Episode 150: Nonprofit vs. For-Profit - Communicating the Value of Nonprofits in Your Community

Welcome to another edition of "Around with Randall" your weekly podcast on making your nonprofit more effective for your community. And here is your host, the CEO and Founder of Hallett Philanthropy, Randall Hallett. I can't thank you enough for joining me for this edition of "Around with Randall".

Today we jump into a couple of scenarios that I've run into in the last couple of weeks that deal directly with donor relations. And talking about the nonprofit world, two unique, I'll call them conversations, that are isolated but yet get to the same message. In one case I have a client who is a university who is working with a donor and they're asking for a very sizable gift and the donor is asking a lot of questions about the financial situation of the university, and more importantly, why is it that they need these kind of gifts to make the University not only work, but work as they're talking about it. And it's in a state type situation, long term, with an endowment. You know, you got tuition. Why? And in state support. Why are you bothered or concerned about philanthropy and why is this such a big deal?

At the same time, essentially, I have a client that's dealing with a donor where they're asking for probably the largest gift in the organization's history. And this time it's in healthcare and he's asking questions about why they need philanthropy at all. Aren't you just a business? You know, no one helped me. Why do you need help?

Both of these situations bring me to this interesting thought process about not being defensive about nonprofit work and what we do, but to get on the offensive and explain why we do what we do and the value that it delivers. The problem or challenge that we have is every time we turn around we're being told as nonprofits, and if you're a leader you hear this, well you need to be more like a for-profit business. So Stanford Innovation Institute has done papers on how nonprofits should be more like businesses. If you look at books out there, there are books that you can read that say how nonprofit can be more like and driven like a business.

So let's start with the concept of nonprofits as businesses, and I find myself in these discussions kind of reverting back to the basics. Nonprofits or businesses, like any other business, the only difference is at the end of the year if there's excess Revenue it gets put back into the organization. In a for-profit business it goes to the owners, whether shareholders for a large corporation, or if you're a small company into the individuals or partnership or sole proprietor, into the person. They get the access but all the other aspects of a job or an organization are almost as true in a nonprofit as they are in a for-profit. I remember a conversation I had when I was at the University Nebraska Medical Center talking with a donor and they were challenging me about the need for philanthropy, not to the level that the other two situations were I described at the top of the program, but they were saying you know the CEO gets paid X, you know, millions of dollars and it a couple you're a nonprofit. And I said I'll stop here. Let's do a fair comparison. My boss oversees 15,000 employees, a billion dollar budget, he's the largest non-government mental employer in the community, he has legal problems, compliance problems, Finance problems, HR problems like any other employer except with 15,000 employees. It's on steroids. If that person with the same problems was working and leading a for-profit company, he would be paid exponentially more, have stock options or profit sharing that when he left he would see dramatic retirement packaging put into his particular situation. So the question became, as I asked this particular donor, why would would you take a nonprofit job for no money if you had all the same problems you do in your own company. Now I didn't really sell the concept of nonprofit and the value that we delivered, but it's an interesting discussion.

If you're listening to this we've, you, and you've heard other others of my different podcasts subject matters, we've talked about that gift officers in particular but philanthropy in general should be as seen as a revenue stream. We, we're more like the surgeon in health care than we are the nurse, but yet nonprofits are expected to take class. A video that I would recommend everybody go watch, it's about 17 or 18 minutes, done in 2012 or 13 I use it with boards a lot is a video by the, with a gentleman by name of Dan Palenta. It's a TED Talk. Dan Palenta and he talks about how nonprofits are viewed as well. You got to be cheap and you gotta you got to save money and you got to put all the money into, but we don't invest enough and we're not enough infrastructure. There's no Capital infusion that allows it to grow so it's worth from a broad perspective. Sometimes what we think of and hear about nonprofits being cheap and hey let's get the advertising at you know 3:00 a.m. because it's cheap then when nobody's actually listening. I think it's also important to note the value of nonprofits in the United States, and I'm talking about economically.

