Is Thinking More Like a Business a Bad Thing?

"Dictionaries in class (2)" by Ijiwaru JimboDonors are using their business tactics and strategy to choose the charities and projects in which they get involved; an increasing trend that has received even more attention since Dan Pollotta’s TED talk.

So I thought it was fortuitous that I was invited to attend a conference for new financial start-ups, essentially a chance to listen to the concerns and foci of investors. After all, donors’ logic dictates that the same tactics should apply to both their for-profit and nonprofit investments.

After listening to the advice offered by the various speakers, I can say that opponents to the changing nonprofit landscape should stop bemoaning the ruining of the charitable sector by the business tactics of today’s “venture philanthropists.”  In addition to understanding donors, there is much to be learned from the for-profit sector.

Here are 9 tips offered to businesses at the conference that nonprofits should internalize, as well:  

Tip #1 – Outsource Less

To Businesses: “While it might be cheaper to outsource many back-office activities, having these menial tasks done in-house present a more established company to investors.”

Applications for Charities:

In my experience, there are two types of outsourcing for nonprofits: administrative and fundraising.  While administrative outsourcing or conglomerates can be a useful thing, fundraising can be tricky.

Outsourcing fundraising refers to the use of fiscal sponsors or intermediaries to raise funds.  Essentially, checks are being written to a name other than the intended charity.  While many factors can be used to judge the effectiveness of fiscal sponsors or the like, it has been argued that raising funds through another organization dilutes a charity’s name recognition and presents the organization as more amateurish.

As a matter of fact, many consultants and seasoned fundraisers will decide whether to establish an “American Friends” supporting charity in the United States based on this last criteria and not on any financial incentives.

Tip #2 – Voluntary Registration with the SEC

To Businesses: “While many firms do not need to register with the SEC [Security Exchange Commission] or other government watchdogs, it was suggested that voluntary registration can certainly show investors that a company takes itself seriously.”

Applications for Charities:

Whether in the States or in Israel, there are organizations that are either exempt from or can opt out of certain registration or reporting requirements.

One of the best examples of this, is houses of worship in the America, who are exempt from filing the dreaded 990.

In Israel, the two “main” certifications that a charity can receive are the Nihul Takin [Certificate of Proper Management] from the Registrar of Charities) and Seif 46 [tax-deductible status] from the Tax Authority.  While much can be said for not applying for tax-deductibility status (read my previous article), the extra filing to obtain the Nihul Takin seems to always be worth it as many institutional donors expect to see it and the government themselves views this certificate as the litmus test for proper management.

Tip #3 – Third-Party Verification

To Businesses: “Investors always feel better when a company has a third party checking their numbers. And yes, sometimes this costs money.  But do it anyway.”

Applications for Charities:

Charities have a few ways that they can verify their numbers: impact measurement and charity ratings.

Whether it’s business tactics or limited funding for the nonprofit sector, in general, the need for impact measurement has become clear (though the source of financing this research has inspired many an article).

Charity rating have been in existence for years, though here too the exact nature of the ratings is also a source a great debate.  The evolution of Charity Navigator, for example, is the perfect test case for this challenge.  With that said, many seem to agree that it helps to have someone’s stamp of approval — and there are more rating sites for charities to choose from every year.

(It is interesting to note that in Israel, there is only one organization that rates nonprofits, Middot, whose business model has Israeli charities paying for the evaluation.  Not only has this financing model not caught on but 2012 saw a big backlash to some of Middot’s joint initiatives with the government — the subject of another piece altogether).

Here too, with charities’ “mismanagement” of funds making the headlines every month, third-party verification is continually playing a more important role.

Tip #4 – Simplicity

To Businesses: “The more complicated your market strategy the harder it is to explain to investors.”

Application for Charities:

Where to start?!

With increased competition in the nonprofit world, it is critical for charities to distinguish themselves from other organizations and highlight their added-value.

  • Internally, nonprofits and their employees must understand their mission, what Guy Kawasaki refers to as the company’s mantra.
  • Externally, the nonprofit needs to ensure that all their programs and PR are sending the same messages.  A nonprofit engaged in mission creep or sending mixed signals presents a watered-down identity.

Tip #5 – Manage Risk

To Businesses: “We care about good risk managers.”

Applications for Charities:

In the for-profit world risk-taking is an understood part of doing business and an integral part of business strategy.  Navigating risk is much more important than avoiding risk — avoiding risk entirely robs a business venture of potential revenue streams.

In the nonprofit world, risk appears in a number of forms: programmatic risk, proper due diligence, and embezzlement, to name a few.  While the possible tools and tests available to donors and charities are too numerous to even begin to list, it boils down to one thing: a properly functioning board of directors.

A well-run board will not only help avoid most pitfalls, but it is also the first thing (and sometimes the only thing) that many donors inspect.  (Example: A Healthy Board Imbues Trust with Potential Donors.)

Tip #6 – Don’t Reinvent the Wheel

To Businesses: “You Don’t Need to Reinvent the Wheel.”

Applications for Charities:

New charities are formed every day based on the tenet that it can be done differently or better than previously before.  (Need a I mention, “innovation?”)

While proving uniqueness and value is critical, not every aspect of the business model needs to be one-of-a-kind.  Building on previous proven methodology is a great way to save money and time.

Tip #7 – Educate Investors

To Businesses: “Educate investors.”

Applications for Charities:

Take nothing for granted.

Donors don’t necessarily see the need, appreciate the subtleties, nor value organizational priorities. And they won’t unless an organization decides to explain it to them.  (This is why G-d invented  fundraisers and PR experts.)

An axiom in the nonprofit sector states that donors will only give when asked.  True.  Just as importantly: donors will give more when they understand.  

Tip #8 – Always Preserve Your Reputation

To Businesses: “Play by the rules. Your reputation is all you have.”

Application for Charities:

  • Innovation is great…but in a controlled environment.  When a new project or donation has the potential to call into question the entire organization then it isn’t worth it. Stay far away.
  • When Murphy’s Law rears its ugly head – whether as a scandal, foe pa, or a simple typo – respond quickly.  Don’t let others dictate the conversation surrounding your reputation.  (Example: No News is NOT Good News: What Went Wrong with Komen for the Cure.)

Tip #9 – The Buck Stops Here

To Businesses: “Due diligence questionnaires should be filled out by the CEO.”

Application for Charities:

Nothing exists in a vacuum.

In order for any new initiative or fundraising effort to succeed, it must have the support (and sometimes the active help) of the top brass.  Staff and volunteers look to the leaders as personal examples.  If it ain’t flowing from the top, it won’t get far.


Jim Collins said that “Great business corporations share more in common with great social sector organizations than they share with mediocre businesses.”

Instead of focusing of the differences between the two types of corporations, more attention should be given to the similarities.  And if donors are more business-thinking then so be it.  There is plenty to learn and apply from businesses.

Though, if we’re already quoting Collins then I’ll end off with this: “Social sector organizations increasingly look to business for leadership models and talent, yet I suspect we will find more true leadership in social sectors that the business sector.”

A little off the topic but I couldn’t resist. :-)

Keep an open mind and tizku lemitzvot,


This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals.  Read the full disclaimer.

Photo courtesy of Ijiwaru Jimbo (Flickr)

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