July 22nd, 2013

NFP: A Manufacturer of a Better and Fairer Society

July 22nd, 2013

The data available for the Not-For-Profit (NFP) sector in Canada is somewhat antiquated, as little comprehensive research has been completed since the National Survey of Nonprofit and Voluntary Organizations in 2003. However, this research can still serve as a cornerstone to the often baffling numbers associated with the sector. For example, in 2003, the two million people employed by Canada’s 161,000 NFPs spent over $112 billion. By 2007, the gross domestic product (GDP) of the NFP sector amounted to $35.6 billion, accounting for 2.5% of the total Canadian economy. The Right Honourable Paul Martin even referred to the NFP sector as “Canada’s secret, hidden truth,” contributing “more than the retail industry,” and “more than mining, oil and gas together.”

Now, when a sector employs millions of people, spends billions a year, and is responsible for a sizeable portion of a nation’s GDP, perhaps it is a secret worth talking about. It is also rather fitting that Martin compared the NFP sector to the retail, mining, oil and gas industries, as these are for-profit businesses, which NFPs have recently been under pressure to act more like.

The primary response of the NFP sector to this pressure has been to create arms-length social enterprises to subsidize the associated costs of their NFP activities (rather than adjusting the more internal structures of the organization). Though this may have produced returns for some NFPs, I would argue that the majority probably end up spending more money than they make. This is because most NFPs are ill equipped to address the challenges of starting up a new business, which is effectively what a social enterprise is to a NFP. So why are so many NFPs starting up social enterprises? It is because they are afraid. Many NFPs are willing to attempt any prospective financial-alternative that presents itself right now, just in an effort to survive. NFPs are being forced to defend their purpose and evolve to meet the rising expectations of society. However, this evolution is being triggered by fear, rather than innovation. I believe if this is not amended, the result will likely lead to a watered-down sector with nothing more than superficial tax incentives and a bad case of nostalgia.

NFPs need to stop creating “businesses” and start performing better as NFPs in order to maintain their differentiating focus on efficacy over profit. By concentrating on the delivery of their vision, mission and goals in new and creative ways, NFPs can reimagine their roles and redefine their relationships within society. This will allow the leaders in the sector to surface, providing funders the opportunity to distinguish true NFP mandates from others merely seeking to justify their ongoing existence. One option to accomplish this would be to adopt a business framework while still fostering environments of passion, dedication and volunteerism, which originally differentiated NFPs from traditional businesses anyways. This approach is different from creating a business in conjunction with a NFP’s activities (e.g., social enterprise), as the NFP activities themselves are being framed and delivered in a more business-like fashion. However, for this business framework, forget about the “for-profit” or even “revenue-generation” side for a moment, as there was a reason the sector was called “nonprofit” in the first place, and there is more to a business approach than just profit.

What if we focus on the other beneficial components of a business framework? Is it possible that perhaps a revitalization of the nonprofit rationale will begin to surface, and we can reaffirm the importance of an entity undistracted by the burdens of profit?  As an example of a business framework without a focus on profit, we need to look at some of the structural differences between NFPs and businesses. As such, we know that in order to be successful, businesses need to figure out how to best structure “manufacturing” to produce the exact results their “clientele” is willing to support. Figuring out the means to this end is where NFP’s potentially face a real challenge. Typically, we think of a NFP’s clients as marginalized or disadvantaged populations (or the environment). However, within a purely business framework, a NFP’s clients, by definition, are their funders.  Therefore, if NFPs’ “manufacturing” is to be measured like any other business, then it is necessary to identify their raw materials. Now, as crude as this analogy may sound, these would actually be the marginalized and disadvantaged populations. This will inevitably make some of us feel uncomfortable, but it draws attention to the value NFPs contribute to society. NFPs “manufacture” more engaged, integrated, and informed populations (to mention but some of the contributions); and these are the “products” for which funders are willing to pay. Though this context can diminish some of the altruistic undertones of the sector, it reaffirms their relevance in that nonprofits are actually the “manufacturers” of a better and fairer society.

In short, if NFPs must become more business oriented, rather than wasting valuable time and dollars on starting social enterprises, they should instead focus on the value-added component they bring as NFPs, and thereby mobilize more dollars from their funders. In this way, NFPs can better meet the rising expectations of society and more properly declare their contribution as value-added. This in turn will attract the limited funding opportunities to those NFPs who deserve it the most. This is because instead of spending valuable time and resources on creating social enterprises, they are focused on articulating their vision, mission and goals to their funders (their clients), clearly demonstrating their value in society. Lastly, those who are successful in creating social enterprises will learn they probably should have been acting under a for-profit model all this time (if they produced a social enterprise that rears profit and still contributes to their mandate, they do not need to be NFPs, and, therefore, should be functioning within a market-forces model). This will lead to freeing up even more funding opportunities for the true NFP mandates that Canada needs, even if they have been kept a secret, hidden truth all this time.

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