The For-Profit/Non-Profit Double Standard
What is it that we most want non-profits and charities to do? A simple answer: We want them to help as many people as they can, as effectively as they can. Whether it’s poverty, homelessness, devastating diseases, addiction or any of the many other problems non-profits seek to address —we want as many as possible to get help that will make a real difference in their lives.
You can make a rough analogy here to the for-profit world. All businesses want to increase profits, and a corporation wants to generate the greatest amount of profits for its shareholders.
But it turns out that for-profit and non-profit entities operate under two completely different rulebooks. I recently saw a fascinating TED Talk by Dan Pallotta, a prominent social activist and fundraiser, in which he identified several key areas where this double standard exists (see tinyurl.com/ouekj7f). I’d like to focus on a few of them:
1. Advertising and Marketing
Ask any corporation — or for that matter, any successful small businessperson — what would happen to their sales if they suddenly stopped advertising. They would tumble, and growth would falter.
Yet some feel there’s something wrong with non-profits advertising their activities and marketing the good they do, just like for-profits. The result is fewer people who need their services find them, and fewer people who support them with their dollars are given an incentive to do so.
2. Taking Risk
When it comes to taking risk in pursuit of new ideas, for-profits are encouraged to take risk, create a new innovative product, even though this new idea might flop. These attempts are viewed as part of the business process.
However, when a non-profit tries a new idea or fundraiser that flops, the company’s credibility is on the line. This, in turn, makes that organization reluctant to try new things in fear of failure. If you kill innovation, you can’t raise more revenue. If you can’t raise revenue, you can’t grow and therefore can’t address important issues.
It’s not uncommon for a for-profit company to invest money in their company and not see a return for at least five years. This is acceptable because the business world understands long-term planning and the need to invest now to make the company profitable in the long term.
But if a non-profit company invests money into the company and does not see a direct return quickly, questions are raised as to why the non-profit cannot produce results.
The motivation behind these non-profit views is well-intentioned: we want as much of a non-profit’s revenues to go to “the people” or “the cause” as possible, and with no delay. But as Dan Pallotta points out, it’s also short-sighted. Whether it’s time or money, we want to keep “overhead” down to a very small slice of the pie — yet we fail to realize that the size of the pie is not fixed.
Imagine that a non-profit’s overhead increased by 10 percent (let’s say from 5 to 15 percent) between 2013 and 2014. But in that same year, its overall revenues grew by 60 percent. That means it was able to help 50 percent more people in 2014 than it did in 2013. And back to our original question — that’s the goal, isn’t it?
Just as in the for-profit world, “growth” is not a dirty word for non-profits. On the contrary, it’s a vital one. So when you consider support for a non-profit or charity, look at the big picture. How many people has it helped this year compared with previous years? That, ultimately, is what matters.