The Nonprofit Finance Fund’s Clara Miller offers a productive rant in The Chronicle of Philanthropy against the growing assumptions that tax-exempt organizations are inherently inefficient or ineffective. The call to bring efficiency and effectiveness to nonprofits through business analysis took on steam in the early part of this century — though it had been simmering for decades. Says she:
The critics did seem to be looking through the lens of large, for-profit public companies. They assumed small groups were inefficient and that therefore things would improve if small charities grew, merged or, gulp, died. It seemed that the plan was to line up all nonprofit organizations by height and marry them off, for starters, just to reduce head count. Then a series of mergers would further improve the numbers and neaten the ranks of our weary troops.
The problem with that approach, says Miller, is two-fold (at least). First, many nonprofits engage intractable problems of society — poverty, unemployment, cultural preservation, and so on. The complex and elusive nature of these problems are often created and abandoned by commercial enterprise, and demand an alternate approach to their resolution. Second, a focus on the very large, on either the nonprofit or for-profit side, is detached from reality.
The critics may not realize that many more for-profits than nonprofits are unprofitable, ineffective, and lacking capital (if only because there are more of them) and that nonprofit groups already routinely partner with for-profits, create for-profit subsidiaries of their own, and receive financing from and cede market share to for-profits as a matter of course.
In truth, corporate form is a tool, not a business driver, whatever the tax status.
Good stuff. Well said.
Andrew:
Miller’s observations are helpful: those who suggest that the “nonprofit business model” is tragically flawed (if there is indeed a singular business model template beyond having a common 501c(3) status) should be mindful of the fact that most small businesses of comparable scale are burdened by tragically flawed business models themselves, and have high failure rates as a matter of course.
Perhaps there is need for a paper which explores the “genius” of the nonprofit business model, driven as it is by the unique imperatives to satisfy investors (donors) and customers(service populations). Part of that genius is the resilience the models display in the face of a brutal funding “marketplace” and increasing demands for services in these tough times.
Perhaps elements of the nonprofit business model might well be emulated by the for-profit sector in these regards…
David Curry