10 June 2013

The NPO Paradox

For-profit business models for NPOs

A slogan that has become widespread in the third sector is that of: ‘no money, no mission’. This refers to the fact that an NPO’s mission will simply fail if, despite all its efforts and good intentions, it lacks financial means. At the same time, governments are currently often faced with budget cuts and are therefore less willing and able to support NPOs financially. Nevertheless, society increasingly expresses the need for NPO activities, which generates an interesting paradox for the nonprofit sector. This paradox implies that the not-for-profit sector needs to increasingly rely on for-profit business methods in order to remain sustainable. However, resorting to such a strategy can potentially undermine the mission of an NPO and its public image. So what should NPOs do in order to prevent this? 



The issue that needs to be addressed is: how can an NPO embrace business practices to assure its financial sustainability while simultaneously not undermining its culture, mission, and public image. Three things are key here: governance, management and mission. As for governance, the NPO needs to recruit members who are driven by passion for the mission instead of the reward. For example, when a CEO is not motivated by the NPO’s mission he will be seduced by profitability, the marker of for-profit success, and this will harm the NPO’s public image. Management-wise, an NPO should aim for a horizontal organizational structure as this promotes a closer connection between the management and the staff. As a result, the management is continuously reminded of the mission of the NPO by the input of the staff. Too vertically organized NPOs will have the tendency to become disattached from their actual mission, since there is less input from the operational staff of the NPO. Finally, as for the NPO’s mission, society values the nonprofit sector because it satisfies recognized needs not addressed by government or the for-profit sector. Hence, NPOs need to ensure that their mission remains in-line with publicly valued services that, because they bring no profit, no one else provides.


Since i-kifu is still a relative small and young organization it has not resorted to any for-profit business models, like recruiting a more business-minded management staff and using external professional consultants for risk management. However, if i-kifu were to consider such business practices in the future it is important to keep the three above mentioned aspects in mind. That is to say, even if i-kifu were to engage in a full for-profit business model, it needs to ensure that its main mission of supporting NPOs in their fundraising activities remains a top priority over the actual profit making.

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