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Sunday, June 26, 2011

Are Business Models right for a Nonprofit? - Emily

The nonprofit sector is a vast array of organizations whose revenue is used for fulfillment of mission. This is a stark difference from their for-profit counterparts, whose revenue is distributed to shareholders. We have read and discussed in class the implications for nonprofits using business-like models for their operations. What are the risks and rewards for modeling after a for-profit business?

Nonprofit organizations are under high pressure to sell their product, much like a business. However, the NPO “product” is likely a service, and the rewards are enhanced communities. While business invest in opportunities to bring in more revenue, nonprofits invest in enriching lives. Nonprofit organizations, though, compete with business and other nonprofits. An example of this is healthcare. Look at the Roanoke Valley: Carilion Clinic is the largest healthcare provider in the area. Its biggest competitor is Lewis Gale Medical Center, parented by HCA, a for-profit healthcare business. Carilion must employ a business model to compete.

What can happen when a nonprofit looses sight of the mission due to adopting a “business model”? The biggest side effect is mission drift. Mission drift is when an organization’s governance makes a decision, or many decisions, that are not toward fulfilling a goal. This could be with the best intention. But is, again, where nonprofits differ from the for-profit sector. Where a business’s primary purpose is to make money, a nonprofit’s is to serve. Many times populations served by nonprofits are those that are not paying for services, or paying a low cost. When or if revenue growth becomes a priority, nonprofits risk losing their clientele.

A benefit to adopting aspects of a business-like model is emphasis on advancement within the community. More and more, nonprofits need to be competitive to stay open. Any model that puts weight in name branding is beneficial to a nonprofit.

Nonprofits have an interesting aspect to them in that it can be difficult to measure their success. Many times the “return on investment” of the work of nonprofit organizations is never seen in dollar signs, but rather in the enhancement of the community. For this reason, a full on business model could not work for the nonprofit sector. However, piecing together aspects of the for-profit mentality can benefit the nonprofit organization.

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