5 Ways Non-Profits Need to Act More Like For-Profits
If 'disruption' is the buzzword of the decade, then it must mean that it is pervasive, and in-reality, nobody is immune. Non-profits have traditionally been laggards in many areas because they don't have shareholders to appease, the causes they represent have not been sufficiently alleviated (thus enabling continued giving), and the fundamental paradigm of philanthropy has remained relatively constant in a world of change. That said, I believe non-profits can accelerate their platforms and bring greater benefit to the causes they support by taking a more aggressive approach in adopting 5 key things that have been part of the for-profit business model for years.
- Utilize Incentive-Based Compensation: Non-profits, by-in-large, provide their executives with straight salary arrangements that are not heavily weighted on performance. I think non-profit executives should have a 'material' part of their compensation tied to tangible metrics such as revenue growth, efficiency (% of revenue to program), development of new platforms / programs, etc. Many will argue that such incentive programs can actually work against an organization by 'pushing' executives to focus disproportionate time on only driving the metrics that relate to their variable compensation. Fair enough, but I still think that when compensation changes when certain targets are met (or not), the organization is better off.
- Internal Investment: For-profit organizations invest in themselves through 'research & development' and lately, the trend is to build internal accelerators (Venture Capital arms that look to seed innovative concepts that can help build synergies with current offerings or look to future industry paradigm shifts). Non-profits, by-in-large, do not do any type of internal investment because 1) it drags down efficiency numbers; and, 2) there is not a huge incentive to change. This is probably where the 'disruption' part comes up. Organizations that sit on donor bases that just write checks year-in and year-out are likely going to be disrupted when the boomer generation begins to become a smaller percentage of the overall population and most importantly, a smaller percentage of the demographic wealth. Organizations absolutely need to be experimenting with new platforms that can capture new types of givers in a sustainable way - there's a reason that for-profit companies are so obsessed with the consumption behaviors of Millennials, and that reason is equally relevant to non-profits. By 2025 (< 10 years from now), Millennials will be 75% of the workforce (meaning ~75% of the income). Research shows that Millennials do not buy the same way that previous generations did (they value experiences over things) and research shows they do not GIVE the same way previous generations did (transparency and targeted giving over 'blank check philanthropy'). Non-profits need to find ways to capture these changing demographic behavioral patterns to avoid being 'strapped to the railroad tracks'.
- Consolidate: Every day that you open up the Wall Street Journal right now, you are reading about another mega merger or mega buyout. Why? Because scale is everything and the only way to get it is through acquisition. I've long believed that there are far too many non-profits out there and that this 'excess' creates a lot of inefficiency in the system. Just as for-profit companies are looking to scale to drive down costs, unlock new synergies and diversify revenue streams, non-profits should be doing the exact same thing. For non-profits, it may not be traditional M&A, but there are certainly far more ways that like-organizations need to come together and build consortium business models that can drive down overhead costs and scale revenues at a faster rate that benefits. It may require giving up a little control and a little branding recognition, but if you look at what's best for the cause...it only makes cents [sic].
- Build Active & Diverse Boards: Non-profit boards have traditionally been made up of figure-heads that can bring in a lot of money and can bridge connections, but often are not very active in the organization. That's great - keep those people around as you'll always need money and connections. But, like so many for-profit companies are doing, go out and find people that may not bring the same wealth of your traditional board member, but can bring new types of skills to accelerate strategies to encourage innovation and external collaboration. Every non-profit board should have a social media expert on it - it's too big of a space, especially in the non-profit world, to simply ignore. But here's the kicker - experts in social media are usually about 25 - 30 years old and look nothing like what non-profits might envision as their ideal board member. However, having somebody on the board to provide guidance and oversight to your management team on this social media phenomenon, which is only getting bigger, can only enhance a non-profit's efficacy and long-term sustainability.
- Focus on Product, Not Process: Steve Jobs once said that the greatest companies in the world have an obsession with 'product', not process. Every non-profit has a different product - for some, it's events; for others, it's some type of experience that they provide for the community; and for most now, it's some combination of multiple things. In any case, non-profits need to identify what their products are, and put a disproportionate focus on curating those products. Non-profits are notorious for being overly interested in 'process' because when there are no shareholders, it's very easy to become an administrative cluster. Nobody benefits from administrative B.S. and internal politics, which squarely fall into "process". When you look at the most effective non-profits (just like the most effective and successful for-profits), you will find one striking commonality - they all have an obsession with the quality of their products, and how their customers / donors / beneficiaries interact with them and in turn, benefit from them.
As our world converges - CES is now an auto show and the Detroit auto show is now a tech conference (LOL), non-profits need to begin adopting for-profit characteristics at a much faster rate. When people say that they love non-profit work because it's not like the business world, I get very confused. The non-profit world IS the business world - it's the business of giving.