GENERAL INTEREST

For-Profits and Non-Profits – Similar or Different?

Mark J. Komen, President

Kodyne, Inc.

Plymouth, MN

I often run into the perspective that non-profit businesses are very different than for-profits and therefore need a keen understanding of their situations and special handling. It turns out that I usually hear these thoughts from those who work for or lead non-profit organizations. So I thought it would be useful to consider the typical parameters that characterize a for-profit business and see if they apply to non-profits. Every business or organization has its unique situations, markets or ways of doing business but I maintain the similarities far outnumber the differences.

Classification

Parameter

For-profit

Non-profit

Purpose Product or service offering Yes Yes
Guiding principles Vision, mission, values Yes Yes
Revenue streams Sales, grants, donations Yes Yes
Governance Owner/Founder Yes Yes*
Board of directors Yes* Yes
Financial Expenses Yes Yes
Payroll taxes Yes Yes
Funding sources Yes Yes
Retained earnings Yes No*
Staff Employees to manage Yes Yes*
Operations Work-flow Yes Yes
Processes, procedures Yes Yes
Quality concerns Yes Yes
Marketing and Strategic Customers, clients, members Yes Yes*
Web presence Yes Yes
* see below for detail

 

Purpose

Each type of organization has a purpose – to sell something or to provide a service. Manufacturing companies produce products or parts that go into products. Distributors make these products available. Web designers create web sites. Yogurt shops sell confections. Restaurants sell meals and ambience. Foundations provide endowments. Charitable service organizations provide support to their constituents. Religious organizations provide a host of services to their communities. Canine breed clubs bring dog fanciers together to appreciate and learn. Whatever shape the organization takes; it serves some kind of purpose and from that purpose flows the following key items.

Guiding Principles

Visions, missions and core values are foundation elements for any organization. Visions are images of the future that the organization aspires to. Missions are the marching orders and how the vision will be realized. Core values are those beliefs the organization’s members hold in high esteem. Ultimately these become the underpinnings of the organization’s culture, which is how things really get done. See the comments under Operations below.

Revenue streams

Either type of organization needs a revenue stream (or multiple revenue streams) to survive and grow. Whether these take the form of product sales, subscriptions, tuition or per-hour service work in the for-profit arena or grants, donations, membership dues in the non-profit arena, all represent the funds for the organization to operate and achieve its vision and live its mission.

Governance

Someone needs to be in charge of both day-to-day operations and setting the strategic direction of the organization. For-profits usually have an owner, president, CEO or someone ultimately responsible for these things. There may also be a board of directors involved for oversight and accountability – whether a fiduciary board for publicly traded companies, advisory boards for family businesses or peer boards composed of other business owners. Similarly, non-profits may have an executive director reporting to a board of directors or may be created and operated by an individual founder or group.

Financial

Both types of organizations have expense categories to manage. Both have fixed costs, professional and legal fees to pay, payroll taxes to cover, financial reporting, income statements and balance sheets. Where for-profits may have retained earnings resulting in a taxable profit situation and possibly dividends for shareholders, non-profits reinvest any retained earnings in the organization in order to maintain their tax status (501(c)(3) or (c)(4) for example). Individuals or shareholders may not benefit from non-profit earnings.

In addition to expense categories both types of organizations must deal with funding issues which may include loans, capital stock, personal funds as well as donations, tithing, and grants.

Staff

As long as there are people involved in the organization, there is staff to manage. I’ll exempt the sole practitioner and the truly virtual, completely automated, on-line organization from this discussion. Whether we’re talking about a full-time or part-time paid staff, interns or unpaid volunteers or a combination, for-profits and non-profits share this critical activity. Roles and responsibilities and accepted interpersonal behavior expectations flow from the guiding principles discussion. Performance management, pay scales, reward systems, training and development considerations and processes are shared to one extent or another by both for-profits and non-profits. Even turn-key operations (such as highly automated factories or franchises with well-defined procedures) still have to contend with the issues of managing staff.

Operations

Every organization that delivers products or services has to define and manage workflow – from widget idea or service concept design to delivery of the finished product. This involves defining and institutionalizing processes and procedures, managing quality, coordinating supply chains, maintaining certifications and compliances, handling customer concerns, complaints and crises, documentation and a host of related topics. This is truly where the organization earns its stripes. It’s where manufacturers make their money. It’s where the marathon runners experience the race, where the students experience the training, where the driver experiences the new car, the consumer experiences the new meal menu…..And does organizational culture impact operations? Absolutely! Aspects of culture show up in how jobs are designed, how people and teams work together, how failures are handled, how communication flows, how innovation is supported (or not!), how conflict is dealt with to name a few. These behavioral considerations are common to both types of organizations.

Marketing and Strategic

Using whatever term fits best (customer, client, member, recipient….), both for-profits and non-profits reach out to people who use their products or services. Identifying the markets, positioning the products and services, differentiating from the competition, building a web presence, integrating new trends in social media with traditional media all need to be addressed. The whole strategic planning process itself is often overlooked by both types of organizations and this vital function really needs to be moved to a more prominent position. This is especially important as each organization comes to grips with the changing realities of today’s economic times. One difference to highlight – where for-profits may engage lobbyists to further their agendas in Washington, IRS guidelines are specific about how non-profits may interact in the political arena, if at all.

In conclusion, I believe that for-profits and non-profits share many similarities. Whether we’re talking about top line revenue/funding or bottom line performance – the items I’ve identified in this article apply to both. One might argue that scale has an impact on these considerations (size or employee count), but I maintain that a similar-in-size for-profit organization operates with the same constraints as a non-profit. Sadly, neither type of organization is immune to issues of economic downturns, scaled back benefits, layoffs and even survival. In the long run, giving thoughtful consideration to these items will help position your organization for success.

 

 

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