Nonprofit Trends: Tax Status vs. Business Model

As we move forward, if we can keep our focus on how to best craft, market, sell and support whatever it is we do -- profit or not -- and if we can learn from each other, then we'll all be better off.
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I know this isn't all that original, but I have to say it. "Nonprofit" is a tax status, not a business model.

Stop for a second and think about that -- a tax status. NOT a business model.

I know I'm being a bit dramatic here, and that many organizations have figured this out already. But there's still room for improvement, still a lot of others who confuse the two.

Certainly, being a 501(c)3 is a point of pride. The IRS designation is something many work hard to attain and is the slang in the industry for "gifts to this organization are tax deductible." There are other important rules and regulations that come along with nonprofit status, one of the most important being the requirement to accurately fill out and submit an annual Form 990, the nonprofit tax return. (If you're a board member and don't know why that's important, click here.)

But looking beyond that, to the organization itself, to its services, to its brand, it's important to remember that this tax status shouldn't be confused with a business model or the need to operate efficiently. It's a pet peeve of mine when I ask - as a board member, a donor or volunteer - why something is done the way it is, and the answer is "we're a nonprofit." Too often, this phrase is used to explain away inefficiencies. I'm not going to say, "That isn't good business," as my nonprofit friends may take offense. What I will say is that it's not good organizational practice.

And that's what matters here, being a good, solid organization, with efficient operations that meet a customer need. Yes, a nonprofit is doing that to support a cause and drive change, but there are fundamental ways in which organizations (profit or not) are alike. In fact, there is so much going on these days that show us the merging of what I see as nonprofit and for-profit business practices.

On the nonprofit side, one of the most interesting developments in the last decade has been in the area of marketing. Nonprofits that were previously all about their cause, their work, their mission, have figured out that they have brands. They have learned that brands have significant value to supporters and the web is the perfect channel to convey the brand promise, and that "marketing" isn't just about publications and communications. It's about storytelling. It's about giving the supporter a chance to interact with your brand. DonorsChoose, which uses technology to connect donors with recipients, is an excellent example of this. The organization didn't exist until 2000. In 2011, a little over a decade later, it was lauded by Fast Company as one of the "world's most innovative companies." (Their word, not mine - but interesting isn't it, that DonorsChoose wasn't put in a different category because it happened to be nonprofit?)

Now, this isn't as easy as it is for, say, a consumer products company that sells a tangible product you can pick up off a shelf, wear or drive. A customer pays money and can engage with the brand directly. Nonprofits sell causes, trading psychic benefit for financial support. That's hard. But with good storytelling, it's an opportunity to have supporters truly emotionally bond with not only the cause but the brand.

On the corporate side, companies are learning a great deal from nonprofits, figuring out ways to align their businesses with a commitment to giving back, providing more sustainable products, cutting down on waste and being good citizens. This certainly isn't driven by a tax status. It's a deliberate choice and, for some, a business model -- TOMS being the most obvious example of the day.

As we move forward, if we can keep our focus on how to best craft, market, sell and support whatever it is we do -- profit or not -- and if we can learn from each other, then we'll all be better off.

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