Skip to main content

Profits at Non-Profits

Last week I was walking home from work, and without my iPod and earphones, had little ability to block out the loud conversation taking place behind me. One woman was telling another woman that she needs to get out of the non-profit sector because "there's no money in non-profits".

Meanwhile, over at Mother Jones, Josh Harkinson has argued that non-profit credit unions often serve their customers and their employees more effectively than giant corporate banks. I think this points to a fundamental misunderstanding, by a lot of people, about what it means for an organization to operate as a non-profit.

(from I-5 Design & Manufacture on Flickr)

There are some complicated legal and accounting details when it comes to classifying non-profits, but I think it can be summed up as simply as this: A non-profit organization is an entity that does not have owners or shareholders; a for-profit company is an entity that does.

A lot of people think "non-profit" is synonymous with "non-revenue". That's true in a few cases, but not across the board. A non-profit can have customers and funders, the same way a corporation can have customers and investors. A non-profit does not have to be a charity that relies entirely on donations to stay afloat. It's bad deductive reasoning to think that because all charities are non-profits, that therefore all non-profits are charities.

Consider two hypothetical banks. One is non-profit credit union and the other is for-profit bank. They're both relatively conservative, don't engage is risk-taking, and at the end of the year, each has $1 million leftover after it's paid the bills.

What does the for-profit bank do? It divvies up the money and cuts checks to the owners (shareholders) based on how much of an ownership stake each person has. What does the non-profit bank do? It gives a raise to its employees and re-invests the rest of money back into the business, so that it can grow and expand and better serve its customers.

Which of the hypothetical companies is better to work for or do business with? Plenty of people would say the non-profit bank, despite the broad claim that there's "no money in non-profits".

Of course, the world isn't as simple as this; but for-profit companies lay off employees, slash benefits, and screw their customers all the time. To say that they're acting in their best interest because they're motivated by profit is only partially true - it's their owners that are motivated by profit. Sometimes, the employees and customers are also the owners, but not all of the time. When they're not, there can be conflicting interests.

Saying "there's no money in non-profits" is as vague as saying there's enormous money in the field of law. Some attorneys work for corporations, others work for governments. Some work for rich clients, others are public defenders. Some prosecute the bad guys, others defend them. How much money there is to be made in law is pretty contingent on exactly what type of law your practice.

Sometimes the non-profit model works, other times it's not the best fit for an organization. Sometimes, like in the case of banks and credit unions, they can even exist side-by-side.

Comments

Popular posts from this blog

In Praise of Southwest's 'C' Boarding Group

A few weeks ago I saw a tweet from someone complaining that their Southwest Airlines boarding pass had been assigned A20 (meaning they would be at least one of the first twenty passengers to board the plane). Apparently this person though they should have been assigned a higher number, less their flight experience be considerably spoiled.

Despite the complaints, Southwest has resisted demands to assign seats on its flights, a decision which I personally applaud. I'll admit that I was skeptical when they rolled out the newest boarding procedure, assigning both boarding groups and a line number; but in hindsight it seems like one of the best operational decisions they've ever made. If nothing else, it effectively eliminated the infamous "cattle call" whereby fliers were getting to airports hours in advance and sitting in line on the floor as if they were waiting for the midnight showing of the new Star Wars movie.

When I was an intern at Southwest Airlines last winter, I…

So You Want to be a Southwest Airlines Intern?

My personal website must have pretty decent SEO - because in the past year, I've received about two dozen emails from aspiring Southwest Airlines interns looking to draw on my experience in search of their own dream internship. In the past two weeks alone a few new emails have already started rolling in...

(from flickr user San Diego Shooter)

If you've found your way here, you might be hoping for the silver bullet; a secret tip that will propel you above the competition. Unfortunately, I do not know any inside secrets. I can only share my experience as an internship candidate about two years ago and, rather than responding individually to future emails I anticipate to receive, I hope that potential interns will find the information posted here valuable.

Understand: Southwest Airlines is a very unique company. The corporate culture at Southwest is truly unlike that of nearly every other company. But you probably already knew that, since it now seems mandatory for every management,…

Good Advertising

The blogosphere seems to be one fire over Microsoft's new "Lauren" TV commercial. Frankly, I don't see what the commotion is about.



If the critics are correct, then "Lauren" is actually Lauren De Long, a Screen Actors Guild eligible actress; and apparently, if you look close enough, she never even enters the Apple store.

Even if all of that is true, it doesn't refute the fact that Apple's laptops are significantly more expensive than most PCs. It isn't a lie that Apple doesn't sell any 17-inch laptops for less than a grand. The advertisement doesn't make any reference to the quality of the machines (or contest any of the claims made in Apple's "I'm a PC" commercials) or provide any good reason to buy one other than price.

As far as I can tell, after years of horrible commercials and a series of flops, Microsoft seems to finally have hired an ad agency that put together a decent advertisement. It's not likely to persuad…