For-profit and non-profit: similar or different?
I often come across the perspective that non-profit businesses are very different from for-profit ones and therefore need a deep understanding of their situations and special handling. It turns out that I generally hear these thoughts from those who work or run nonprofits. So I thought it would be helpful to consider the typical parameters that characterize a for-profit business and see if they apply to non-profit organizations. Each company or organization has its unique situations, markets or ways of doing business, but I maintain that the similarities far outweigh the differences.
Purpose
Each type of organization has a purpose: to sell something or provide a service. Manufacturing companies produce products or parts that are integrated into products. Distributors make these products available. Web designers create websites. Yogurt shops sell sweets. Restaurants sell food and atmosphere. Foundations provide donations. Charitable service organizations provide support to their constituents. Religious organizations provide a variety of services to their communities. Dog breed clubs bring dog lovers together to appreciate and learn. Whatever form the organization takes; it serves some kind of purpose and from that purpose flow the following key elements.
Guiding principles
Visions, missions and core values are fundamental elements for any organization. Visions are images of the future to which the organization aspires. The missions are the marching orders and how the vision will be realized. Core values are those beliefs that members of the organization hold in high esteem. Ultimately these become the foundation of the organization’s culture, which is the way things are actually done. See comments in Operations below.
Income streams
Any type of organization needs a stream of income (or multiple streams of income) to survive and grow. Whether these take the form of product sales, subscriptions, tuition or hourly service work in the for-profit arena or grants, donations, membership dues in the non-profit arena, all represent the funds for you the organization operates and achieves its objective. vision and live your mission.
Governance
Someone must be in charge of day-to-day operations and setting the strategic direction of the organization. For-profit businesses often have an owner, president, CEO, or someone who is ultimately responsible for these things. There may also be a board of directors involved for oversight and accountability, be it a trustee board for publicly traded companies, advisory boards for family businesses, or peer boards made up of other business owners. Similarly, nonprofits may have a chief executive officer who reports to a board of directors, or they may be created and operated by an individual founder or group.
Financial
Both types of organizations have expense categories to manage. They both have fixed costs, professional and legal fees to pay, payroll taxes to cover, financial reports, income statements, and balance sheets. When for-profit companies may have retained earnings that result in a taxable profit situation and possibly dividends for shareholders, non-profit organizations reinvest the retained earnings in the organization to maintain their tax status (501 (c) ( 3) or (c) (4) for example). Individuals or shareholders cannot benefit from the profits of non-profit organizations.
In addition to spending categories, both types of organizations must deal with financing issues that can include loans, equity, personal funds, as well as gifts, tithes, and grants.
Personal
As long as there are people involved in the organization, there are staff to manage. I will exempt the single physician and the truly virtual and fully automated online organization from this discussion. Whether we’re talking about paid full-time or part-time staff, unpaid interns or volunteers, or a combination, for-profit and non-profit organizations share this critical activity. Roles and responsibilities and accepted expectations of interpersonal behavior emerge from the discussion of the guiding principles. Performance management, pay scales, reward systems, training and development considerations and processes are shared to one degree or another by both for-profit and non-profit organizations. Even turnkey operations (such as highly automated factories or franchises with well-defined procedures) still have to deal with personnel management issues.
Operations
Every organization offering products or services has to define and manage the workflow, from the idea of the widget or the design of the service concept to the delivery of the finished product. This involves defining and institutionalizing processes and procedures, managing quality, coordinating supply chains, maintaining certifications and compliance, addressing customer concerns, complaints and crises, documentation, and a number of related issues. This is really where the organization earns its fame. It is where manufacturers make money. It’s where marathon runners experience the race, where students experience training, where the driver experiences the new car, the consumer experiences the new food menu … And does organizational culture impact operations? Absolutely! Aspects of culture are manifested in how jobs are designed, how people and teams work together, how failures are handled, how communication flows, how innovation is supported (or not!), How failures are handled conflicts, to name a few. These behavioral considerations are common to both types of organizations.
Marketing and Strategic
Using the term that best fits (customer, customer, member, recipient …), both for-profit and non-profit organizations reach the people who use their products or services. It is necessary to address the identification of markets, the positioning of products and services, the differentiation of the competition, the construction of a presence on the web, the integration of new trends in social networks with traditional media. The entire strategic planning process itself is often overlooked by both types of organizations and this vital function really needs to be moved to a more prominent position. This is especially important as every organization grapples with the changing realities of today’s economic times. One difference to note: where for-profit organizations can engage lobbyists to advance their agendas in Washington, IRS guidelines are specific to how non-profits can interact in the political arena, if at all. .
In conclusion, I believe that for-profit and non-profit organizations share many similarities. Whether we’re talking top-line income / financing or bottom-line performance, the elements I’ve identified in this article apply to both. One could argue that scale has an impact on these considerations (size or number of employees), but I argue that a similarly sized for-profit organization operates with the same restrictions as a non-profit organization. Unfortunately, no type of organization is immune from problems of economic recession, reduced profits, layoffs and even survival. In the long term, carefully considering the eight elements in this article will help position your organization for success.
