Why You Should NOT Run a Nonprofit Like a Business

Do your Board members think you should run your nonprofit like a business? Do your donors think so? Maybe even your Executive Director?

Don’t believe the hype.

A nonprofit is a fundamentally different kind of organization than a for-profit enterprise.

The Looking-Glass World of Nonprofits

Take it from Clara Miller, head of the Nonprofit Finance Fund. In a classic article, “The Looking-Glass World of Nonprofit Money: Managing in For-Profits’ Shadow Universe,” she gave a true-false quiz about how nonprofit finance really works. Take the quiz yourself:

1. Rule #1:  The consumer buys the product. True or false?
2. Rule #2: Price covers cost and eventually produces profits, or else the business folds. True or false?
3. Rule #3: Cash is liquid. True or false?
4. Rule #4: Price is determined by producers’ supply and consumers’ ability and willingness to pay. True or false?
5. Rule #5: Any profits will drop to the bottom line and are then available for enlarging or improving the business. True or false?
6. Rule #6: Investment in infrastructure during growth is necessary for efficiency and profitability. True or false?
7. Rule #7: Overhead is a regular cost of doing business, and varies with business type and stage of development. True or false?

The answer to every single one of these questions is: in the for-profit world, true. In the nonprofit world, false. (Read the article to understand how and why.)

Because the most fundamental axioms of business don’t apply to nonprofit finance, if you try to run your nonprofit like a business, you will go broke. Or go to jail. Or both.

Nonprofits, Businesses, and #MeToo

Businesses are not a good model for nonprofits in a different way. They are notoriously bad at preventing, detecting, and responding to sexual harassment.

A case in point is what happened when a corporate PR executive took over as the head of Save the Children UK. How did he respond to complaints of sexual harassment and bullying at the nonprofit? Ruth McCambridge at Nonprofit Quarterly quotes the BBC:

Current and former employees say the charity, under the leadership of Mr. Parker, created an adrenalized culture more suited to a battle-ready business than a charity. They describe a place gripped by a desire to win, with victory defined as raising more money and then spending it on splashier projects than other charities did…

A corporate creature to his core, Mr. Parker reacted to the harassment complaints like a chief executive from a bygone era, current and former Save the Children employees say. One of his priorities seemed to be protecting the jobs and reputation of the men responsible for the harassment….

In the end, Parker left Save the Children UK with serious damage to its reputation and its finances (donations are already down) “that will shadow the charity for a long time.”

Nonprofits, please run your organization in a way that fits your own mission. Trying to be like a business is a recipe for disaster.