Platt Perspective on Business and Technology

Leading a nonprofit 1: comparing for-profits and nonprofits and putting nonprofits in a business perspective

Posted in career development, job search and career development, nonprofits by Timothy Platt on October 18, 2012

This is my first installment in a new series for my Guide to Effective Job Search and Career Development and its Part 2 continuation page and I also write this as a new posting and series in my oft neglected Nonprofits and Social Networking directory too.

I have written fairly extensively about executive management and leadership in general, and with a primary focus on leading for-profit organizations (see for example, my series Transitioning into Senior Management as included in my jobs and careers Guide, postings 158-178.) But I have been planning for several months now, and in fact for most of a year to add at least a brief series to this blog that specifically considers nonprofits too. I waited because there were other series that I wanted to add first in building out a more general career-spanning jobs and career discussion. But with completion of my series on Projects, Project Management and Careers (Guide Part 2, postings 250-266) I have now finished that progression of topics discussion in my Guide.

To put this new series into more explicit context I want to begin it with a basic comparison of for-profits and nonprofits. And I begin by noting the obvious:

• For-profit business seek to achieve profits – incoming revenue streams that exceed expenditures that would go into meeting operating expenses, special projects needs, payroll and other ongoing costs and any capital improvement that might be undertaken.
• A nonprofit is a legally defined business entity that is required, in order to achieve and retain its nonprofit status, to roll most of its incoming revenue into fulfilling its stated mission. The balance of revenue received goes into operating and other business expenses, and/or into building a cash or similar liquid assets reserve. And nonprofits by definition do not generate profits that would be taken out of the business by owners or shareholders for personal use.

But I would argue that this dichotomy misses more important points than it addresses. And I begin explaining that statement with a second bullet pointed list:

• A nonprofit, like a for-profit, is a business and should be run as such and with the same rigor and in many cases with similar operational processes and practices in place as would be found in an effective for-profit. As an example of that, I note that financial management and accounting are basically the same for any business and regardless of its for-profit, not-for-profit or nonprofit status.
• A nonprofit (and here I will focus by way of example on community needs-oriented nonprofits), seeks to provide products and services to its marketplace, just as a for-profit does. It is just that its products and services are all presented as campaigns in support of its mission and vision.
• And the people who pay for a nonprofit’s products and services are not, in general the people who receive them or derive direct benefit from them.
• A nonprofit’s marketplace consists of the people who it seeks to bring benefit to through effort to achieve its mission and vision, and the only perhaps overlapping community it would tap into for donations and other funding.
• And with the years immediately following the 9/11 terrorist attacks in the United States in mind as I write this, nonprofits face and have to succeed in some of the most challenging, fiercely competitive marketplaces that any business could encounter. Nonprofits compete with each other for a share of the discretionary income of prospective and potential donors, and this pool of potential funds is always limited, and it can in periods of stress all but disappear – even as a nonprofit’s operating expenses continue on.

When those hijacked planes hit, in Lower Manhattan and Washington, DC and in that lonely field in rural Pennsylvania, any dollars that might have gone into support of nonprofits in general was suddenly redirected to meeting the needs of a sudden, pressing new disaster relief effort. And I will add that severe economic downturn can and does undercut and diminish the pool of discretionary income that could be expended in any direction. That certainly happened during the Great Recession and its immediate aftermath and to notable impact on nonprofits of all sizes and types and regardless of mission.

• So nonprofits are first and foremost businesses – businesses that face very specific and demanding requirements if they are to gain and retain their tax-exempt nonprofit status. And it is leadership in this context that I would write about here and in this series.

I am going to continue this series from here with an orienting discussion of who a nonprofit leader works with, on-staff, in their executive suite, when working with their board of directors and with their outside stakeholder communities. Meanwhile, you can find this and related postings at my Guide to Effective Job Search and Career Development – 2. I have also posted extensively on jobs and careers-related topics in my first Guide directory page on Job Search and Career Development. You can also find this and related postings at Nonprofits and Social Networking.

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