In my last post I wrote about Nancy Lublin’s new book, Zilch: The Power of Zero in Business, andher notion that for-profit companies have much to learn from well-managed nonprofits. Lublin says more about this in an article for The Huffington Post. She says in that post that businesses should learn three major financial lessons from nonprofits:
1. Strive for diversified revenue. The best run nonprofits have multiple sources of income so that the loss of one of these streams does not prevent the organization from achieving its mission. A common cause of business failure is an over reliance on one source of revenue.
2. Transparency is vital. Nonprofits must make their finances public. This creates trust in the organization and makes it much less likely that money can be used in unscrupulous ways. Businesses do not have to be as open as a nonprofit, tax-exempt corporation, but more transparency might have prevented the scandalous behavior of companies whose demise was do to legal problems, such as Enron, WorldCom, and Bernard L. Madoff Investment Securities.
3. Live in fear of overhead. Well run non-profits do not waste anything; they keep operating expenses at a minimum and apply most of every dollar to programs and services. Businesses often let the trappings of success consume resources with little left to attract and keep customers.
Of course, the nonprofit sector has its own notorious examples of financial mismanagement, for example the United Way of America's 1992 scandal that led to the resignation and criminal conviction of its CEO. Sometimes nonprofits, like businesses, lose sight of their mission and then complacency and greed take over. But that doesn't mean that organizations from any sector can't learn from the best of them.