Why Nonprofits Should Not Act like For-profit Companies
Written by Victoria Shadle
One of the biggest misconceptions about the nonprofit sector is that our organizations should operate more like for-profit businesses. We’re often told to adopt business tools, technology, and methodology in order to have more efficient and impactful organizations, but this glosses over fundamental differences between the sectors that should not be ignored.
Nonprofits are looked at as less developed, our staff less adept. We’re told to be grateful for whatever volunteer support we can get from companies whether it’s programmatic or administrative help or an executive sitting on our board. We’re constantly coming from a place of deference when we should be seen as equals.
It’s time to disrupt the myth that the private sector has it all figured out and the way to improve the nonprofit sector is to take pages out of their playbooks. Nonprofits are fundamentally different from for-profit companies and it goes beyond our tax-exempt status; recognizing these differences as nonprofit staff, board members, volunteers, and donors is the first step to push back against this common misconception that nonprofits should mimic how companies operate.
Unlike businesses, nonprofits are not “owned” by anyone.
The nonprofit model is fundamentally different from the for-profit business model, even if much of the terminology is the same. From the very first day as a registered nonprofit there is a collaborative leadership model as multiple board members are required and, in practice, most founders become executive directors to manage the day-to-day operations — meaning others are installed as the founder’s boss from day one. Ultimately, the board of directors is legally responsible for the nonprofit and they have wide ranging governing authority from approving the budget to hiring and firing the executive director.
By design, registered nonprofits are not a single person’s project and no one person should have unilateral decision-making authority. Founding a nonprofit is not the same as starting a business, it’s not about you and you should constantly be checking your ego and asking when it’s time to step aside and give up power. As a nonprofit founder you may have single-handedly brought the organization from an idea into reality, but as soon as it’s a registered nonprofit it belongs to the community.
Through the tax breaks nonprofit organizations receive, all Americans are subsidizing their work and as such nonprofits exist for society’s benefit above and beyond any personal benefits for staff and board leaders. Yes, businesses provide goods and services that benefit their customers, but ultimately their goal is to maximize shareholder profit to firstly benefit shareholders.
Nonprofits are designed to be collaborative and it’s important that all staff and board leadership keep this top of mind. The board shouldn’t be a rubber stamp of approval for an executive director or board chair calling all of the shots, their allegiance needs to be to the mission not the leader. An ethical nonprofit should also have diverse representation on the board that not only mirrors the community racially, but also includes a wide range of backgrounds and, perhaps most importantly, constituents who have first-hand knowledge of the programs and issue area.
Nonprofits should seek to collaborate with others, not compete.
This point also goes back to nonprofits existing for the benefit of society and not single individuals, or even organizations. Our fidelity must go back to the mission, even when that means sharing power and resources with complementary organizations over hoarding them to advance only your own work. The bottom line is there should be no trade secrets in the nonprofit sector, whether good or bad we should be sharing what we’re learning with others because it’s a communal benefit we’re striving for, not singular prestige or prominence.
While companies might be trying to edge each other out for a larger slice of the pie and greater market share, that’s not how nonprofits should be operating. Nonprofits should be collaborating wherever possible — from fundraising and publicity to program logistics and research and development. It goes beyond not tearing others down or trying to prove our singular work is so unique it can solve the entire society issue, we need to be actively working together with others in the community serving the same population and forming institutionalized partnerships that go beyond a friendly relationship between two executive directors.
Nonprofit collaboration needs to live deeper in the organization than solely with the CEO, it needs to connect people with decision-making power that are intimately familiar with the operations of their department. Program directors need to be meeting to talk about overlaps in how programs function and where there are opportunities to either align, or to make it easier for constituents to navigate the social services labyrinths in society. Fundraising and communications staff should be asking how can we share the spotlight, especially white-founded and led organizations with those founded and led by Black, Indigenous, and people of color professionals. Volunteer managers should be working together to make referrals and direct those who aren’t a great fit to another organization that could benefit from that person’s time and skill.
Collaboration needs to be institutional and should happen both with organizations in the same community serving the same constituents, and organizations with similar missions who could share what’s working in their community. Just imagine what impact the sector could have if we rejected the business-influenced opinion that we must beat out competitors and instead asked how can we work together to advance our shared mission. Other nonprofits are not our greatest competitors, they’re our greatest allies. The nonprofit sector is interconnected and we will make a greater impact by working together than falling into the false prophecy that only if we only grow larger and have more resources our organization alone will solve society problems.
Nonprofits must be ethical and trustworthy.
Yes, businesses should act ethically and be trustworthy, but at the end of the day when the goal is maximizing profit sometimes it makes more sense to pay the fine for breaking the rules than to just follow the rule. Companies can get away with unethical behavior if their prices are low or their product is superior — customers are paying for and receiving the product or service so they can judge themselves if it’s worthwhile. Companies also can get away with being less trustworthy because people expect less from for-profit companies, and they can pivot if changing course makes sense.
Nonprofits need to go further than the letter of the law. The entire nonprofit field is built on trust — trust from donors, volunteers, and even staff and constituents that we are doing the best we can and advancing the mission. Everything about private philanthropy requires trust as donors are often not constituents and the ones benefiting personally from their giving. They need to believe that we’re spending the money they give (which was all voluntary) on what we said we would and that it’s having the impact we anticipated.
Nonprofits have less room for error with ethical blunders. If the organization or its leaders are involved in a scandal that damages public trust that could be the end of the organization. Without constituents trusting to take part in your service and without donors giving or volunteers powering the work, it could all go away. Nonprofits are not designed to be easy to pivot, they’re designed to advance a single mission and if the leadership and board fall out of grace, it almost makes more sense to pack it up and start over than try to revive a dead organization.
Between the decentralized leadership model, the imperative to collaborate over compete, and the need for exceptional ethical standards — it’s clear that nonprofits are fundamentally different than for-profit companies and should be treated as such. We’re not the awkward, underdeveloped cousin to the private sector and it’s about time we stood up and challenged the notion that to do better and be better we need to try adopting the for-profit model. If anything, we need to continue to forge our own path where our decisions align with our values and speak back to the unique qualities of our sector.
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As an aside, let me clarify that in this article I’m consciously not talking about social enterprises like L3Cs or B Corporations because that adds another layer of nuance and it’s just a small fraction of American businesses.
If you’re unfamiliar with these types of companies, the main thing to know is that they have a unique legal structure which requires some level of mission alignment. This is not the same as companies just running a social good advertising campaign for marketing purposes or having their own corporate foundation. In those instances, doing good might cost some money but it comes back around as still being good for the brand and having a business case.
Thoughts, questions, concerns? Want to share what we’re missing or where you’d expand upon this? Email us at npcollectiveblog@gmail.com. And to read how others in the field answered our question “What are the biggest misconceptions about the nonprofit sector?” check out our Surveying the Field: Misconceptions Recap article below.
