Everyone in the business of nonprofit management know that “not-for-profit” organizations cannot earn profits for their founders and that all of the proceeds earned must be acquired by way of donations, grants, fundraising, endowments, membership and program fees and services. But regardless of what appear to be vast differences between for-profit and nonprofit models, a properly run charity should generally follow the same operational criteria that successful entrepreneurs follow. Nonprofit leaders should adopt perspectives like those of entrepreneurs Elon Musk, Richard Branson, Jay Z or Jeff Bezos, and learn the art of risk taking and strategic innovation if they are to be successful.
After considerable research, I’ve come up with five key elements that can help nonprofit leaders operate their organization more like a hungry startup, whether they lead a religious organization, government agency, charity or research lab.
1. A Nonprofit Is a Company
A nonprofit is a company, and must be run as such. It has staff, operating expenses, contractual agreements and a host of things it must do to stay in business.
Running a philanthropic entity with a business mentality is critical for long-term survival. That means the nonprofit must have a clear mission, a vision and operating standards, and must produce periodic reports, just as the American Red Cross does every year.
2. Operating Effectiveness Is Essential
Operating effectiveness means a nonprofit allocates resources properly, from the way it hires people to how much it pays them, campaigns it runs, and contracts it signs.
The bottom line is that a nonprofit must show a good “bottom line,” meaning its revenue must exceed its expenses. In business jargon, you call that “profit,” but even if we can’t mention profit in a nonprofit context, you still need to operate with excess cash if your nonprofit is going to survive.
3. Donors Are Really Customers
Donors are customers, plain and simple. They need to be found, courted, convinced and retained, just like in a normal business operation.
In a context in which people’s attention span is shrinking by the day and multiple causes are vying for the same limited pie, a nonprofit must formulate and deploy an effective strategy to retain donors. As social media expert Ritu Sharma once wrote in the Nonprofit Quarterly, effective nonprofits consider donors as customers and use social media to engage with their communities.
4. Good Publicity Can Boost Donations
A strong promotional effort is needed to draw people’s attention, whether they are customers or donors. Even if your charity has a noble cause, you still need to make it known to potential donors, because you might not be the only organization doing something good in that particular philanthropic niche.
5. A Nonprofit Has Competitors
Continuing on what we just said earlier, a nonprofit has competitors. Say, for example, that you run a cancer-focused charity somewhere in Chicago. You can bet there are at least 10 or 20 other organizations doing the same thing, advocating for the same cause, or occupying the same philanthropic niche.
We consider these organizations your competitors because they vie for the same donor money you seek, whether it is government subsidies, grants, cash donations or estate bequests. Any nonprofit needs to plan a strategy for remaining relevant and gaining an edge in the face of this sort of competition, just like a corporation would.
Dr. Emad Rahim is a professor at Bellevue University, an Entrepreneur-in-Residence at Oklahoma State University, and a Jack Welch Management Institute Fellow.
