Great stuff from Clara Miller (again) on the particular peculiarities of the nonprofit business model, and the underlying dynamics that make our work so difficult. Her piece in The Nonprofit Quarterly on ”The Looking-Glass World of Nonprofit Money: Managing in For-Profits’ Shadow Universe” will baffle most for-profit managers, and surprise many nonprofit leaders, as well.
Says Ms. Miller:
…enter the nonprofit sector, and it’s a new and irrational world, like stepping through a looking glass. The rules, when they apply at all, are reversed, and the science turns topsy-turvy. Not only are nonprofit rules that govern money — and therefore business dynamics — different from those in the for-profit sector, they are largely unknown, even among nonprofits and their funders….Even when revealed to for-profit cognoscenti, they are so at odds with the listeners’ familiar world as to prompt confusion, disbelief, and related feelings of cognitive dissonance.
What’s so different about operating a business in the nonprofit world? Miller breaks the issue down into seven statements that are obviously true in the for-profit world, but generally false among nonprofits:
- The consumer buys the product.
- Price covers cost and eventually produces profits, or else the business folds.
- Cash is liquid.
- Price is determined by producers’ supply and consumers’ ability and willingness to pay.
- Any profits will drop to the bottom line and are then available for enlarging or improving the business.
- Investment in infrastructure during growth is necessary for efficiency and profitability.
- Overhead is a regular cost of doing business, and varies with business type and stage of development.
True or False?
Miller, here, is discussing the broader nonprofit sector, not just cultural nonprofits, but she’s right on the mark. This would be a handy article to share with your board members (especially new board members) when they start believing they know the business they’re governing.