Let's put numbers to it. There are 12.3 million employees that work for nonprofits. That is about 8% of the entire Workforce is related to in some way, shape, or form ,nonprofit work. That the total amount of buying power for what I'll call stuff, supplies, whatever it is that nonprofits to use is more than a trillion dollars on an annual basis. It hovers around anywhere from 1.7 to 2.2% of gross domestic product meaning, let's just take the average a little less right now, 2% of all the money used in the United States is used in some way, shape, or form related to nonprofit

work. And yet if you look at the Census Bureau and you look at Labor Statistics, nonprofit employees for like jobs are paid about $7.20 less an hour. So salary, you'd have to calculate it and nearly double that when you add total compensation which includes bonuses and insurance and and other type in additives that we have in our in our compensation packages, which means we're getting short changed on cash and we're getting short changed on benefits. All this is to say that going back to our two initial situations that the two donors, and I'm getting a sense this is coming up more often, view what we do as more for-profit like the world they live in rather than nonprofit, which brings us to the question of and this becomes the move towards tactical what are we going to do about it.

All of those things are true that I spent the first six, seven minutes talking about and they all are value. You know how we're not being paid in the same, how you know, we fight for the things that are important in terms of the same problems, and there are books being written about it. What are we supposed to do here? Part of this I think is, if I steal from my dear friend as I grab his book Nathan Chappelle and my other good friend Brian Cremins' Generosity Crisis is I think that we are spending way too little time building deeper relationships that actually explain why our nonprofits are a value, which is what they talk about in terms of radical connections. We're transactional and so we're not maximizing giving. We can get someone to give us 50 bucks because you know people want to be charitable, but you know you get if you want to get the five or $10,000 it's going to take some time or $100,000 or $500,000.

I've got a client that I'm working with where they're in a campaign and they're kind of still in the silent phase and we're talking about the gift officer so they're still working at the very top and they're really doing well, but they're kind of beginning to set up that midlevel giving before they go to the public phase, and I'm beginning to meet with the gift officers and I'm like tell me what your thought process is and they're literally telling me well you know I don't have anything to ask for. I'm like whoa, wait a minute. We know that the top 15 donors are going to be closed in the next three months which means your time in these gifts may be between $250,000 and maybe down to 10 probably closer to 50 so 250 to to 50. How many meetings do you think that's going to take if it's, you think it's going to take one meeting? You're crazy. You should begin the process right now of having these meetings to build better relationships to be able to explain the need, which comes all the way back to our stories. They're going to run into people that go why do you need the money. And you may need time to build that, and that goes back to more radical connections. How do we explain what we do?

So how do we do that? Well we have to start with the idea of what makes us different and the difference starts right with our mission. We are not there to make a profit. We are not there to make money. Any money we have left the end of the year goes right back into the organization and most would tell you they're running right on the line or just under revenue from with expenses just being a little bit more, which means they're not making any money. I absolutely am amazed in the two conversations that are occurring I genuinely believe that in both circumstances neither donor has really thought about the fact that at the end of the year the money doesn't go anywhere. It's not pushed out to investors. It's not to say that they are under kind of a a misapprehension of the facts, I'm saying they haven't even thought about it. How often do we actually start with the premise of what our mission is, and the not only what we do but the fact that our finances are built to keep the money in the community in the nonprofit to build it, to grow it. I'm kind of amazed that as I thought about this podcast I dealt with these two situations kind of built into it. I don't ever talk about it and that's my mistake so mission's first. Not only what you do but how you're set up, because a setup sets up the mission.

The second thing is that we, our staff, are generally motivated and have different values. they're motivated differently and they have different values. The reason I know that is because we have people who work in nonprofits that are being paid in terms of pure salary $7 less than the comparable person on the for-profit side. If everybody was purely cash driven they would leave the nonprofit world and go into the for-profit world. And by the way that's happening anyway. Then you add the concept of trying to retire, trying to save money, put a kid through college, pay off your house. Excuse me, I would say that part of this is that when you talk about compensation is a total being $13 less an hour and six of that is retirement, Insurance, those kind of things. If everybody was totally driven by money they would have left, they'd have been gone by now. People in nonprofit world, and you being hopefully one of them, are there because you love what we do and we kind of make a difference, at least we think we do and I tend to believe that to be factual. So the second thing is that we have people dedicated in a different way to the mission and the outcomes than we do in the for-profit world.

