Nathaniel Heller, Vice President and Managing Director for Geneva Global, shares how corporate leaders would do well to learn from charitable exemplars. This article was first published March 6, 2023, on Fast Company. Read Nathaniel’s insights below:
I recently emerged from a two-day board meeting of a complex global nonprofit organization working in dozens of challenging geographies. They support rural communities with greater mobility to enhance access to education, health care, and economic livelihoods. While I’ve been privileged to serve on many boards over the years, I was struck and impressed by the sophistication of their financial planning. The organization comprises dozens of subsidiaries (both commercial and charitable) in multiple international markets and yet, as a board, we were able to have coherent and holistic conversations about strategic and financial priorities heading into a new fiscal year despite the many moving parts. I don’t always perceive the same degree of sophistication inside many for-profit companies, which got me thinking: Why aren’t more companies paying attention to the management and leadership techniques employed by high-performing nonprofit peers?
A pervasive myth held by some leaders who have not worked in the nonprofit or charitable sector is that nonprofits don’t have the business or management acumen to run highly efficient organizations. An implicit assumption underpinning this bias is that in the absence of a true “bottom line” to orient leaders and teams, nonprofits must somehow deploy resources haphazardly; if they manage to limp to the end of a fiscal year solvent, that’s good enough. Nothing could be further from the truth in many cases.
High-performing nonprofits often take a ruthless approach to data-driven leadership (yes, they know what KPIs and OKRs are!) and analyze profit and loss statements the same way Fortune 500 companies do. They understand the crucial importance of talent and spend endless hours trying to recruit and retain the best of the best. They employ sophisticated marketing and strategic communications campaigns in much the same way as leading consumer brands.
While there’s indeed one important material difference that separates nonprofits from companies —earnings are reinvested into the mission rather than distributed to owners and shareholders — how the two arrive at a place of success is more similar than many observers realize. Here are three management and leadership techniques company leaders can emulate from high-performing nonprofits that might just improve, ironically, profitability.
1. A Clear Mission Is Everything
Nonprofit organizations can’t always compensate employees at the same level that companies can. Their leaders may close that gap with a motivating mission and clear vision for the impact they’re seeking to achieve in the world, which can serve as a massive source of talent retention.
In an era when so many companies are struggling to recruit and retain talent, that anchoring sense of mission and “why we’re here” can be a powerful differentiator that motivates employees to stay rather than flee for a bigger paycheck. Companies that take a lazy approach to articulating a clear and compelling mission risk losing their best people to more mission-driven competitors. These competitors may also be increasingly happy to let employees work from nearly anywhere on the planet, making the need for a “sticky” mission even more imperative.
2. “Loss Leaders” Better Be Worth It
Like compensation, another typical difference separating nonprofit and for-profit companies is the former’s inability to carry low or poorly performing products, services, or teams for extended periods. Most nonprofits aren’t sitting on endowments that might afford them the luxury of losing money on poorly performing programs while continuing to meet payroll. Some highly profitable companies fall into the trap of allowing their profits to subsidize divisions and products that are chronically underachieving and are likely never going to “make it to shore.”
Ironically, I’ve seen many nonprofit executives make faster and more decisive decisions to cut or shutter loss-leading teams and programs because they know the economics of their organization provide no other option (unless they’re willing to allow the entire place to go under). While these sorts of tough choices are no one’s favorite part of the job, corporate leaders would be wise to look to their nonprofit counterparts for how to do it well — and decisively — when the time comes.
3. People, People, People
Listen to some of the world’s most notable nonprofit leaders and you’ll hear a familiar theme when it comes to how they prioritize their strategic investments: They invest in their people. Through offerings like competitive compensation, generous benefits, and work-life flexibility, those leaders know that their organizations would grind to a halt if morale and team cohesion were allowed to atrophy.
Many corporate managers assume their nonprofit counterparts lack the same tools in the talent toolbox, but this is another unfounded myth. Many high-performing, high-impact nonprofits invest in generous compensation packages, offer bonuses to employees for outstanding performance, provide the richest benefits packages they possibly can, and delight in investing their few discretionary dollars into additional employee perks (rather than viewing such spending as a potential source of marginal cost cutting). Like the greatest companies, they know their people are everything.
There are certainly material differences between nonprofit organizations and their commercial counterparts that go beyond their respective legal statuses or the type of tax returns they file. But the similarities between great nonprofits and great companies are myriad. Corporate leaders would do well to learn from those charitable exemplars.