Nonprofit Doesn’t Mean No Profit

Not too long ago I got a call from a woman who wanted to know all about our services and how we could help her—with the expectation that all of this help would be for free, of course, because, duh!, we are a nonprofit and she is a nonprofit.  Turns out, her organization had just become a nonprofit.

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Nothing new there, we get those calls all of the time.  But hers wasn’t a new organization.  Nope.  Hers was a conversion organization, going from a for-profit to a nonprofit.  What great process of reflection had she undertaken to make this decision?  How had she struggled with the pros and cons of making the switch?  She’d done nothing other than speak to her accountant who advised her that because her business wasn’t making any money she should become a nonprofit.

There was no market research done to determine if there was a need and demand for the service this organization—be it for-profit or nonprofit—provided.  There was no exploration of just what it means to be a nonprofit and the contrast with being a for-profit.  There was no awareness of the struggles and challenges that it take to sustain a nonprofit.  And, there certainly was no recognition that it is no more okay to be a nonprofit that doesn’t make a profit than to be a for-profit that doesn’t make a profit.

And, yet, that is what too many people—both those inside the sector and out—think.  Why?

I just read of a video store (yes, they still exist), with a fascinating name—Film is Truth 24 Times a Second—that is converting from a for-profit to a nonprofit.  With the waning interest in leaving your home to rent a movie, actual bricks and mortar video stores have become a rare phenomenon.  And I get wanting to save your business at almost any cost, but at the cost of becoming a nonprofit?  Do people understand those costs?  Becoming a mission-driven business, AKA a nonprofit, makes it no more likely that a formerly-known-as-for-profit business will survive.  The market works the same for nonprofits as it does for for-profits:  no demand, regardless of how “affordable” the cost, means no customers.  And it doesn’t matter how passionate you are or how desperately you believe you have the solution or how committed you are to “helping” others, the market is the market is the market.  This works whether you are a video store or a counseling service or a performing arts group or an athletic outlet for children.

But the biggest shock that is awaiting the founders of these two organizations is yet to come, because I know it hasn’t been explained to them:  they no longer own these organizations.  I know they don’t know that they know will be reporting and answering to the respective boards.  Good news:  the boards don’t know this either; bad news, at some point, someone on the board will learn.  They don’t know what they are giving up and what they are getting themselves into.  And we see this, time after time, with every founder, regardless of whether the founder starts with a for-profit and switches to a nonprofit or goes straight to the nonprofit.

Why does this happen again and again?  Why do so many of those who set themselves up as experts and advisors to the do-gooders of the world understand so little about the truths, realities and, yes, best practices of the nonprofit sector?  Why don’t they take the time to be true professionals and learn the actualities?  While it may be legal, there are no practical upsides to surviving in the nonprofit sector with bylaws for a nonprofit that give all and ultimate power and control to a founder.  While grants do provide a source of income for a nonprofit that is (mostly) unavailable to for-profits, a) no organization can sustain itself long term on grants alone and b) odds are high that if no one is buying your product, funders are also unlikely to be interested in your product.  Life as a nonprofit looks much easier and nicer on paper than it is in real time.  Just ask anyone who works for one.