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Feb 13, 2014 | Insights

Nonprofits Can’t Always Operate Like a Business

A recent article in a Boston-area weekly newspaper was right on target in stating that operational expertise is critical in running a nonprofit. Operational expertise ensures that board members – and senior staff members – develop strategic direction for the organization, regularly assess how well it’s meeting the goals set, and whether it’s able to make course corrections to adjust to external changes and be entrepreneurial when new opportunities arise.

Members of the business community often bring significant operational expertise to nonprofit boards, making many excellent candidates for nonprofit board membership. They bring an entrepreneurial spirit, a heightened focus on measurable outcomes, and an emphasis on results-based planning and assessment.

However, I become concerned when I hear those in industry – as well as some of my nonprofit colleagues – suggest that nonprofits will benefit from operating more like businesses. While there are similarities between the two sectors, it is important to be aware of the differences. These differences require that members of the business community and those from the nonprofit and government sectors serve on nonprofit boards.

Nonprofit organizations, especially smaller, community-based groups, do not have the same mission orientation as commercial enterprises. Although many businesses strive to be good corporate citizens and contribute to their communities, they exist primarily to provide goods and services which will produce profits for their shareholders. There’s nothing inherently wrong with that, but it’s fundamentally different from what drives nonprofits.

Nonprofits must, of course, generate income, but they do so in order to provide services and programs to their communities. This “double bottom line” is what makes managing in the third sector a particularly challenging endeavor. It’s also why my standard rejoinder to the assertion that nonprofits should be more businesslike is that I’d like to see businesses be more nonprofit-like.

Nonprofits cannot always follow the same rules as businesses in making their economic decisions. In fact, many have been created to address inefficiencies that result from the operations of the private sector. This means that there are many times when a nonprofit’s “business” decisions, within the framework of a rational, prudent budget, must be driven solely by the pursuit of mission.

It is important that nonprofits have a mix of board members from business as well as from the government and nonprofit sectors and that they understand the differing decision making processes used in both the business and nonprofit worlds. Together, we can continue to make Boston one of the world’s great cities to live and work in.

In the ED Forum, TSNE’s Chief Executive Officer Jonathan Spack reflects on issues facing nonprofit organizations in and around the Boston area and across the nation. Follow Jonathan on Twitter @JonathanSpack.