining a thriving, competitive workforce
• Maximizing efficiencies, minimizing risk, and balancing costs and benefits
• Practicing measurement and evaluation to ensure results are achieved
• Engaging in focused, orderly, and right-sized daily business practices
• Remaining solvent, compliant, and resilient as a business entity

Professionalism fit for purpose

We should expect all of the above-outlined actions of nonprofits because they are a sign of a healthy, effective corporate entity.  Nonprofits are corporations in their own right, and their operations should reflect that. But we should not pretend that it is as simple as designing, making, marketing, and selling widgets.

When people say “run this nonprofit more like a business,” in most cases I find that they are really asking for more efficiencies, professionalism, and results-oriented practices.  Folks are asking for the business-mindedness necessary to run complex organizational systems to achieve desired results. I am all for this – it is the heart of the work that we do as Term Executives – and I hope that, nonprofit by nonprofit, we can create business practices and enterprise systems that set a new standard for the sector and the global marketplace.

Not just tree-huggers

I find that many poke fun at nonprofits because they “don’t run like a business” as if they are not viable entities unless they operate to achieve profit. The truth is, with the right kinds of systems and structures in place, nonprofits are just as professional as–if not more than–companies that produce profit for shareholders. And, it takes a lot more work for a nonprofit to deliver on the high standards demanded of the sector.