Nonprofits: Businesslike, But Not Businesses

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    A Guest Post by Tony Poderis

    In my opinion, there are limits (compared to the business sector) for nonprofit organizations regarding the building of their markets, the percent return on activities, investment for the future, general operational efficiencies, and some business practices and tools.

    There are things nonprofit organizations simply cannot do, which are second nature to businesses seeking to improve their bottom line. To my way of thinking, nonprofits cannot operate like businesses, but they certainly can work in a businesslike manner.

    There are indeed many similar and interchangeable tools and components comprising the marketing of a commercial product and the services provided by a nonprofit organization – and for fundraising. But at the beginning and the end of that marketing process the differences are as wide apart as they can be. And they are practical and understandable. That’s why we have the for-profit and nonprofit sectors in the first place.

    — A for-profit (business) has a Mission to serve the market, which means its reason for being is to provide something of value and at the best price and quality in the marketplace.

    A business is bottom-line-driven. The results are based on a goal to profit and a return on investment for its shareholders. (Easy to quantify and measure.)

    — A nonprofit (charity) has a Mission for the public good, its reason for being is to provide something of value in life.

    A nonprofit is not bottom-line-driven. The results are based on a goal to provide needed services and to increase and better the quality of life for the beneficiaries. (Highly subjective, next to impossible to measure.)

    To operate at optimum effectiveness, a nonprofit needs to work to maximize its potential to produce income – within the confines of its Mission Statement. This is a very important distinction from a business free to retool and reposition and downsize in the market at any time.

    Act more like a business, or be more businesslike?

    At the Cleveland Orchestra, when we were asked about our limited profit-making capabilities, vis-à-vis those of local businesses/corporations, we responded (half-jokingly) that we could not increase our productivity or efficiency with an eye to greater product management, even if we played a Beethoven symphony faster than it was played 200 years ago.

    We could not speed up our assembly line, nor could we reduce the number of violinists required through automation. If what we produced was symphonic music, we could not cut costs by turning ourselves into a chamber orchestra and still produce our symphonic-music.

    Unlike a business having a “loss leader,” we had nothing to “sell” below cost in the hope that “customers” who bought it would also buy other profit-making things.

    Unlike for-profits, which usually thrive and aggressively pursue new and expanding markets, our Cleveland orchestra could not work to build market demand outside of our area of service. We would have been in competition with like organizations performing in their own communities. Those other communities’ civic pride would always win out. And, duplication of effort does not work well with the wishes and guidelines of donors and other granting entities.

    We had no money, nor the need, for future “R & D,” when our hard and fixed costs were at home, year after year paying the salaries of 105 of the world’s best musicians.

    Businesslike, yes. Like a business? Not a chance.

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    Have a question or comment about the above posting? You can Ask Tony. There is also a lot of good fundraising information on his website: Raise-Funds.com .

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