When you hear the word business you probably imagine a large organization employing hundreds of people in suits, selling products all over the world, operating efficiently and effectively, focused on maximizing the financial bottom line, and providing solid returns to shareholders – sometimes no matter the ethics involved.
And when you hear the word non-profit you probably imagine a very different kind of organization: much smaller, based in a local community, providing services to those in need, perhaps operating less efficiently than it could, focused on social values, with a compelling vision of making a difference despite a scarcity of resources to fund its operations.
Exploring these stereotypes and the sometimes very real differences between non-profit and for-profit organizations can provide real insights for understanding these two worlds. This is particularly relevant today when terms like ‘social entrepreneurship’ and ‘venture philanthropy’ represent an increasingly blended world of hybrid organizations and individuals seeking to bridge the traditional gaps between the sectors.
Last autumn, more than 300 people in the Bay Area of California came together to explore questions related to ‘Bridging the Gap’.
What is the ‘cultural gap’?
It is first important to understand what constitutes organizational ‘culture’ – as opposed to other very real differences in financing, structure, size or mission (see sidebar). Stanford Professor Joanne Martin presented a framework that looked at both formal and informal organizational practices, comparing ‘bureaucracies’ (large, established organizations) with ‘collectives’ (smaller, more informal start-ups.) She argued that businesses often operate more like bureaucracies, and non-profits more like collectives.
Panellists agreed that the exchange needs to be two-way, with each sector learning from the other. As Gregory Hodges, CEO of the non-profit California Tomorrow, said, ‘Non-profit leaders are often highly educated, savvy folks. So business people should go in seeing them as peers, not as people you’re going to fix.’
Understanding our differences
Before setting out the differences between non-profits and for-profits, the speakers stressed that these patterns are not universal. As Kevin Fong, Managing Partner at the venture capital Mayfield Fund, said, ‘I think the first thing is to remember that there are badly run for-profits, and well-run non-profits, and vice versa.’
One of the biggest, most obvious, cultural differences derives from the very different missions of each organization. Businesses often focus on the ‘bottom line’ and increasing shareholder returns, whereas non-profits emphasize the social bottom line – achieving social goals in terms of lives saved, children educated, hungry fed, etc.
These fundamental differences in mission often lead to very different values. Businesses are more concerned with operating efficiently (to increase profit) than adding social value; non-profits are more concerned with improving people’s lives. Business people working with non-profits often see them as less effective, while non-profit employees see businesses as lacking in values. But neither side has a monopoly on values or effectiveness.
Many businesses working with non-profits expect them to measure results, without understanding how complex measuring social returns on investment can be. As one speaker said, ‘A lot of the work that non-profits do has a qualitative aspect. How do you measure participation, or safety? The business community could be more creative in figuring out what is an appropriate measurement for non-profits as well as helping organizations with the resources needed to evaluate and measure their activities.’ As Kevin Fong pointed out, ‘Even in the business world, any kind of measurement is a proxy.’
Most non-profits have multiple stakeholders and need to satisfy many constituents – not just customers and shareholders, but board members, advisers, community members, clients, funders and staff – and consequently tend to value decision-making by consensus. By contrast, businesses ultimately exist to serve the shareholders alone. A focus on the bottom line creates less complicated decision-making.
Language also reinforces the cultural gap. Using different terminology to describe similar practices can cause misunderstanding and confusion. As Martin explained, in most cases, ‘you’re talking about non-profits having to learn business language’ rather than the other way around.
Resources and power
Perhaps the greatest difference comes down to fundamental differences in resources and the balance of power between the two sectors when they interact. Non-profits are dependent on individuals, businesses and foundations for financial donations, unlike for-profits, which generate their own capital. As Melinda Tuan, Executive Director of Roberts Enterprise Development Fund, said, ‘Whoever has the money and resources has the power and that’s never going to change, whether it’s a small startup looking for venture capital funding, or a non-profit looking for grants from a foundation.’
How to bridge the gap
A number of suggestions for bridging the gap came out of the forum.
Build equal, honest, trusting relationships
Many participants agreed that one of the most important things is to approach one another with an attitude of equality, honesty and respect – something that doesn’t happen enough. The sectors should focus on what they can learn from each other, rather than seeing their differences as negative. Businesses should ask non-profit partners what they want to do or need, not approach them with predetermined answers. Both parties should strive for openness and trust in their relationship: this means being transparent about how decisions get made, sharing information, and acknowledging the inherent power imbalance while striving to overcome it.
‘Funders should be held to the same standards that they demand of their grantees,’ said one participant. ‘Then they would see how challenging that is. It is impossible to build a great organization without sustainable infrastructure.’ Participants agreed that in order to have more equal relationships, funders need to do a better job of holding themselves accountable in the same way that they do with their grantees.
Increase learning and knowledge transfer
Both sectors should focus on learning about what works and what doesn’t in terms of solving social problems. Efforts should be made to identify and transfer private sector practices that are actually useful and add value. Funders could document projects better, identify good practices and share information with the larger non-profit community so organizations don’t keep reinventing the wheel.
Use the 5-Cs
Melinda Tuan from REDF shared their model for working with non-profits, which centres around the ‘5-Cs’: Clarity, Communication, Collaboration, Customization and Consistency. REDF focuses on establishing clarity of roles and expectations with its non-profit partners up front (on both sides); establishing open communication channels, including written communication; and approaching the partnership as a collaboration among peers, where both parties benefit, rather than REDF ‘coming in to fix the non-profit’. They also customize their approach for each partner, avoiding a ‘one-size-fits-all’ grantmaking strategy, and make sure they are consistent, not changing their priorities midstream.
Build organizational capacity
Many participants focused on critical issues of non-profit capacity – eg staff development and strong boards – that directly affect an organization’s effectiveness. They suggested that businesses and other funders could do more to help build non-profit infrastructure – ‘invest in human capital development of non-profit employees’, ‘support strong boards’, and ‘make longer-term grants to build relationships and infrastructure’.
Learn each other’s language
Both sides should make an effort to understand each other’s culture and language. They should ‘de-lingo’ their communication in order to be better understood. ‘Non-profits should learn the fundamentals about budgets so that you can tell a clear financial story – one that business people understand, appreciate and expect,’ said one participant. Similarly, business people should become more comfortable talking about feelings and values.
1 The forum was co-sponsored by The Foundation Incubator, the Center for Social Innovation at Stanford University’s Graduate School of Business, and the Skoll Community Fund.
Heather McLeod Grant is an independent consultant with more than ten years’ experience in the non-profit sector. She has been published in numerous non-profit and mainstream publications. She can be contacted at firstname.lastname@example.org
Elizabeth Bremner, President of the Foundation Incubator, contributed to this article. She can be contacted at L.BREMNER@foundationIncubator.org