The Third Sector Report By Jeffrey Wilcox

What Happens When You Run 'Those Nonprofits' Like A CompanyJeffrey Wilcox - The Third Sector Report

January 29th, 2013 – It’s the most overused statement in the nonprofit industry. And, every person who says it seems to believe that he or she has just made a revelation that the rest of us should have known all along: “If only nonprofits were run like a company.”

Over the years, this statement has done a great job of digging a trench between the proprietary and social benefit sectors, inferring in general that nonprofit professionals are second-class administrators and should be brought up to the standards of corporate professionals. It also infers that business savvy is the hottest commodity for board and executive recruitment so that the rest of us bleeding hearts can be sobered up and brought up to speed.

Thanks to this statement, if there was an “adults’ table” and a “kids’ table” when it comes to understanding sustainable business models, there’s no doubt who is seated at each place. And, thank goodness the folks at the adults’ table are willing to volunteer to come into the kitchen periodically to whip the youngsters into shape.

There’s no debating that a nonprofit organization is a corporation. There’s no debating that social benefit enterprises need to aggressively seek a net gain each year from operations to form the working capital to grow people, grow services and grow processes. And, there’s no debating that any good business must attract investors, create favorable reputations and produce measurable yields.

The stumbling block, however, is that nonprofit organizations use a different business model than corporations. And, in my experience, most folks seated at the “adults’ table” have little experience in building and sustaining profitable nonproprietary organizations, facilitating business processes that must yield both a financial and a social profit, leveraging equity that is measured using both monetary and non-monetary indicators and managing paid and unpaid human capital.

For those who have little or no experience with the nonprofit business model, any serious discussion about the unique governance responsibilities and leadership roles required for nonproprietary business enterprises to flourish is simply, to them, a play on words, a minor technicality or an academic conversation with an inconsequential difference. That’s a dangerous conclusion that has hurt many great nonprofits from reaching their potential as strong community forces.

The results of running nonprofits like companies: A growing number of boards are more interested in managing the institution rather than advancing it in the community. Corporate measurements of overhead are choking service effectiveness and community impact. Volunteers are being viewed as replaceable employees rather than community commodities to leverage. The overinflated duty to fiduciary oversight is causing dangerous blind spots about what actually creates, sustains and leverages the equity that is being overseen. And, growing numbers of business consultants are getting big bucks to fix organizations rather than fix society.

Last week, the Chronicle of Philanthropy carried this sobering headline: “Half of Fundraisers in the Top Job Would Like to Quit,” citing a new report released by CompassPoint Nonprofit Services in San Francisco. The reasons: Their boards and their bosses are preoccupied with running the place and they are burned out having to shoulder the building and sustaining of the community’s equity on their own. Further, the developmental nature of philanthropy is taking a back seat to closing deals for unsustainable revenues, a growing propensity to solicit restricted dollars that pushes product over purpose, and a movement towards mass-produced begging over personal engagement in community betterment.

There could be no louder wake-up call issued about what can happen when one business model in one sector is held as the standard for another sector to emulate.

At the very heart of this philosophical debate is a lack of clarity of what lies at the center of the nonprofit business model: It’s not advancing the corporation. It’s advancing the cause – a cause that has garnered broad-based equity and has developed sustainable sources of capital such that a corporation could be formed. And, if it that corporation isn’t “run” well as a nonproprietary community venture, the corporation will die. The cause and its sources of capital will not.

Understanding how to lead a successful cause versus how to lead a successful company is truly the first step to learning how to run a successful nonprofit business.

(Jeffrey R. Wilcox, CFRE, is president and chief executive officer of The Third Sector Company, Inc. Join in on the conversation about this article on Facebook or drop us a line at jwilcox@thirdsectorcompany.com)