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Why Nonprofits Are More Like Businesses Than You Realize

September 2nd, 2012 · by Jake Seliger · 9 Comments

In a Hacker News thread, “guylhem” asked a (very) common question, in the context of firms that specialize in providing services to nonprofit and public agencies: “Why exactly is profit / commerce considered a bad thing?”

Since we’ve been working with nonprofit and public agencies for decades, we naturally have some ideas about the issue (we’ve discussed some of those ideas before, in “Tilting at Windmills and Fees: Why There is no Free Grant Writing Lunch and You Won’t Find Writers for Nothing” and “Why Fund Nonprofits, Public Agencies, and Other Organizations Through Grant Applications At All?“). I think the basic problem is that a lot of people feel like nonprofit and public agencies are not supposed to be like other businesses, even though in reality they share a lot of the needs and attributes of for-profit businesses.

Nonprofits need their toilets to work. They need an IT guy or gal. Though they obviously don’t face the profit drive that businesses do, they still need to “make” more money than they spend, either to invest in new services or build a small but prudent reserve. If they don’t make more than they spend, the nonprofit will eventually be shut down. Nonprofits only have four basic ways of making money: grants/contracts, donations, fees for services, or investment income.

Because nonprofits, like other businesses, have a wide array of needs, they buy goods and services they can’t productively make or do themselves. We’re fond of the plumber analogy: most nonprofits do not have a plumber on staff, and, when their toilets clog, they hire someone to unclog the toilet. When the plumber is done with the job, she or he presents a bill and the nonprofit pays it.

That’s fairly straightforward. But many people seem to feel that grant applications are more like a college admissions essay, in which hiring a consultant is somehow cheating.* We obviously don’t think so, since our entire job involves preparing grant applications. Nonetheless, a lot of people have that feeling; they don’t really think that grant writing is like plumbing (at least until they need a grant writer). But nonprofit and public agencies that submit better proposals tend to get funded more often than those that don’t, so to some extent feelings about the purity of the grant writing process get weeded out by the “market,” which still exists for nonprofits. People who think they’re good grant writers but turn out not to be eventually find they can’t run their nonprofit, or they can’t expand it, just like people who think they’ve got a great business idea but turn out not to eventually go bankrupt or shut down the endeavor.

We’ve also argued before that there’s no reason in principle why a nonprofit grant writing agency can’t exist, but in practice none do, and, even if they did, the demand for their services would far outstrip supply, as usually happens when something is given away. If you want to know why you generally can’t get something for nothing, well, look around: few people or firms give valuable things away, while many people or firms are selling valuable things, and prices tend to show what people in the aggregate think is valuable and what people think is less valuable.

Demand for “free” grant writing services would be especially high because grant writing is very boring, difficult, and tedious—a troika that makes free grant writing especially unlikely, since grant writing doesn’t give people the good feelings they might get from, say, doling out soup at a soup kitchen, or providing pro-bono legal work. Volunteers have their place, but most organizations that operate on more than a shoestring basis are quickly going to discover the limitations of volunteers.

Even nominally low-cost grant writing services often turn out to be quite expensive. As most of us have discovered the hard way, it’s not at all unusual to get what you pay for. Yes, there are exceptions, but for the most part higher prices imply higher quality, at least up to a point. We’ve been hired by innumerable nonprofit and public agencies to attempt to salvage jobs prepared by “low-cost” grant writers, and we’ve also had nonprofits call us, hire someone else, then call us back for the same program in the next funding round and hire us instead of the other firm.

In response to the ideas above, “pbreit” replied: “I would think that a nonprofit reasonably considers grant writing a core competence or at least well closer to a core competence than, say, plumbing.” Maybe that’s true. But many nonprofits are good at delivering human services, and less good at writing proposals. Those skills do not necessarily co-occur, and if there’s any overlap between the skill of delivering human services and the skill of writing, it’s pretty slender. Plus, becoming a great writer is a “10,000-hour skill” that takes a lot of deliberate practice to develop. That’s why you have to take so many years of English classes in school (though I realize many of those English classes are bad, but that’s another topic). The average person who decides, “I want to become a competent grant writer” is probably looking at a couple of years of effort.

Sufficiently large nonprofits usually do have a grant writer on staff, but smaller ones usually don’t. A really good grant writer will probably cost at least $70,000 per year in salary alone, and is likely to cost much more. That big number helps explain why relatively few small- to mid-sized organizations have one. In addition, hiring a grant writer who turns out not to be particularly good at his or her job can really hurt a nonprofit. We’ve been hired by many, many nonprofit and public agencies who have grant writers on staff—sometimes for positive reasons (the in-house grant writer is overwhelmed or on leave) and sometimes for less positive ones (the in-house grant writer isn’t very good at writing proposals, is scared of the RFP or the Executive Director wants to play “shoot the consultant,” if the proposal is not funded). For small nonprofits, hiring a full-time or even part time grant writer might actually be outside their core competency.

What we’ve described in the last two paragraphs is a specific instance of a more generalizable question about whether one should hire a consultant, learn a skill, hire an employee, or not have it performed, and we’ve written about that issue in “Consultants, Employees, and More: Should We Hire a Grant Writer? And How Will Our Agency Complete Proposals?” Different organizations will deal with these questions in different ways, depending on a variety of factors.** These problems recur in the business world and in the personal world: Do you want to learn how to cook, hire someone else to cook through going to a restaurant, or not eat? Do you want to learn bike maintenance, take your bike to a shop, let your bike degrade over time, or not ride?

The most reasonable middle ground for nonprofits, for-profits, and people in general is to work to expand your range of basic and advanced skills while simultaneously acknowledging that you’re not going to learn everything. Things you don’t know how to do but want done you’ll probably have to pay for, one way or another. This isn’t always true—family members generally don’t charge each other when one person makes dinner, for example—but as a general rule it’s pretty good, since strangers very rarely give valuable things to other strangers without a reason. Attractive women have told me that men will often do things for them and buy drinks for them and so on, without any or much prompting, but I definitely don’t qualify that as being “without a reason,” since the reason in most cases is probably obvious.

I don’t think most people are consciously thinking about the choices between learning, buying, and not having. But if you want to run a successful nonprofit, public agency, or business, you should start thinking about them now.


* Actually, hiring an admissions essay consultant starts to make sense when one thinks about how much money might be on the line in terms of scholarships, but that’s another issue for another day. The higher the financial stakes in a one-time event that doesn’t allow repeated attempts at practice, the stronger the incentive to make sure one does everything one can to win.

** If you’re curious about how this works in an academic context, check out Coase’s famous essay, “The Nature of the Firm,” in which Coase describes why firms exist at all.

Tags: Foundations · Nonprofits · Questions