What for-profits and nonprofits can learn from each other
For-profits and nonprofits both battle for their bottom lines – and are more similar than commonly believed. Indeed, successful for-profits and nonprofits can both benefit from certain best practices, regardless of their mission and industry.
Consider results from the Nonprofit Finance Fund’s annual State of the Sector survey, which explores the challenges faced by nonprofits. As reported by Nonprofit Quarterly, “One recurring message has been nonprofits reporting that the demand for their services exceeds their resources or capacity to provide them. Uncertainty about funding, especially from government sources, looms large.”
With this difficult environment as the backdrop, the most pressing issues for nonprofits were identified as achieving long-term financial sustainability, staff retention and competitive wages, and raising funds that cover full costs.
Any leader of a for-profit company will readily identify with those three challenges. And while different organizations generate revenue through different means, common threads provide a roadmap for best practices that can address these issues. Here are four pieces of wisdom that will help both nonprofits and for-profits thrive:
Nonprofit wisdom: hire passionate people
Passion for the mission is nearly a given in a nonprofit environment; organizations naturally attract people based on their societal goals. If employees are not passionate about the mission, the relationship is unlikely to work over the long term. For-profit companies should also lead their recruitment efforts with the mission in mind.
In common practice, though, factors such as work experience, personality profile, and communications skills overshadow commitment to a mission or even the related notion of cultural fit (Business Insider). While those elements are certainly important to the selection process, the foremost concern should not be “why are you right for this job?” but rather “are you aligned with our mission?”
This does not mean that for-profit missions need to be as altruistic as those of nonprofits. Microsoft’s mission, for example, is to help people and businesses throughout the world realize their full potential; Coca-Cola’s mission is to refresh the world, to inspire moments of optimism and happiness, and to create value and make a difference.
These are not hard and fast rules to live by, but they do provide common ground for employees. Without an employee base that believes in the mission, companies will struggle to find long-term advocates and to grow in the right direction.
Nonprofit wisdom: be a presence in the community
Nonprofits benefit directly from being involved in the community that surrounds them, whether geographically or in a specific sector such as the arts, healthcare, or human social services. Donors are developed within these communities, making them a critical source of revenue; for-profits should place the same importance on having a sustained presence in their defined marketplace.
As the familiar refrain goes, a company’s most important assets are employees and customers. Both of those groups are costly to replace, and being engaged in the community helps to limit turnover and keep brand awareness high among buyers.
Working in the community leads to employees who feel more connected to their home region and their customers. In the end, this provides a sense of satisfaction and connection that is not easily fostered by other means (i.e., increased compensation or benefits).
For-profits should also be aware of the economic impact they have on the community simply by developing into a thriving business. They provide jobs, enlist local suppliers and vendors, and they make the community a more attractive place to live and work. The greater the presence, the greater brand strength the company has on which to draw for recruitment and growth within its defined community.
Starbucks, for example, may be a global brand, but it keeps its focus local with Community Stores that partner with nonprofits to serve as a hub for community service and training programs. State Farm provides grants to support safety and education in the communities where employees live and work.
This type of corporate citizenship pays dividends in recruiting, employee satisfaction, and customer interest. Indeed, Entrepreneur.com noted that “according to a May 2013 study by Cone Communications and Echo Research, 82 percent of U.S. consumers consider corporate social responsibility (CSR) when deciding which products or services to buy and where to shop.
For-profit wisdom: retain key executives
For-profit companies know the challenge of keeping top talent in a competitive field, and they have a wide array of tools to leverage. Aggressive benefits, high compensation, and ownership can all be structured to create an attractive financial package for executives.
Nonprofits have just as great a need to retain talent, but fewer devices at their disposal. Boards and Executive Directors must first ensure they are competitive within their sector, and must then get creative in their approach to benefits. While monetary benefits are only one solution, deferred compensation packages provide a route to effective incentives.
The popular 403(b) plan is a sound standard solution, and for more innovative incentives nonprofits can use the lesser-known 457 plans. The 457 plans are designed to provide a home for tax-deferred compensation, with assets owned by the organization and flexibility around how the plan is funded. The plan can benefit both the executive and the organization as a whole: nonprofits can encourage a key employee to stay by supplementing their retirement package.
With the right structure, these plans can provide an element that may make the difference in retaining an important leader.
For-profit wisdom: diversify revenue streams
The very title “nonprofit” is a misnomer; an organization with no profit will never be sustainable. Nonprofits can take a page from for-profits by being less reliant on fundraising and more focused on creating a healthy margin through a mix of revenue streams. Otherwise, they constantly walk the tightrope of being dependent on a narrow range of revenue sources: when one large donor or federal grant fails to come through, the impact can be crippling. Nonprofits should therefore create a balance of revenue from self-funded programming, individual giving, and grants.
Nonprofits can also expand their vision of how revenue can be generated. WORK, Inc., for example, has a core mission of supporting the ability of individuals with disabilities to grow and participate in their communities through meaningful work. Over the years, the organization’s mission and model has garnered significant support, providing the necessary strength to create a number of “out of the box” ventures. In fact, WORK, Inc. developed for-profit facility management and support businesses that go toe-to-toe with competitors in that space. Such strong diversity of revenue stream means the organization is not overly reliant on any one source of income.
There is no doubt a distinct difference in strategies employed by nonprofits and for-profits. Embracing the similarities, however, can help both types of businesses unlock new opportunities for stability and growth.