By Pat Rowan
I often hear it mentioned that non-profits should be run more like businesses. While challenging that notion has led to some great conversations, I think it’s important to explore the parallels, and the important differences, between non-profit and for-profit enterprises.
First, non-profit does not mean anti-profit. Through the Great Recession I have seen a lot of non-profit’s balances sheets outperform for-profit businesses, perhaps because we are experienced at counting every penny and controlling expenses. But, just as likely, it has to do with our diversified revenue sources that are not immediately subject to ups and downs in the economy. Don’t get me wrong, non-profits have had tremendous challenges over the last four years, including cuts in government funding and shrinking philanthropic portfolios (Foundation assets were down almost $25 billion from 2007-2011). Much of the challenge, however, has been in meeting an increased demand for services. For example, visits to food shelves in MN have increased 61% over the last three years.
Meeting this increased demand with flat revenues is where non-profits have improved the most over a short period of time. By “acting more like a business,” non-profits have risen to the challenge by examining every aspect of the services they provide. Reducing waste and duplication, along with increased mergers and acquisitions activity, have created a non-profit sector that is more efficient and just as effective at their missions. We’ve moved from an environment where we measure outputs to measuring outcomes. After all, it’s not only about how many people we serve, but also about how those services improve people’s lives.
There was a day when a donor would make a gift to charity because the charity was a well known part of the community. Now charities must, and should, be able to articulate how their financial support is making a difference. Similar to for-profit businesses, non-profits have investors… investors looking for maximum impact rather than profit. Just as corporate CEOs are accountable to their Board and shareholders to produce a return on investment, non-profit CEOs are accountable to their board and donors to produce ROI on fulfilling their organization’s mission.
Recently, Meals on Wheels partnered with University of Minnesota Carlson School of Management to complete a Return on Taxpayer Investment (ROTI) study for Meals on Wheels. We’ve always known, but haven’t been able to accurately articulate, that by serving Meals on Wheels to someone that is homebound and on government assistance, we save the taxpayer a lot of money by keeping them out of a nursing home, even if just for a short time. In short, this is because the cost of Meals on Wheels is so much less than the cost of a nursing home. We also know now that only about 4% of our clients would end up in a nursing home if they didn’t get Meals on Wheels. However, the cost is so high ($70,000/yr) that Meals on Wheels actually saves the government $4.27 for every $1 invested in Meals on Wheels. That’s an ROTI of 427%! As well, who wants to live in a nursing home anyway?
But with a slowing economy comes increased scrutiny. In response to this, for-profits and non-profits alike are responding with more transparency and controls on executive compensation and employee benefits. For a non-profit, it’s about striking a balance between the type and quantity of service we provide with the need in the community. Meals on Wheels could provide an incredible amount of nourishing food and personal attention to fewer clients to maximize our impact on those few but we wouldn’t be fulfilling our mission to serve everyone that needs assistance a hot, nutritious meal. Continued analysis is welcome as we make the business case for Meals on Wheels and other non-profits but, rest assured, we are constantly seeking ways to do more with less.
Perhaps for-profit businesses can learn a lesson from non-profits, too: It’s not just about getting money in the door today, but about building an organization for the long haul to serve an ever-growing marketplace.
About Pat Rowan: Pat is the Executive Director of Metro Meals on Wheels, a non-profit organization working with 35 Meals on Wheels sites to serve over 1 million meals each year to those in need across the greater Minneapolis-St.Paul area. Pat is a Carleton College graduate and resides with his wife and two children in the Minneapolis area.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of other person or entity.