small business adviser | by diane hershberger
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I often tell friends that being the executive director of an IRS 501(c)(3) not-for-profit organization isn’t materially different from being the CEO of a local business.
The IRS code does not preclude not-for-profits from generating a profits to benefit their missions. Consequently, they need not be shy in the pursuit of such profits. Rather, they should strive to be organizations that exist for the furtherance of their missions, but “not-for-profit” alone.
Profits in 501(c)(3) organizations (whether they result from self-generated revenue sources or greater investments by individuals, foundations and corporations) are critical for spawning service innovations and addressing unmet or new community needs. Because of the responsibility, sound business planning is therefore an essential management tool.
Not-for-profit board members and staff usually do not typically think of their annual rituals of strategic planning, program evaluations, personnel reviews, and financial projections as “business planning” — but these activities address many of the same fundamentals that a commercial entity’s business plan does. Competitor analysis and implementable marketing tactics are two factors that separate the “wanna-bes” from those that successfully achieve their goals.
Competitor analysis is probably the business plan component least understood by not-for-profit managers. The concepts of “creative abundance” and “increasing the size of the pie” have always been driving operational forces in the Third Sector. For decades, most not-for-profits considered themselves to be “kindred spirits” with others, and the concept of competition was regarded as unethical.
If a not-for-profit’s business is planned appropriately, its mission will focus on filling a need that is not being met by another organization. A thorough competitor analysis can turn information and services into a profit to be reinvested in the organization’s mission.
There is also competition from businesses that provide products and services related to the mission of a not-for-profit and from which a not-for-profit organization itself can generate revenue. Some for-profit businesses describe themselves as social entrepreneurs, performing services or providing goods which better people’s lives in many important ways – from designing earthquake-safe schools to multi-cultural catering. Not-for-profit leaders need to become savvy to income opportunities when competing businesses expect them to participate with no financial return. When aspects of a not-for-profit’s revenue-generating program directly advance its mission — or when it builds on the expertise of its staff, or earns revenue for community needs that would otherwise go unmet, everyone wins.
Revenue generation is often the last priority of a not-for-profit. The reason is usually the time factor rather than a lack of requisite knowledge and skills. The understanding of marketing opportunities and the balance between direct service and marketing needs to improve. The involvement of boards of directors and community supporters is critical in enabling staff to increase marketing efforts. This support can consist of volunteering marketing expertise; offering designated funds to accomplish marketing work, or relieving staff of certain direct service responsibilities toward allowing time to be dedicated to marketing.
Not-for-profit organizations with a strong staff, an effective business plan, a viable mission, a supportive board of directors, a vision for social entrepreneurship and a marketing orientation will be the best equipped to respond to the rapidly changing social needs of our community.
Diane Hershberger Hershberger is Executive Director of Kansas City Harmony, a resource and catalyst for improvement of race relations, increased appreciation of cultural diversity and elimination of intolerance. Phone: 816.231.1077. e-Mail:dh@kcharmony.org.