Differences Between Running Non-profit And For-profit - Business ...

Prior to Venture for America, I was the head of Manhattan GMAT, an education company.? I occasionally get asked which I like better ? running a company or a non-profit.?

Let me provide the caveat that I don?t consider myself a non-profit guy by nature.??When I was first thinking about what would become Venture for America, I was trying to figure out how to solve a problem ? that our top young people were being driven to roles that did not, to me, address the needs of our time.? That VFA would be a non-profit just seemed like the most efficient way to solve the problem.?

Now, having done both, I feel like there are several discrete differences that cut both positively and negatively with a non-profit:?

1. You?re serving 2 audiences (at least)

The biggest difference is that most non-profits lack a direct feedback mechanism.??Let?s say you have a business selling chocolate chip cookies. People tell you, ?Mm-mmm!?Your cookies are delicious!???More importantly, they show you how much they like the cookies by buying them, telling their friends, etc. Your business grows, and you spend the money on more cookie stands, better marketing, maybe even different and improved recipes, etc.??Your feedback is direct, immediate and appropriately self-reinforcing (the GMAT business was like this).????

In the non-profit world, your feedback is much more indirect. To stretch the example above, you?re giving the cookies away.??You then go to donors and say, ?Look at these cookies!??See how much everyone likes them???You should give me the resources to bake some more.???How many contributions you get is related to the quality of the cookies, but it?s also related to what people think of the cookies (without eating them), how good you are at describing the cookies, how many people you can tell about the cookies, etc.?

In the non-profit world, there?s service delivery (in our case, recruiting top college graduates, training and mentoring them, placing them at start-ups and growth companies in areas of need for 2 years, etc.) and then there?s fund-raising.??They?re generally two very different activities with different competencies and audiences.?

It?s easy to see how non-profits become engrossed in catering to donors, which may or may not be the best thing at all times, while if a company is ultra-engaged with its customers it?s universally positive and helpful.?

2. Goodwill is the coin of the realm

Back in 2001, my first start-up was mentioned in the New York Times and USA Today.??I figured that would drive thousands of visitors to the site and tons of new business.?Instead, only a handful of people visited our site and not much business came of it at all.??It turns out that most people don?t drop everything and go visit the site of a company they read about.??As a result, I developed a pretty deep skepticism of the business value of articles and press coverage.??At Manhattan GMAT, we didn?t get much press, yet we enjoyed continuous growth for years because our customers had great results.?

On the flip side, there are businesses that enjoy a great deal of attention, enthusiasm and goodwill that didn?t succeed.??Color was a much-hyped start-up that raised $40 million and almost immediately disappeared.??People love Twinkies and everyone knows about them, yet Hostess went bankrupt.??Attention and commercial success have an uncertain relationship in business.????????

I?ve found this to be different in the non-profit world.??Press and goodwill matter a lot. Narratives are important. Your audience (donors, foundations, companies, individuals, etc.) all enjoy the sense that people care about what the organization is doing.??You ask people for things all of the time (e.g. donations, in-kind services, work at a discount to market, etc.) and they need to be motivated by something bigger than themselves or personal benefit.?

Goodwill, it turns out, is much more likely to happen in-person. When we were starting out, I was looking for ways to avoid what I regarded as the event trap ? non-profits would spend $200k on an event to raise $300k.??I thought to myself, ?That?s silly.??Why not just get the $300k and skip the event????Then, when I tried it, it turns out that people would much rather give money if they show up to something and experience what the organization is doing.??(Note ? at our first Summer Celebration in 2012, we raised $365k on expenses of about $65k.??That revenue-cost ratio was only possible because IAC donated the space, vendors donated goods, etc.)???

In the business context, unless you?re an event or concert or conference business, getting in front of people is typically a marketing expense. In the non-profit context, getting in front of people is crucial ? it drives goodwill, which drives your growth.?

3. Your incentives are different

I believe in what we?re doing here at Venture for America wholeheartedly, and I know that the same is true for the team, Board members, and everyone who supports us. It certainly makes it more exciting to do one?s job if you believe in the mission and feel like you can help advance it every day.?

That said, there are non-profit guidelines that make it easy to over-rely on this intrinsic motivation. Many non-profits have very conservative pay scales that make it difficult to reward and advance high performers. This can lead to an unfortunate dynamic where you lose people who can help drive the organization forward.?

At Manhattan GMAT, I believed in creating a positive work environment and culture, and we invested in it heavily.??But I also believed in rewarding people financially at the market rate for a job well done. The last thing anyone should want is for a non-profit to rely upon the personally privileged, young and idealistic, or worse yet, less-than-stellar performers to dedicate their professional lives to the organization.??You want ambitious, high-efficiency superstars to view the organization as a place to build their careers.??This is simultaneously easier and harder to pull off at a non-profit, but on balance it becomes harder over time (we?re working on ways to mitigate this).?

So, if you ask me personally, which do I prefer???I?d have to say I prefer the business context. I love the direct feedback. I don?t think having to frame and package everything you do is terribly efficient (and I?m not the type who really loves the messaging component).??And I particularly like the ability to reward people who do excellent work in every way possible, including monetarily.?

My preferences aside, Venture for America being a non-profit was 100% the right decision. We?re much better positioned to be able to achieve our mission as a result.??We?ve raised $1.2 million to date and have a similar amount pledged, so it?s working well.??People are excited about our potential to achieve our mission:?

To revitalize American cities and communities through entrepreneurship.??
To enable our best and brightest to create new opportunities for themselves and others.
To restore the culture of achievement to include value-creation, risk and reward, and the common good.?

It?s important to know that some problems lend themselves to for-profit solutions, and some lend themselves to non-profit solutions. The trick is balancing it so you can, to the extent possible, get the best of both worlds.

NOW READ: 'Overnight Successes' Don't Really Exist In The Startup World >

Source: http://www.businessinsider.com/differences-between-running-non-profit-and-for-profit-2012-12

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