Today's topic is a two-parter on why nonprofits must have business plans and revenue models more than for-profits. Now, I know I talked about in my previous posts about how nonprofits are failing because (of several reasons, but primarily) they don't have business plans. They're not just failing in a business sense, but they're also failing the constituents that they're supposed to serve and the public good that they're supposed to create.

Morally Misguided Marketing Limitations

As Dan Pallotta mentioned in his March 2013 TED Talk, nonprofits are highly discouraged from spending contributed funds on marketing, making them unreasonably very risk-averse. I think he really makes great points on the how nonprofits are hobbled as a result of moral double standards. It's actually embedded on my September 1 post - 7 Reasons Why Nonprofits are a Hot Mess. so definitely check that out. Even though they have 10% of the American employee population, nonprofits actually have a minuscule market share in terms of advertising. I just had to pull out this quote from Dan's TED Talk: So we tell the for-profit sector, "Spend, spend, spend on advertising, until the last dollar no longer produces a penny of value." But we don't like to see our donations spent on advertising in charity. Our attitude is, "Well, look, if you can get the advertising donated, you know, to air at four o'clock in the morning, I'm okay with that. But I don't want my donation spent on advertising, I want it go to the needy." As if the money invested in advertising could not bring in dramatically greater sums of money to serve the needy. With so little room for active promotion or risk, it is imperative that nonprofits strategically invest their marketing dollars in the highest impact activities.

The Double Bottom Line

Not only do nonprofits have to meet social outcomes specified in their missions, but they also have an obligation to actually be profitable so that they can reinvest in the actual mission that they serve. No need to clutch your pearls; profitable does not mean private benefit. Profitable means that they are able to cover all of their expenses with their various income streams both earned and philanthropic. For example, say you have a homeless shelter that has a mission to provide housing, food, and social services to homeless populations in your local area. A business plan and revenue model answer important questions like: how to engage donors; how to measure successful interventions; how to build community support for the work; and how programs and services will be implemented. As a socially-minded entity, you are required to not only do what you say in your mission, but morally obligated to do it well. Without a business plan and revenue model, you're really doing the whole society a disservice by potentially providing a service for the short-term and and then failing due to sustainability issues.

It's not right that nonprofits are crucified based upon "overhead" spending like marketing, but that is the current state of the world. Nonprofits have to navigate both small marketing budgets and the perception of impropriety while they run a business with double bottom lines. It's exhausting!

But, there's hope!

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