Two friends sent me a link to this article from Huffington Post, "It's Harder to run a Non-profit than a Company". The article is written by Aaron Hurst, the founder of the Taproot Foundation and a two-time startup entrepreneur. Mr. Hurst's bio describes him as "a globally recognized social innovator and leading architect of the growing pro bono services movement". The article has an interesting theme but I disagree with several points. Hurst's points are below in bold, followed by my commentary.
- You can't afford to pay the top price to attract top talent. The age old mantra is that non-profits have to have low salaries in order to maximize the money invested in social services. Essentially the non-profit takes advantage of people's desire to do good and therefore is able to secure staff at lower salaries. What is overlooked in this logic is the best people, presumably higher priced, are more efficient, require less staff and are able to develop more effective operating models. Net, net, the best people are cheaper because of the better results produced. Board members should be able to understand this logic, and if they cannot, you have the wrong Board. One other point, a lot of very good people are now looking for jobs. Many positions in non-profits can be staffed by high quality part-time workers who should be priced at attractive rates.
- There is just as much competition but you are expected to not talk about it or openly engage in competitive behavior. I agree with Hurst here. Competition is fierce in social services not just from other non-profits competing for donations and targeting the same folks in need, but also increasingly from for-profit companies that find the same "markets" attractive. Again, refusing to recognize the competition is a legacy from the old days where many "do gooders" think of "business" as a dirty word. At a foundation I know well, the competition is Intel, Microsoft, HP, Dell and ten other for-profit companies. The foundation faces these competitors every day in government bids. These governments frequently discuss competitor offerings and the foundation positions themselves to focus on their non-profit status, superior product and history in child learning. The reality is that every product/service has competition and discussions of competition may foster greater clarity of mission with stakeholders.
- Your board requires a lot more investment of your time and energy. Hurst is probably correct here, but I suggest that you separate board seats and donors. One way to achieve this separation may be to focus more on corporate donors and less on high net worth individuals. In my experience corporates are less likely to link donations to board seats.
- There is no market for growth capital. I think Hurst has underestimated the growing number of investors and venture capitalists interested in social-based investing. Perhaps the business model he uses needs to change to a social entrepreneurship model rather than a donation model. Social entrepreneurship is not the perfect capital raising model but it provides a lot more flexibility in financing than relying only on donations.
- You have more customers (stakeholders). I disagree here. As Hurst knows well, one should focus on the market served. Everybody else is secondary, although it may take some time for donors and staff to fully realize the benefits of such an approach.
- Failure can lead to real impact on the lives of real people. If your company fails, you lose money. When you fail in a social sector endeavor, you've failed to improve our society and improve the lives of your fellow citizens. You've failed in realizing your vision of creating a better world. I would point out that when for-profit companies fail employee lives are disrupted and products and services that benefit society are also lost. The point here is that organizations should focus on their mission and not be confused by the notion of "doing good". Key performance indicators and the reported or realized results are what improve lives and "doing good" is just a part of the marketing message. It may be a powerful message but it is just a message.
Mr. Hurst's article appears to assume that non-profits rely almost exclusively on donations. I would point out that many social entrepreneurship ventures are also non-profits. A social entrepreneurship model may avoid many of the legacy issues of non-profits, such as board seats linked to donations, "business" as a dirty word and "doing good" as opposed to a results orientation. Perhaps Mr. Hurst just needs to bring more of his entrepreneurial experience to his management philosophy in social services. More on social entrepreneurship here and here.
The views expressed here are my personal views and do not represent the views of any organization with whom I am affiliated.
