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Questions…on the Business of Non-Profits for Eldridge Huntington
CBAPP
Lecturer Eldridge Huntington wrote his first grant in the late-1970s
and has consulted with more than 20 non-profits since then. As the
instructor of Intergovernmental Relations and Grant Writing on
campus, he continues to stress to his students that running a
non-profit is very much like running a business. With the pool of
potential money available for non-profits rising into the billions
and added regulations that require prudent management and oversight,
it’s a concept that is changing the face of the non-profit sector.
Here, he explains the perils that await those who try to start and
run non-profits as something other than businesses as well as a few
lasting fundamental differences that separate non-profits from the
bakery or shoe store down the street. A hint: it’s not the cash
flow. Is it wrong to think of a non-profit as a business? Absolutely not. In fact, it’s wrong not to. The notion that non-profits don’t make money is a joke. They can have cash flow in the millions of dollars. They certainly have different missions and the goal is not to make money, but there is lots of money to be had, covering all overhead and expenses. That’s why there is a lot of demand for grant writers. It’s a major undertaking, just like a business. Why are more organizations getting their management side of the house in order? One major reason is that there are more grants available from the government, particularly for faith-based organizations since Bush made the faith-based initiative such a priority, but government grants also require oversight. And oversight requires that you’ve got your house in order. They check to make sure you maintain this oversight and management throughout the lifetime of the grant. Private foundations don’t require the same level of oversight? In a way they do because you need to demonstrate similarly strong management and fiscal responsibility when applying for grants. But they typically don’t monitor the programs once the grants are awarded like the government. That said, you still have to stay on top of your management and finances if you want to continue to get funding since you’ll be required to demonstrate such oversight the next time you apply for funding. Are there too many non-profits who don’t operate like businesses? Sure. When I start working with a non-profit, before I do anything, I ask if they have a business plan and even more specifically, a marketing plan. Sometimes, they look at me sideways, but you’ve got to have a business plan, a very clear mission, and a number of streams of potential funding. For example, you can say you want to help underprivileged youth. But how are you going to do that? And what programs are you going to apply to help them? And where are you going to get your funding? Too often, these essential questions are not fully answered because people have a passion for helping others and are too starry-eyed to see beyond that. Why did you stress the need for a marketing plan even beyond a business plan for non-profits? If you own a bakery and you’re really good at making bread, if you pick a good location, there’s a chance you’ll make some money even if the management of your business is not in order. People start talking about your breads and how good they are – that’s a powerful marketing tool. But in non-profits, there is no effective word of mouth among your customers. People who come to you may have problems, so they aren’t going to go around praising your non-profit because they will be announcing that they have a problem at the same time. Plus, they’re often focused internally since they may have problems. All of this means that when you start a non-profit, you may want to help battered women, but you need to know how you are going to let them know that your non-profit exists. These are not your typical customers. You’ve got to find them and keep finding them. How else is running a non-profit fundamentally different than running a small business? It’s often possible to have a one-man small business. Take our baker again. He can wear all the hats while also producing the product. But because non-profits are focused on specialized services that demand psychologists or social workers – as two examples – it’s very rare to find a one-person non-profit. You need staff to run the organization and others to provide the services from the start more than small businesses. Also, non-profits are affected by changes in the economy more than private business. For example, if you are focused on mental health in California and you receive funding from the state, your budget just got trimmed 10 percent because of Gov. Schwarzenegger’s recent budget cuts. In addition, corporate giving through foundations takes a major hit when the private sector is tightening its belt. These still aren’t the biggest difference though – that lies in the role you play as founder of a non-profit? How is being the founder of a non-profit different than being the owner of a small business? It’s in that word “own.” Nobody owns a non-profit. You may start it and run it for decades, but if the board of directors decides you shouldn’t be affiliated with the organization any longer, they can fire you. That can happen to public CEOs too, but it’s easier to stock the board or own the bulk of the stock so you never have that problem. Does that happen? Where non-profits fire their founders? Sure. It’s why picking your board is extremely important. That sounds a little like you’re advocating for nepotism like those same CEOs who stock their boards. What I’m saying is that people who start non-profits often don’t look hard enough at the people they ask to be on their boards because that is where a lot of the power lies. In terms of nepotism, there are sections on the application when you file for non-profit status with the government that protect against that. They were added after 9/11 when it was discovered some non-profits were supporting terrorist organizations. Now, there’s a cap on the percentage of your board that can be comprised of family members and internal employees. Additional restrictions on your finances also came out of the Sarbanes-Oxley act following the accounting scandals at Enron and others. All of this makes it seem like you’d be hard-pressed to run a non-profit not like a business. Is it still common to not use a business approach? Despite the number of non-profits who are building their management side of the house, I’d say 90 percent of new non-profits still start without the fundamentals of a clear mission, business and marketing plans, and multiple streams of potential income. They have a passion for providing a service; they often don’t consider how they are going to specifically provide that service. |
