Hey businesses: Act more like nonprofits if you want to succeed!

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Businesses are all truly inspiring and contribute so much to our community. However, many businesses are failing to reach their full potential. During this pandemic, demands for business products and services have decreased significantly while demands for nonprofit services have skyrocketed! Is this just a coincidence? Unlikely. It would benefit for-profits to be as nimble, agile, and innovative as nonprofits. Although I have never run a business before, I do frequent many of them, and when I retire from a long career in nonprofit, I hope to do something relaxing and fulfilling, like open my own bank or grocery chain. Until then, here are some lessons I have learned that would help your business run more like a nonprofit and be successful:

1.Have a mission: What is your mission? A mission is more than just something that you “do.” It should tell people what differentiates your business from other businesses. Write a mission statement like “our mission is to strengthen the economy through the sales of high-quality cocoa-based products to local middle-and-upper-class individuals with disposable income.” Without a clear and inspiring mission, people will be confused when they visit your cocoa-based product shop and wonder what your business’s purpose is or if the items you sell are meant for them, and they will take their money elsewhere.

2.Focus on outcomes, not outputs: I’m sorry, but nobody cares that you sold 60,000 cupcakes this quarter and earned a net profit of $3 per cake. Those are outputs. You need to focus on outcomes. What are your cupcakes accomplishing for the world? How many children have increased their academic proficiency and high-school graduation rates because they got cupcakes? How much have crime rates in your neighborhood been decreased due to your cupcakes? These outcomes can be difficult to measure and may take several years to do so, but the outcomes are what’s important, not how much money your business is making, which is an output and very jejune.  

3.Create a strategic plan: A strategic plan is a plan that lays out your strategy for the next three years or so. Nonprofits have strategic plans, and you should also have one for your business. The process to create one can be complicated and time-consuming. It usually starts with an “assessment,” which leads to the creation of what we in nonprofit call “goals.” Goals may be further broken down into “objectives.” It is important for you to have clear goals and objectives, and they should also have “indicators” and “metrics” of whether you are accomplishing them. If you are unfamiliar with these concepts, think about hiring a nonprofit consultant to help you out. If you have a tight budget, find a nonprofit leader who has an hour or two of free time each week who might do it pro-bono.

4.Consolidate with other businesses: Businesses do important things. But let’s face it, we may have reached a saturation point. For instance, walk into any neighborhood and you will find dozens of cafes and bakeries, all selling very similar things. This is what the nonprofit sector calls “duplication of services.” Do you see a hundred food pantries in your city? No! And if there were, we are always encouraged to merge and consolidate, no matter if it makes sense or not. Businesses would be wise to do the same. All cafes in a city should merge into one giant cafe, as should all printing shops, laundromats, etc. It would be way less confusing to customers and it would prevent money from being wasted on administrative costs.

5.Diversify your revenue sources: This is one of the biggest lessons for-profits can learn from nonprofits. It seems many of you have only one revenue source: customers. This is a mistake that businesses often make, eggs in one basket and all that. Look at nonprofits: We usually have local grants, federal grants, small donations, major donations, planned giving, fees from clients, consulting contracts, and even sales of things like cookies and T-shirts. We even harass our own staff to fork over money that we then turn around and use it to pay their wages. You should diversify your revenues base so you don’t rely so much on customers. Start by doing some small fundraisers. One business I know started having house parties where they just asked people to give money to the business so its pizzas can continue to strengthen the economy and increase community safety. They made $380 that night! Start small and work your way up to a full gala with a silent auction.

6.Generate steady donated revenues: Sure, the occasional house party is great, but if you want a steady additional source of income, create an entire charity operation on the side. For instance, if you’re a restaurant, also run an orphanage. If you have a landscape architecture firm, open a homeless shelter. It can be challenging, but many businesses have done this successfully. One thrift store decided to take a risk and opened a nonprofit senior center; today, that senior center accounts for 25% of the business’s customer base. By branching out into nonprofit operations, you can easily increase the public’s awareness of your business, which will lead to more customers and revenues.

7.Stop paying your board members: Apparently some of you are paying your board members substantial amounts of money to be on your board. This makes little sense. It should be the reverse. Board members should be expected to donate to your corporation to show that they are invested in its success. It doesn’t have to be a particular amount, just one that is personally significant for each individual board member. Tesla’s board members each are paid $1,664,928 each year; but imagine how much it would increase shareholders’ and community members’ trust in the company if instead of getting money, board members each donated a meaningful amount, even $5.

8.Lower your overhead rates: People don’t just care about how high-quality your hand-made goat-milk soaps are. They will also want to know that the $10 of their hard-earned money they’re paying you for the grapefruit-lavender bar is not mostly being spent on overhead, which includes unattractive things like staff salaries, rent, electricity, insurance, marketing, etc. They want most of that money to pay for the ingredients. To keep that overhead percentage low, make sure you reduce non-ingredient-related expenses. To cut down on personnel costs, for example, let go of your COO and CFO and fold those responsibilities under CEO, and creatively combine your HR, Accounting, Marketing, R&D, and Technology into one or two individuals.

9.Provide individualized accountability: As mentioned above, customers want to know where the money they are paying you is spent on. Which is why you need to segment out every customer and how you’re spending their money and provide them with individualized reports. For instance, if you have a plumbing company and a customer pays you $300 to fix their garbage disposal, make sure you provide this person a detailed report at the end of the year stating that $50 of that $300 went to rent for your office, $10 went to duct tape, $20 for dry-cleaning for your uniform, etc. Do this for every single customer who demands it and you will see customer loyalty and revenues increase greatly.

There are many lessons businesses can learn, with only a few listed here. In summary, for-profits do important work, and they can do it even more effectively if they learn to act like nonprofits. During this time of deep uncertainty, it is important for businesses to be innovative, disruptive, and to think about scaling and sustainability. This is why, if you run a business, it is time for you to break out of the routine and operate more like a nonprofit.

Related posts:

Dear business people, please stop bizsplaining things to us nonprofit folks

Hey, you want nonprofits to act more like businesses? Then treat us like businesses

Dear business community, stop thinking you’re better than nonprofits

Reminder: I’m having a conversation with Angie Kim, CEO of the Center for Cultural Innovation, on May 27 at 10am PST, about our sector. It’s free. See details and register here.

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