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Why And How You Should Run Your Nonprofit Like A For-profit Organization

Having a business with a noble goal is good, but does that mean you should run it like a charity?

Why And How You Should Run Your Nonprofit Like A For-profit Organization
[Photo: Flickr user Pamla J. Eisenberg]

The nonprofit model isn’t broken. But the system is evolving and we can be better.

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“For profit” is a mindset and approach that you’ll find in high performing organizations of all shapes and sizes, including nonprofits. Here are three “for profit” considerations for driving impact:

1. Impact Through Purpose

When people ask where I work or what I do, I tell them I work at a “social impact” organization. Off the bat, nonprofits are destined to fail when we call them “nonprofits.” The word is a part of our common lexicon, but for the remainder of this article, I’m done with it.

Profit doesn’t have to be limited to financial gain. A profit is derived when a teen becomes the first in their family to go to college, or when a veteran experiences a healthy and productive transition when they return to their community. Simply relegating organizations that improve the lives of millions to a tax status creates an unlevel playing field that limits vision, resources, and commitment. Similarly, the best achieving startups are more than the literal definition of the word. They’re striving to disrupt and improve lives.

Social impact organizations should think big. We are here to solve major problems: generational poverty, a widening income, and academic gap between low- and high-income communities, and more. But dedicating yourself to your organizational focus creates a paradox. The reality is the issues that face the individuals and communities served by social impact organizations are complex, and you won’t satisfy your purpose by locking yourself in a box.

But saying that these organizations likely have a lack of focus on impact is dangerously underestimating the entire social impact sector and the complexity of the issues we face.

For instance, it’s rare that a child from a low-income community only needs a good teacher in order to succeed. They could have untreated mental and physical health issues as a result of poor health care. The child’s parents could be without high school diplomas and forced to work multiple minimum-wage jobs. The community could be stricken with crime and high unemployment. There is no single profile of a child in need, which means you can’t just develop a single product with a narrow purpose and claim victory.

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Helping a child with their education, social development, and mental health, while also supporting their parents in order to create a quality home environment doesn’t mean you lack a focus on impact. As a matter of fact, it means impact fuels your purpose.

2. Impact Through Talent

Some critics argue that social impact organizations suffer from “too much overhead”. In the sector, overhead includes a wide range of vital costs, including information technology, finance, fundraising/external affairs, and staff development.

High performers recognize that you must invest in overhead. You need high quality information technology in order to communicate, analyze data, and ultimately deliver outcomes. You need a robust marketing effort to build awareness of your brand, generate support, and ultimately increase the flow of resources that lead to impact. And most importantly, you need high quality people.

Businesses are applauded for recruiting and retaining the best talent, which requires a robust culture and comprehensive benefits. Social impact organizations, on the other hand, are expected to keep salaries low and minimize staff-related costs. In other words, make sure you don’t have too much overhead.

The result of this thinking is a brutal cycle at the crossroads of purpose and unfair expectations, leading to crippling turnover. People at social impact organizations are purpose-driven–so much so that they burn themselves out in the face of subpar salaries and conditions and eventually move on. Meanwhile, Google is sitting at the top of Fortune’s “Best Companies to Work For” list, a company that is known for employee satisfaction plus profit in every sense: industry-changing innovation, social impact, and stakeholder value.

You can’t change lives if you aren’t taking care of the people around you. Some of the nation’s best social impact organizations like charity:water and the Robin Hood Foundation deliver tremendous impact in part because their donors underwrite their administrative costs. On the surface, those organizations are sexier to support because all donations go directly toward their purpose. But that situation is enabled by donors recognizing the importance of high quality people and vital organizational costs and supporting the entity appropriately.

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“Lean” and “hustle have their place in business operations. But let’s not be lean and hustle when it comes to the quality of the people who are entrusted with solving our country’s most significant social problems.

3. Impact Through Innovation

Social impact organizations should never stop innovating. We have to ask ourselves, “Are we delivering on our promise?” And a rigorous data evaluation process is necessary to answer that question. We need to understand and respond to what is and isn’t working. It’s another truth of all organizations, irrespective of the sector.

But social impact organizations face a return on investment (ROI) conundrum.

In the startup world, companies are encouraged to take risks. You are expected to step into new horizons and shake up homes, mobile phones, cars, and more. Multi-billion dollar, decades-old industries aren’t disrupted overnight, which necessitates a long view on ROI.

But in the social impact arena, funders are increasingly focused on immediate, measurable ROI. Most funders are risk-averse and won’t pay for initiatives or overhead tied to high potential, but uncharted opportunities. It’s no surprise that social impact organizations are rated on leanness.

Fortunately, we’re starting to see some real change. For example, after years of New York City juvenile recidivism rates at roughly 50%, organizations like mine started homes that serve as “juvenile justice alternatives.” Through an innovative therapeutic approach, we’re seeing a transformative impact for our teens. This change was enabled by multiple institutions adopting a long-term view on ROI–a necessary mindset that is fundamentally at odds with a large percentage of the social impact funding population.

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The best performing organizations and their partners smartly evaluate short- and long-term opportunities to integrate, reapply, and scale. They comprehensively evaluate the landscape and ROI without the burden of specious filters like overhead. Imagine the potential for the coding arena, which is packed with startup and established organizations like CodeNow, Code.org, Girls Who Code, and ScriptEd NYC. Smart, responsible innovation–not lean and hustle–could actually lead to greater scale and impact for a shared purpose of coding for all.

Systems are perfectly designed for the results they achieve. In my experience serving tens of thousands of high-need, but high-potential people across the country, I know that the system must evolve, and we’re all a part of it.

But let’s first understand the fundamental challenges that prevent us from achieving ambitious goals, work collectively to eliminate them, and proceed to apply best practices from various areas like startups. And then, we’ll all profit.

Mohan Sivaloganathan is Chief Development Officer of ESS of NYC, and a former Director at Teach For America and Manager at Procter & Gamble.