The way we do things in the nonprofit world often differs from the way the private sector operates. While there is good reason for nonprofits to have distinct business models, there are some things that the private sector does right that nonprofits could really benefit from by incorporating them into their own business models.
In the 2013 Ted Talk “The Way We Think of Charity is Dead Wrong,” Dan Palotta, an entrepreneur, speaker and the creator of AIDSRides and the Breast Cancer 3-day Walk, dismantles the notion that nonprofits should operate completely differently from the private sector. According to Pallotta, nonprofits have conformed to unrealistic expectations in order to attract investors and retain funding, and he urges investors and nonprofits alike to change the way they think and operate.
So, as 2017 is approaching and your organization continues to find more ways to increase funding and revenue, here are 6 takeaways from the private sector that you can bring with you into the new year.
- Invest in your organization. Invest in your employees, your day-to-day operations, and your projects, even if it changes your financial ratio and increases your overhead a bit. A letter penned by the BBB Wise Giving Alliance, GuideStar and Charity Navigator, asks investors to look past financial ratios and overhead costs as a measure of success for nonprofits. The letter also asks nonprofits to help end the “Overhead Myth” by focusing on the good they do, rather than how they use their money. By investing in your employees and your organization as a whole, you can multiply your funds and ultimately do more good.
- Tap into local talent. In her Ted talk, “What Nonprofits Can Learn From Coca Cola,” Melinda Gates talks about the power of the large conglomerate to influence local communities. Coca Cola is well-known for being able to reach very remote locations. They do this by involving locals in their operations, so much so, that 90% of their revenue in Tanzania and Uganda comes from micro-distribution centers. If your nonprofit has projects that don’t operate locally, you should ask local entrepreneurs and on-the-ground organizers for help. Locals can act as successful go-to experts and ambassadors for your organization by providing insight into specific communities’ mindsets, values, and opinions, and in turn, helping in the execution of your mission.
- Invest in fundraising. Dan Pallotta speaks to this effect in his 2013 Ted talk. When his Foundation launched AIDSRides they had an initial investment of $50,000. They invested 40% of this money in overhead, including a successful fundraising department, and multiplied their initial investment 1,982X turning it into $108 million that went into funding AIDS research. What this tells us is that by supporting your organization’s fundraising efforts, you can help multiply initial contributions to have an even greater impact. For-profit companies invest in their day-to-day operations constantly, and nonprofits should too.
- Feed real-time data into your projects. Companies in the private sector use the data they collect on their operations to make real-time adjustments along the way. Nonprofits tend to wait and don’t necessarily analyze the results of their projects until after they have been completed, which leaves little to no opportunity for the data collected to positively affect the outcome. Real-time data can be a powerful tool that can improve your performance and help prevent losses, or leave room for quick in-the-moment iteration.
- Market your “product.” No one would expect a company in the private sector to operate without any marketing. Nonprofits and charitable organizations deal in social good. This is the “product” you are putting out there. By investing in marketing efforts, you can reach more supporters, increase your fundraising, and ensure success in the projects you undertake. Charity: water, an organization that provides clean water to developing countries, is famous for creating poignant content that helps draw donors. In 2012 alone, they raised $33 million that helped fund 2000 water projects. Simply put: investing in marketing pays off.
- Take risks. Nonprofits are, for the most part, risk-averse. This is partially due to the hypercritical climate that many charitable organizations are subject to. However, for-profit companies have been taking risks and funding entrepreneurial endeavors without suffering dire consequences for ages. The only way to encourage innovation and promote growth is to take risks in the pursuit of new ideas. Nonprofit organizations need to refuse to fall behind and follow suit.
As you head into 2017, make it a point to question the way you think about charitable giving and your nonprofit's performance.