Is a Nonprofit Organization a Business?

This is a complicated question. I have heard it, and asked it, several times over the years. In my role working with many different nonprofit organizations at the Saint Luke’s Foundation, I saw a lot of different successful, and not always similar, ways to run a railroad. With that experience and vantage point, I have come up with a definitive answer: “yes and no.” There are fundamental principles that are true of any organization, or should be.

High performing businesses and nonprofit organizations alike value the quality of the product and the expertise and efficiency necessary to make that product “happen.” Efficiency and effectiveness should be crucial drivers for nonprofits and businesses alike. A business seeks a profit as a measure of success. For this reason, a business also seeks efficiency in their costs and effectiveness in their product or service. There is no question that a nonprofit organization should too. ‘Profit’ just has a different meaning - one not measured by financial gain.

If your mission matters, and it does, then it deserves an excellent and efficient organization to deliver on that mission. As players in the nonprofit sector, we have to have a high tolerance for textbook inefficiency as the product is not profitable. But that doesn’t mean that we don’t need to minimize that inefficiency and never sacrifice quality. Maybe more so, as it necessitates using other people’s money to achieve that quality.

Nonprofits are not able to sustain themselves through their product distribution or their service, for the most part. Even if there are service fees that help cover the cost of the organization, individuals, foundations and often the government need to support you to make the mission possible. They essentially need to “buy” your product. You can’t enable them to make a profit off you. But, you become the steward of their dollars - a steward of their desire to see done what you do. Never forget that those ‘donors’ are investors. The return on investment they deserve is the success of your mission achievement.

So, if you are the steward of other people’s investment in your mission, you can’t compromise quality. That would be disrespectful. You can’t afford inefficiency, you need investors, but success looks different. Success is a changed life, an improvement in the environment around us.

A changed quality of life is a huge deal. None of us involved in serving nonprofit missions take that lightly. The high standards you have for your “product” delivery simply can’t be compromised in the name of efficiency if that is defined by reduction in costs. If you don’t hire the right knowledgeable and experienced people at a fair salary, with good benefits, support them as employees and manage your dollars well, you will fall short of all that you can be.

So yes, nonprofits are businesses in a fundamental way. Both types of organizations need to operate with uncompromising commitment to quality in an efficient manner to achieve success. And, both have investors who deserve a good ROI. But the work of a nonprofit organization is done toward a different, and arguably in many cases, more important purpose - changing the world for the better.