Entrepreneurs, whether they start a for-profit company or a social impact nonprofit, do so with an innate desire to address an issue or an opportunity. The kind of approach they take and the organizations they build depend on the opportunity they wish to pursue.
For-profit companies address a market opportunity by providing a product or service where the end customer is the beneficiary. They compete with other companies for the customer’s attention and their success is determined by how much value customers see in their offering. The dynamics of the marketplace ensure that the most successful companies are those that most efficiently provide the greatest value to the customer. This leads companies to maintain a strong focus on their customers, to enhance their operational processes and to continually provide value to their key customers. At the same time a relentless pursuit of profits above all else, may make societal impact, environmental concern or community commitments a secondary objective that receives less attention in for-profits. If companies neglect this aspect of their existence, over the course of time, they lose their way.
Nonprofit organizations start with a primary social objective or mission that generally addresses a lack of services or affordable alternatives for a societal need. The end beneficiary for their ‘product’ might, in most cases, not be able to pay for the full value and cost of the offering (for example, providing healthcare options to certain low income populations). To fill the gap between what the target population might be able to pay and what it costs to deliver the product or service to them, nonprofits turn to donors of various types or the government for charitable support.
In this model, there is little competition for the end beneficiary’s attention and no feedback loop to indicate how much the beneficiary values the nonprofit’s offering. Nonprofit organizations do not operate under a constant pressure on operational efficiency driven by market forces. Instead the nonprofit’s focus shifts to raising funds to deliver the service and hence a greater emphasis on satisfying major donor’s desires. Eventually, as these organizations grow more dependent on donors, they tend to minimize risk and focus their processes to creating donor driven outputs. This impacts their ”product” offerings as well as what they measure and report. Organizations survive at the behest of their major donors.
This approach also does not encourage growing to scale. There are millions of nonprofits around the world including over 1.5 million in the US. Yet fewer than 92,000 US nonprofits have revenues over $1 million. Only a handful have both scaled their funding sources and also improved their “product” offerings to their beneficiaries.
It is time these sectors learned and adapted from each other’s strengths. As nonprofits face increasing competition for donor dollars, they need to bring the for-profit’s focus on execution excellence to their processes to help optimize their impact. By looking for operational efficiencies and opportunities for scale, they can help provide greater value at lower cost. Conversely, the for-profit sector has to bring some of the sense of concern for social, environmental and community impact that one finds in the nonprofit sector as it considers the consequences of its strategic actions while it tries to provide greater value to its customers and shareholders.
We need to bring the best together – execution excellence of a for-profit and combine it with the compassion of a nonprofit – to accelerate our journey to make this world a better place.
– Raj Melville, Desh and Jaishree Deshpande