The third thing is that we have what I think of as outside influences and sources much more so than the for-profit world, and the reason why is and I read an article and I just looked at I said that is just totally wrong. The article said who owns a nonprofit, no one. And I went no, the community owns it. It's through the representation of the board. Now they may be good owners or representatives of the owners. There may be bad but it's not that there's no ownership. The community owns it. Well that brings in outside influences. If you're the CEO of a solo practitioner, solo company meaning an individual partnership or an L, single person, or a small Group LLC you can change what you do in a moment without concern for what's going on in the outside world. You try to do that in a nonprofit and the newspaper's writing about it and everybody's now involved because they have ownership stake. And even a large corporation, if we take Jamie Diamond at City he has immense power given to him by his board and the only people he's really got to worry about are those board members, and if they're okay he can s the rest of the people who don't like whatever City's doing dead. The power that comes from leadership in the for-profit world is reduced dramatically in many regards in the nonprofit World, particularly if you want to do something innovative. Back to that video Dan Panenta creative trying to do something different. So we have these outside influences, we've got staff who are aligned differently, and we have a mission that's really based on the finances being the money stays here to make a difference in what's going on in the community.

The last thing I'll add is that nonprofits are built to fill holes in the community and that applies to the museums where art is, something that the government is probably not going to be involved with. Most of the time they fill that hole for those that love art, music, theaters, things of that nature. Healthcare. Can you imagine our country if there there was no nonprofit Healthcare? Education. Can you imagine the country without higher ed being nonprofit? All these failures in the for-profit higher ed world, there's a reason. So all of these things align to the last tactical piece.

So first thing is talking about how we're different. The last thing is all about stories. After you talk about the idea of, you know, the outside sources and a lot of political issues the staff are driven differently. Our mission and finances to fill these holes, it's all about outcomes. Why is it that a hospital is nonprofit because the law says when somebody comes into the ED you have to take care of them whether they can pay you or not. And the for-profit hospital will triage it just enough and then put you out on the front step. An interesting comment was made from the potential donor. He kind of chuckled and said, well does that mean I can just cancel my insurance? And the response should have been yeah the difference is that you can afford it and we are required to take care of them, and by the way we want to because if you don't have this you have people dying on the streets. In education if we don't have nonprofit education, meaning investment into the future, knowledge into research, into training the next generation of leaders, then we have no hope, no future. Data and outcomes help. And remember when you talk about facts, talk about it locally and nationally. Healthcare on a local level. We take care of this many people per year that can't pay. You might have donor say well that's their problem. No, it's really our problem because if we weren't here doing this they're on the street now. What kind of community do we have? What about the concept of Education? If we don't have a hope of a future with the next generation of leaders and technical innovation and the research that goes on then what kind of future are we going to have? It's a challenging time with people's economic position. People are concerned about where the economy is at. You add Politics on it and I'm not going to talk about politics here, it just gets crazier. What I want to get to is, as the last piece that kind of builds on all of this is tell the story of why your mission is important. Tell the story of the outcomes. Explain how you're different. Explain that you have two people, a 100 people, a thousand people that are staff leaders who are taking less money on average because they believe in what's going on, and make this making a difference in the community and that to keep this going we need philanthropy to be more active in the finances of our organizations to ensure that we're here and that we can continue to do good, because the other option is the government takes care of all of it. I've seen the government work. Not not the most nimble group of people. Nonprofits are built for these holes, are built for these holes in society where people fall and things that we love fall, but we have to have the financial support. And here's how, what we do to make that work. Value is what we should be talking about, and you can't get to Value transactionally. it only gets there with deeper relationships. Take the time to build them. It may take longer but it'll be more worthwhile.

Don't forget to check out the blogs at HallettPhilanthropy.com, two a week or so, just on different things I see. 90 seconds a piece and if you're interested in contacting me or talking with me or giving me a suggestion or want to make a comment, say you're crazy Randall, happens all the time at home they don't even have to email me, email me at podcast@hallettphilanthropy.com. It's an important time for us to invest in ourselves, in our organization. Some of that is monetary, some of that is just the ability to overcome obstacles and challenges in the office out in the community. What I want you to know is you're doing great things. It's hard. It's not easy but boy is it rewarding, and I hope you feel that little of that reward and my idea of this podcast is a 20 minute classroom on something that gets you to possible thought process for solutions. That's why I give it away. Hopefully you find some value in it, and I appreciate that. If you do don't forget my favorite saying, some people make things happen, some people think watch things happen, then there are those who wondered what happened. At the end of the day we're people who make things happen, we partner with those donors who want to do the same for the things and the people that are wondering what happened, and that's the value of nonprofit work. Go sell that to your community and you'll be much better off than just asking for money. I look forward to seeing you next time we're right back here on another edition of "Around with Randall" and don't forget make it a great day.