Distinguishing The Great Ones...

The healthiest non-profits provide goods and services that otherwise have a commercial value. They do not base their revenue streams solely on the generosity of its donors. Most importantly, these non-profits could stand alone as for-profit companies should they one day have to.

Granted, not all non-profits are created equally or have the same model or structure. Just like a new start-up or a newly formed enterprise, non-profits need initial working capital. These funds would ideally be a one-time investment by stakeholders and not a never-ending drain on donors with no end in sight.

For-profit companies have to face market realities, organizational truths, and the so called invisible hand of the market place. All these mechanisms force the organization to be efficient, to have a marketable product, market their product effectively, and have good governance and management of the organization. If the company is not doing these things, it ultimately faces extinction. It is these forces that naturally and organically let the fittest rise, and force change and adaptation of the organization to fill an actual need of the marketplace.

It is a wonderful feeling and an honorable goal to be philanthropic, benevolent, generous and altruistic. Yet, we know that when these goals are applied to organizations focused on alleviating human suffering, the law of unintended consequences often rears its ugly head. Inefficiency, poor governance, unexamined necessity, non-competitive practices, unsustainability, can all come about. Efficacy, competence, and market forces can all be ignored. Charitable organizations often focus on only one solution, bigger better donors, and more of them.

Almost all non-profit organizations are trying to address a human need or societal problem. These problems, or more aptly the people involved, are the consumers of it services. Without forgetting the goals or the mission of the organization, the trick is to apply the forces that shape and mold for-profit organizations and ensure their sustainability in the market place. This would actually ensure scalability and effectiveness more than just looking to raise funds from charitable individuals.

I am not offering in any way an absolute solution that can be applied to every non-profit, but it does present a challenge to non-profits to think about what their organization would look like if it had to operate as a for-profit organization. It challenges them to create other revenue streams than just the donors. It causes them to consider the needs of the market and think about opportunities for their goods and services. It challenges them to bring best practices from the for-profit world into their organization.

There are many great examples of companies and organizations that were able to both make a profit and bring a social return. The two goals could and should balance each other out and work in a complementary fashion. They are not mutually exclusive. The worst examples in both for-profit and non-profit organizations are where there is no balance, and one goal is focused on to the exclusion of the other.