I have occasion to come into contact with a number of not for profit organizations on a regular basis ranging from very large organizations like education and health care providers to local service providers with a much narrower focus.
I use the term not for profit as opposed to non-profit very deliberately. The point that I try to make with these organizations is that profit at its most basic is the amount of revenue that exceeds expenses and there is nothing fundamentally immoral or amoral about how that excess is distributed.
I find that the idea that an organization should goal for and achieve solvency on a regular basis doesn’t always make me very popular. The idea that the organization should be held accountable to have a clear and compelling reason that it exists and perform its services in an efficient manner is seen by many as an elitist or purely capitalistic viewpoint. I disagree.
I find Seth Godin to be one of my favorite business authors. I don’t put him up on a pedestal or see everything that he writes as either brilliant or that I agree with, but he provided some simple points for would be entrepreneurs that I think have application for every organization-
- If you have never been paid for your product or service it is a hobby, not a business.
- If the only people who have ever utilized your product or service are friends and family it is a hobby, not a business.
I have encountered as number of not for profits who believe that their first and most compelling objective is to raise funds and invite donations to their cause.
The idea that they should be able to articulate what it is they are trying to accomplish, how they differentiate themselves from others who provide the same or similar services, and how they seek to become and remain sustainable and viable often seem to be secondary at best.
On the other hand I see organizations that do provide meaningful services and a clear and compelling value proposition who are severely criticized because they do things like a successful business-
- Create and execute a business strategy
- Create a strategy to attract and retain the talent necessary to drive the organization and pay that talent competitively.
The most common criticism I hear is that non-profits do not pay any taxes so their spending money on marketing and human resource infrastructure is inappropriate.
The reality is that in most cases the only tax an NPO doesn’t pay is income tax. The other reality is that running a complicated NPO is not significantly different than running any other kind of enterprise and requires the same kinds of talents.
I worked as an executive in the Credit Union industry for several years and then and now heard the criticisms from banking and other financial institutions about the “unfair” advantages that credit unions enjoy.
Rarely do you hear about the restrictions that apply including a significantly higher rate of reserves, limitations on the structure of their loan and product portfolio, and depending upon whether they are State or Federally chartered restrictions on the process of expanding geographically or even within a given geography.
I happen to believe that our society and in fact our world economy has become complicated enough that no one sector is able to address all of the issues facing us and a new model has to continue to emerge. I think we have seen evidence that I am not alone in my thinking.
I am intrigued by Warren Buffet and other billionaires who have signed a pledge to invest in philanthropic endeavors with a minimum of 50% of their net worth. That means the minimum buy in is a half a billion dollars – each.
The reasoning behind it was classic Buffet, who said that once you reach a certain point in wealth the incremental benefit to you personally is minimal if it exists at all. When asked about whether it isn’t more appropriate to leave it your heirs he said no- that creating multiple generations who are further and further from the actual activity that generated the wealth is an unhealthy process.
I agree. I didn’t have the benefit of growing up in a family that endowed me with a large bequest upon my parents passing and neither do I plan to provide my children with such in the event I become rich and famous.
The discussion about why or why not a billionaire should turn to philanthropy and whether or not this allows the ultra-wealthy too much control was interesting as well.
The biggest reason they stated was ability. They have the financial means to make a difference. Several also talked about with humility about learning to play in a different world with a different set of metrics.
I like the discipline that some of these business leaders have brought to the philanthropic process. I think it is okay to expect a philanthropic organization to have clearly articulated goals and for progress to be measured as to their achievement of those goals. That to me is the most important metric- is you creating measurable results?
So I would ask that we evaluate whether to create and fund not for profits under those terms-
- Can they articulate a meaningful value proposition and means to address the issue they identify?
- Can they provide these services in a manner which is efficient and represents a good societal investment for individuals and organizations?
At the end of the day all organization should be judged on how well it articulates and achieves its mission. It is that simple and that complex….