For –Profit” and “Non-For profit” organizations both make “Profits.” The question is, why do we continue to refer to one as for profit and the other non-for profit? According to Joanne Fritz of Non-for-Profit Orgs, the fundamental difference between the two is on how the profits are used. The former gives out its profit as dividend to shareholders while the later invests its profits in a social common good. Here is how this definition has not answered the question!
There is a thinning gap between for profit and non for profit. This is mainly underlined in the level of competition in business development and the realization by both to invest in social benefits. In today’s world, it is important to realize that many for-profit companies also invest for the common good. But more importantly, non-profits are increasingly becoming ‘businesses’. Non-profits need to make enough money to cover operating expenses, or they will shrink away. They need to have enough cash to pay their bills, or they face collapse. If they want to upscale their services to the community, they need to generate a surplus in order to fund the expansion. These are simple business realities that non-profits now stand up-to in order to remain afloat. To do this, non-for profit are increasingly adopting vigorous marketing strategies previously used exclusively by “for profit”. Why is this the case? As highlighted above, for both, there is a now a greater emphasis on maximizing profits and to remain viable.
Non-for profit organization executives have in the past focused on minimizing operational costs in order to increase on profit margins and “look good” in the eyes of donors. However, this strategy is becoming less and less effective; non-for profit organizations have to compete for business development opportunities together with their for profit counterparts. This requires engagement of high-end Executives to champion their resource mobilization drive; non-for profits have to invest in state of the art IT infrastructure, robust financial systems and ensure flawless financial accountability to remain buoyant in the competitive market. It is therefore no longer paying for non-for profits to shrink operational cost. The playing ground for business development between for profit and non-for profit is increasingly becoming the same. It is uncommon for non-for profit and for profit executives to meet at same cock-tail party for Business Development networking events.
It is now usual to see “traditional donors”[i] strategies emphasizing investment in entrepreneurship, private sector development and increased willingness to finance for-profit investments with robust social goal. There is increase in social investments, inclusive businesses, etc. all meant to bridge the gap between for profit and non for profit. What would be a hybrid between for-profit and non-for profit merger called?
[i] Donors such as EU, USAID and bilaterals whose mandate was previously meant to finance the non for profit sector now indirectly supports for profit investments.