By Alex Damico – CIMGlobal MD – USA & Canada
Most of the time in the association community, these two terms are used interchangeably. In fact, when you look in the Merriam-Webster dictionary you’ll see non-profit defined as not conducted or maintained for the purpose of making a profit <a non-profit organization> and not-for-profit defined as nonprofit. If this were Excel, I would surely have gotten a circular reference error message!
So, why do I think there is a difference if the dictionary doesn’t? As someone much smarter than me once said, words matter. In this case, I think they matter a lot because of the very different message each sends to staff, members and volunteers. To me, non-profit says, we don’t need to worry about making a profit from our operations and not-for-profit says, making a profit is not our number one goal but in order to accomplish that goal (serving our members/industry) we need to run a sustainable business.
In my nearly 30 years of association experience, as a volunteer, as a Board of Directors member as a C-Suite level executive of two different associations, and now working with an Association Management Company I saw both approaches. It seems that those associations which insist on referring to themselves as non-profit have an expectation that the funds they need to operate will always be there. Many of these rely heavily on membership dues and generate significantly less of their revenue from non-dues products. Sometimes there is even a reluctance to operate like a business as if there is something inherently wrong with the concept. They tend to believe that their members will renew every year because they always have. I think the economic downturn of 2009/2010 showed us otherwise.
When they do offer products beyond membership these often spring from a member request without determining how big the potential market is for the product. Another typical association behavior is to underprice products even when the value is high. How many times have you heard someone in an association say, “our members won’t pay that much for ……” (you fill in the blank).
Many associations have a less than rigorous budgeting process. Budgets are often built from the top down, simply using the previous year’s results and adding an inflationary increase in both revenue expectation and spending. Frequently these are handed down from the C-suite with little to no participation in the budget development by the staff members who will be held accountable for achieving the results. It’s in these types of associations that the term non-profit can become a predestined outcome.
Then there are those associations that very meaningfully use the term not-for-profit. In my C-suite roles, I insisted that we use this term when speaking about our organization. My logic was very simply this; we were operating an ongoing business that needed more money coming in than was going out. If we failed at that very simple business principle we would soon find ourselves in an unsustainable business, unable to contribute to the well-being and growth of the industry we represented.
We required the various department heads to build annual budgets from a zero base each year and made them responsible for doing monthly variance reports to ensure we weren’t drifting too far from the plan. We did competitive analyses of the products we were offering to our members and the industry at large with the goal of pricing them fairly but not giving them away. Maybe most importantly, we educated our staff, all of them, about the financials of the organization and were completely transparent about where we were versus budget every month. In drawing the distinction between non-profit and not-for-profit, we moved away from that predestined outcome and accepted that we needed to generate a positive bottom line from operations in order to achieve our mission for the industry.
In the end, it is important to remember that not-for-profit is a great tax status but will always be a bad business strategy.
So, is your organization not-for-profit or non-profit?