EMH Insights

Three Ways to Run Your Non-Profit like a Business

To most, there is a distinct delineation between the non-profit world and the private sector. Businesses focus on the bottom line, and non-profits work for some sort of social cause. In some ways, it is beneficial to separate these two worlds: a non-profit should always focus on maximizing the impact of its mission statement, and not satisfying shareholders, while a business cannot rely on philanthropic donations to keep the doors open. However, there are three fundamental principles critical to the success of any business that any non-profit should consider for its own organization.

Make Money

Non-profits often rely heavily on donations and grants to remain operationally functional. Although philanthropic income will always be a staple of the non-profit sector, an organization should also consider how it can supplement charitable income streams with revenue generated from commercial activity. Diversifying an organization’s revenue streams will enhance financial sustainability, and ultimately increase the efficacy of the non-profit in implementing its mission. One example of this is Habitat for Humanity’s ReStore concept. ReStore outlets sell donated home goods and building materials at discounted prices. The income from these sales goes directly to supporting the local Habitat for Humanity affiliate, and these stores serve as viable avenues for the organization to increase the bottom line and the impact on the community.

Invest in the Organization

A common concern in the non-profit world is overhead: donors do not want to see valuable dollars spent on it, and non-profits are often forced to operate at a prohibitively lean level. Successful businesses invest in themselves, be it bringing in (and paying for) top talent, spending on employee training, or purchasing a productive and efficient piece of equipment. In order to grow and increase organizational effectiveness, non-profits must do the same. This is often looked down upon in an industry with the perception that every dollar should go directly to the target of the mission (as discussed in Dan Pallotta’s Ted Talk), but it is important to acknowledge the distinction between an investment in organizational growth and an unnecessary expense. An investment in the former, such as paying a high salary for an experienced executive who can increase the size and scope of a non-profit, should be strongly encouraged, and not viewed as a negative.

Stand out from the competition

Non-profits—just like private companies—compete against one another for revenue. Although this competition is most often for revenue from philanthropic entities, it is competition just the same: one non-profit has to prove that it will be more effective with a donation than a non-profit working on a similar cause. Clearly defining the community need, measuring organizational impact, avoiding mission creep, and focusing on financial sustainability are four key areas on which non-profits can focus to increase competitive advantage.

Basic fundamentals and best practices that allow for-profit organizations to be successful can also be applied in the non-profit world.