The business of running a nonprofit is changing. Today’s institutions have almost no choice but to adapt and start to look at the economic side of their operation with a critical eye. Most nonprofits can no longer depend solely on traditional sources of funding—they have to ensure that the organization can survive when times are tough and stretch beyond revenue goals when conditions are right. To fulfill their mission, nonprofits must have the resources to sustain and extend their impact.
How is this possible? The for-profit world offers some valuable lessons.
The Exploratorium is committed to changing the way the world learns through inquiry-based teaching and exhibits. As we move from our home of 43 years at the Palace of Fine Arts to a new 9-acre campus at Pier 15 on San Francisco’s Embarcadero, we are reshaping our business model as well as our museum. In doing so, we take the following lessons from the for-profit world.
Lesson 1: Money Fuels the Mission
Where we as nonprofits choose to spend our money should not be based on values alone. Of course it’s important for institutions to invest in mission-based activity, but it’s equally important to consider the financial viability of these investments. For any project to succeed over the long term, it must be economically sustainable. Every dollar spent should be linked to a strategic plan. A practical approach is to think of your annual operating budget as a numerical expression of your institutional strategy.
At the Exploratorium, we’re pursuing initiatives that generate income for the institution and serve our mission to change the way the world learns. In late 2012, we launched Exploratorium Global Studios, an entrepreneurial endeavor that generates revenue through projects and partnerships with other organizations, corporations, and governments. Exploratorium Global Studios extends our educational impact across the United States and around the globe while helping to support our core programs and financial goals.
Lesson 2: How to Invest
The second lesson to be learned from the business world is how to weigh the costs and benefits of any given investment. This doesn’t just mean money; it also applies to human capital. Figuring out how to attract great people and employ their full capabilities is key to building long term success. The return on this investment (ROI) will be enormous, and conversely, failure to find and retain the right employees will cause painful setbacks.
A great example of a high ROI initiative is the Exploratorium Explainers Program, which employs local youth to engage visitors on the museum floor. We’re fortunate to have thousands of enthusiastic young people apply to participate in this program each year. We invest deeply in training for the Explainers, and in return, we get a group of qualified, energetic employees dedicated to making the Exploratorium experience the best it can be for our visitors. It is also rewarding to see the impact that this program has on the youth involved, many of whom go on to say that the experience profoundly impacted their lives and career paths.
A related consideration is that the choice of where and how to spend your operating dollars can have an indirect consequence for your mission. For instance, if we are investing in energy and infrastructure, we have a choice to support green initiatives or not. In many cases, the choice that is the most socially or environmentally sound will also turn out to be financially wise in the long run, even if it means spending a bit more now. Making investment choices that align with your values is a sensible way to expand impact.
Lesson 3: How to Leverage… Everything
Networking is second nature to entrepreneurs and established business people, and it’s just as important for nonprofits. Building a network of donors is a clear priority, but beyond that, there is huge opportunity to leverage the people who are already engaged and invested in the organization. These people have already demonstrated their willingness to support the cause, so half the battle is won. The challenge is to show the people in our networks how they can make an impact and then make it easy for them to take the leap.
A good place to start is with your Board of Directors, which will likely have a powerful network and influence over their peers, putting them in the ideal position to spread the word and engage potential supporters. By drawing in new contributors, board members see their contribution multiplied. Think of it as scaling up an individual’s impact.
At the Exploratorium, our Board has been instrumental in leading and helping to achieve our ambitious goals for expansion. By sharing our story through online social networks, engaging friends, and serving as spokespeople for the institution, this group has been an incredibly valuable resource. They certainly deserve full credit for galvanizing their networks in support of our recent capital campaign, which is allowing us to expand the museum into a remarkable new location on the waterfront in San Francisco.
Lesson 4: How to Market Your Brand
Having a valued mission is not enough; we need to know our target audiences and understand how to give them something they will care about. Businesses are constantly considering how best to position themselves in the market vis-à-vis their competitors, and, when we look past the purely altruistic goals of nonprofits, our reality is not so different.
One question that every organization should ask is: what is our unique value proposition? This leads to an examination of the problems we’re solving, the people we’re benefiting—directly and indirectly—and the systems we’re impacting. If the answer is not obvious, it might be time to shake things up and try a new direction.
This type of exercise can be particularly useful in helping institutions determine how to best communicate their value to potential customers (members, visitors, etc.), beneficiaries or benefactors. This means tapping into different channels to reach specific targets with appropriate messaging, as well as broadcasting core information to anyone who may be interested or even just a bit curious.
Lesson 5: How to Learn From Mistakes
Even the best plans have their flaws, but the good news is that just about any mistake can be a valuable learning opportunity. Many of the strongest businesses today are known for pushing the limits for innovation (Apple, Facebook, and Google come to mind)—a process that involves a significant amount of trial and error in order to achieve big breakthroughs. Likewise, nonprofits need to be able to adapt and evolve in order to remain effective and grow their impact.
The challenge for nonprofits is to understand how to embrace the risk that comes with change, without playing too close to the wire. This means scaling new initiatives within our means, making smart investments and having a back-up plan. Well-established nonprofits can sometimes suffer from a tendency toward inertia and the maintenance of traditional structures, even in a rapidly changing world. We all need to learn to take calculated leaps into new territory in order to reap the rewards of forward thinking.
The Next Generation of Nonprofits
Strategic questions that may seem obvious to companies must become equally central to nonprofits. The pursuit of grants, donations and other funding sources is becoming increasingly competitive, and, to be successful, nonprofits need to practice like the pros. A nimble, values-based, for-profit approach to the nonprofit world will ultimately be the difference between those institutions that are able to advance their mission and those that fall behind.
My prediction is that the next generation of successful nonprofits will bring a keen business mindset to the table, accelerating the pace of change and bringing innovation to impact.
Lightbulb image via Shutterstock
