Nonprofits – How Boards Develop Successful Business Practices

Every nonprofit needs a business plan to implement marketing, financial, human resources, etc. activities. The goal of the nonprofit business plan is to maximize the achievement of the organization’s mission within existing resources.

Strong service and business practices should be the hallmarks of any nonprofit board that effectively focuses on four business factors: 

Seizing Opportunities: Thousands of charitable, trade and professional nonprofits have survived with modest growth for decades. Rigidly adhering to their missions in a supposed attempt to avoiding mission creep, they have failed to experiment and to seek ways to enhance their client services, even in the face of declining client populations.

Examples of some that have seized opportunities: The board of one local nonprofit operating a sheltered manufacturing workshop for visually impaired clients merged with Good Will retail stores. The income from the stores enabled the organization to creatively offer additional client services such as a call center.

A national nonprofit organization supporting local groups offering counseling services has a profit subsidiary offering crisis management services to airlines and businesses. When a crisis occurs the organization has a call center staff that provides authoritative information to those who seek it. In addition, the national organization can call on local member agencies to send counselors to the crisis site.

Avoiding mission creep can be a two-edged sword. It can prevent a board from seeking charitable funds outside of its core competencies. But it also can restrict visionary boards and CEOs from assuming risks – those in the long run that can improve services to new and current clients.

Focusing On Clients: It is often difficult to determine the long-term impacts of a nonprofit organization’s efforts. In attempting to help solve family conflicts, for example, it may only be possible to assist clients in resolving the symptoms of the problems, not the long-term problem roots. Example: An organization whose mission is to serve the homeless may focus on finding temporary shelters for clients instead of permanent housing. The latter is a venue that had shown to have greater homeless benefits at lower community costs.

Handling Competing Priorities: Like commercial organizations, nonprofits face the challenges of competing priorities from stakeholders. The overriding one for nonprofits is that the client receiving the service often is not the one funding the service. Consequently the nonprofit has to service a set of clients for which it may not have donated revenues to fully cover the costs. Example: Symphony orchestra ticket sales only cover about 40% of the cost of the ticket. Donations and grants have to fill the gap for survival.

Trade-offs have to be accommodated. Frequently nonprofit salary budgets are not sufficient to hire and retain employees with a high market value. But nonprofits have been successful in engaging quality employees who value the mission the organization has undertaken. These people garner psychological compensation from contributing to the mission and clients. This is a value that a large portion of the millennial generation is seeking when considering an employer.

To increase value to clients, nonprofit managers must be ready to provide evidenced-based data and information to donors, foundations and governmental/ accrediting groups. Some stakeholders may be willing to fund certain populations but not others. Managers who address these difficult tradeoffs, in my opinion, often figuratively stand ten feet tall. In addition, they are often great human beings. Example: I have observed several executive directors of children’s homes legally adopt children in need of homes.

Think Long-Term: Nonprofit board perspectives can be circumscribed by short-term views for several reasons. In today’s fast-changing political, economic and social environments, the strategic planning framework must be limited to three-five years. When related to board rotation policies that limit most directors’ tenures from four to six years, a visionary director may only be able to influence one planning cycle. In addition, many board chairs are changed annually. As a result, there may be little attention directed to substantially revising providing a mission change.

Business boards can be locked into short-termism because of quarterly reporting requirements. But this is not a requirement for nonprofits if boards will acknowledge that volunteer directors’ board tenures are relatively brief and the organization’s senior managers need to be up-to-date on strategic field perspectives. Management must be ready to convince the board that its perspectives are reasonable so that implementation can take place. In practice, the process works out to become a checks and balances approach.

Many may argue there is an inherent gap between nonprofits and for-profit organizations. The four factors cited above indicate quite a similarity when it comes to the business operations of both.


Dr. Eugene Fram
Dr. Eugene Fram
Eugene H. Fram, Ed.D., is an expert in nonprofit governance, a business consultant and an award-winning emeritus professor of the Saunders College of Business at Rochester Institute of Technology (RIT). He is also the author of six books and more than 125 published articles and has been widely quoted by national media on topics ranging from business to high-performance nonprofits. His blog platforms on nonprofit governance have in excess of 3500 followers. He is a past recipient of RIT's highest award for outstanding teaching and one of a very select group awarded the Presidential Medallion, given to those making exceptionally significant contributions to the university. In 2012, a former student anonymously contributed $3 million to endow an RIT Chair in Critical Thinking in his name, an honor Dr. Fram describes as "a professor's dream come true!" Over his distinguished career, he has served on 12 nonprofit boards overseeing diverse community, national and professional organizations, and also has served on five for-profit boards. His particular passion is helping nonprofit boards perform at high levels as more is expected of these boards today than most people realize. He is the author of Going For Impact – The Nonprofit Director's Essential Guidebook: What to Know, Do and Not Do, and POLICY vs. PAPER CLIPS - How Using the Corporate Model Makes a Nonprofit Board More Efficient & Effective.

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