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Business strategy for nonprofit: same game, different rules

For-profit and nonprofit organizations are frequently presented as opposites. However, there are several areas in which they share a similar foundation (a sense of purpose, ongoing self-evaluation) and operational approach. Even when the differences are manifest, there are common grounds to be found.

Let’s break down the profit vs nonprofit dichotomy.

man working in a field gloves outdoor cleanup volunteer

Differences

Nearly every difference between nonprofit and for-profit organizations refers to their objectives and the supplies and inputs they employ to achieve their goals.

Goals

For-Profit: The goal of a for-profit company is to return dividends to shareholders. Their primary mission is to generate income and develop effective products and services that are valuable to consumers.

Nonprofit: What is social entrepreneurship? At its most basic level, it can be defined as doing business for a social cause. While a nonprofit doesn’t prioritize profits over advocating for a social cause or a particular standpoint, it needs to make enough money to operate.

Funding

For-Profit: For-profit organizations finance their operations using bank loans, local investors, and revenue from sales.

Nonprofit: Nonprofits often seek out private donations of time and money, corporate sponsorships, crowdfunding, or a government grant (1). In the classic hard money vs soft money dichotomy (regulated and unregulated donations), nonprofits aim for a healthy split.

leadership

Both for-profit and nonprofit organizations need to be sustainable in time. Because of this, it's not surprising they share similar operational principles.

Target Audience

For-Profit: A for-profit organization seeks to establish a relationship with consumers, who in turn purchase products and services and generate revenue. Ideally, this relationship becomes a continuous feedback loop that allows the company to increase profitability and expand its offerings to reach new audiences.

Nonprofit: Nonprofits typically approach their audiences with a message (about a product, service, or action). They must reach a more diverse audience that includes volunteers, donors, corporate sponsors, and the general public. Because of this, not-for-profit organizations (NFPs) must carefully consider the interests of each segment.

Participants

For-Profit: For-profit corporations rely on paid employees and consultants for analysis, forecast, and overall company vision.

Nonprofit: Nonprofits often invite outside stakeholders ¬–normally people who support or benefit from their work¬– to participate in strategic planning. A nonprofit may rely heavily on volunteer staff.

STRATEGY same game_woman_explaining_meeting

Leadership

For-Profit: In a for-profit corporation, the board of directors establishes general policies and objectives. Under the management stewardship (2), staff fills in the particulars with recommendations on how to attain said goals. Leadership responsibilities are distributed amongst a select group of individuals who have a stake in the financial success of the organization.

Nonprofit: Nonprofit board members participate more heavily in developing a plan from its initial stages, often serving on one or multiple strategic planning committees. NFPs are led by a board of directors that guides the future of the organization without possessing direct financial ownership. Leadership has to balance financial concerns with social and/or environmental issues, depending on the nature of the nonprofit.

Culture

For-Profit: Because of the goal of financial gain, the culture within for-profit organizations focuses on finances and business metrics (KPIs). Employees are encouraged to be innovative, as the creation of new products and markets can increase short and long-term revenue for the company.

Nonprofit: The culture within a nonprofit is more community-oriented and employees are less driven by financial incentives and more by the organization’s mission. It’s common for those working for a nonprofit organization to continue advocating for it outside office hours.

Similarities

Both for-profit and nonprofit organizations need to be sustainable in time. Because of this, is not surprising they share similar operational principles.

Overarching Purpose

Sustainable success for an organization of any size or type must be built on a strong foundation, supported by a clearly stated and well-understood mission statement, strong governance principles, and willingness to embrace change and adapt accordingly.

Ongoing Self-Evaluation

When it comes to strategic planning, for-profit and nonprofit organizations benefit from the same tools. Both must determine strengths, weaknesses, opportunities, and threats, and establish their objectives accordingly.

Incorporation

Both for-profit and nonprofit organizations can become incorporated at state level in the United States. This provides financial and legal security to their employees.

  1. Grant definition: A sum of money given by an organization, especially a government, for a particular purpose.
  2. Stewardship definition: The job of supervising or taking care of something, such as an organization or property.

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[1] Russo, Tony. Strategic Planning for Nonprofits vs. Profits. Retrieved from https://smallbusiness.chron.com/strategic-planning-nonprofits-vs-profits-70208.html
[2] Norwich University (2016, December). 7 Key Differences Between Nonprofit and For-profit Organizations. Retrieved from https://online.norwich.edu/academic-programs/masters/public-administration/resources/articles/7-key-differences-between-nonprofit-and-for-profit-organizations
[3] Collins, Art and Shaw, Sophia (2016, May 1). For-profit and Nonprofit Boards of Directors: Similarities, Differences, and Keys to Success. Retrieved from http://acorn-advisors.com/for-profit-and-nonprofit-boards-of-directors-similarities-differences-and-keys-to-success/
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