This article first appeared in the October, 2006 edition of the Jacksonville Business Journal
The non-profit sector is a vital part of our society. It provides valuable services that are unavailable elsewhere, and represents a substantial portion of our economy. There are approximately 600 non-profit organizations in Duval County. This represents a 1.22 billion dollar industry and exceeds the budget for the City of Jacksonville. The non-profit sector fills the gap of human services not provided through the public sector, and not part of the mission of the private sector. It is a critical part of society's "human safety net" and also addresses other significant issues ranging from medical research through environmental services.
Over the past several years I have worked with a number of non-profit organizations. Having spent the bulk of my career in the private sector as an executive and entrepreneur, I brought my private sector experiences to this new environment, expecting them to work in much the same manner. My initial impression was that the non-profit sector just needs some "professional management competence" to help it operate on a more effective business basis.
Unfortunately, this was a simplistic and potentially damaging assumption. Many private sector business practices don't work in the non-profit sector. The fundamental rules are - and must be - different. Understanding these differences enables executives and professionals to have greater impact within the non-profit paradigm. Since many professionals do or will work in the non-profit sector as employees, Board members, volunteers or advisors, it is important to understand and appreciate these differences. Here are a few of them.
Difference...Core purpose. Success in the private sector is driven by the combination of customer satisfaction and shareholder value. Success in the non-profit sector is driven by the mission of the organization. Because the mission often addresses many human or social issues it is easy for non-profits to appear to have a lack of focus, and even be subjected to "mission drift" as social circumstances or funding sources change.
Difference...Measurements. Much has been done in the private sector in recent years to develop the concept of a "balanced scorecard." The balanced scorecard reflects measures in financial performance, customer satisfaction, human capital, etc. Even with this extended measurement model, organizational focus in the private sector enables a clearly defined measurement system. Measurements are more difficult in the non-profit sector. For example, if an organization's mission is the reduction of poverty, how is its success measured? It cannot be assessed solely on poverty reduction since there are so many other societal factors that contribute to poverty. If measures focus on activities, then the measures describe behaviors, but not end results. Identifying meaningful measures that are tied to outcomes is very difficult in the non-profit sector, which adds significant complexity in satisfying funding sources.
Difference...How revenue is generated. In the private sector, revenue is generated from customers through products and services provided. The more products made or the more services provided, the greater the revenue and subsequent profitability and shareholder value. In the non-profit sector this model is turned upside down. Since clients typically cannot pay for the services they receive, revenue comes from grants and philanthropic donations (often with usage restrictions). Services provided cost money - they consume resources, but they do not generate additional revenue. So, the more good work you do the faster you use up all your resources.
Difference...Leadership. Leadership in the private sector is largely positional. Leaders have the authority of their position to make executive decisions and employees are responsible for accepting and implementing them. Leaders in the non-profit sector do not have such license. They must satisfy many different stakeholders. The multiple constituencies that represent the broad range of clients they serve, the other agencies with whom they interact, their own employees, their Board, their funding sources and the general community all pull on the demands of the leader. Authoritative leadership is not acceptable because the commitment of most constituencies is voluntary. Therefore, leadership must be based on consensus and the model requires much more time for dialogue, interaction, and consensus building through influence.
Difference...Employee recruitment. The private sector has the ability to offer competitive compensation packages to attract top talent. The non-profit sector cannot match these financial expectations and must recruit from a smaller pool of potential employees - those whose passion for the mission of the Agency take precedence even over their personal finances.
These fundamental differences require different leadership rules and behaviors in the non-profit sector. Individuals from the private sector must work within this paradigm or their well-intended actions may actually do more harm than good. When private sector leaders work within these boundaries they can have a significant positive impact in the non-profit community.
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