In a previous article, Two Lessons Business Leaders Need to Learn from Non-Profits, I discuss two typical non-profit strengths that should be of interest to every business leader. That is, having a Clear Sense of Purpose and Cultivating Engaged & Committed Employees. These two practices, which are common in the non-profit community, have direct and dramatic impacts on business success.

In this article, I want to explore three lessons that non-profit leaders should learn from well-run businesses. Three common business practices are often overlooked in the non-profit community:  Stay Consumer Focused, Operational Soundness and a Clear Return On Investment.

Staying Consumer Focused

In 2001, I oversaw the final stages of the reconstruction about 15 communities in post-war Kosovo. I was 27 and still had a lot to learn. When we neared completion of the project, it was a funder requirement to go around and ask our beneficiaries to complete a “customer satisfaction survey.” So, I spent weeks visiting people, in their new homes, and asking them how they liked our services.

One woman’s response, for me, summarized much of what I heard, “We are grateful for the new home. It saved us. But the way you helped was hurtful.”

That was a shocking, hard-to-swallow bit of information. It came too late for me to do anything about it. And I didn’t have to. Because we didn’t need to treat her like our customer. We did need to treat the large governmental donors, who founded the projects, as our customers.

In business, it is common to hear, “The customer is always right.” This isn’t always true, or always in the customer’s best interests. However, the pervasiveness of the saying indicates the strong degree to which businesses orient themselves around customers’ interests and desires. In business, the consumer and the customer are usually one and the same.

There is an assumption that the non-profit community is more purely motivated and oriented around the needs of their consumers. However, this is often not the case. Most non-profits, like businesses, need money to operate. Unlike businesses, many non-profits do not generate their revenues directly from those they serve. This is the key.

Instead, they receive funding from sources such as governments, foundations or individual donors. As a result, there is a strong tendency to orient around the needs, desires and interests of the donors. These donors become the customers. The consumer of the services – is not the customer.

Yes, the consumers are paid attention to. But a non-profit can often afford for those consumers to come or go, to like or not like their services. They can’t afford to have that kind of relationship with their donors.

This results in many non-profits becoming, donor driven or donor centric. The unintended consequence of this is that those receiving services are often reduced to being an ends to a means. As long as donor reports can be filled out sufficiently – the non-profit consumer experience is often not relevant to driving strategy or change.

It really becomes a question of moral intent and discipline for any non-profit, particularly charities serving the disadvantaged. The natural energy and flow will always be to orient around donors. Non-profit boards and leaders need to be careful to build processes by which they also remain accountable to those they serve.

Most board members never consider this, never inquire and never help ensure that consumer accountability is set up. Executives can get lost in the unending need to generate revenue. Serve your organization and mission by putting consumer accountability systems in place.

Operational Soundness

Small businesses are famous for popping up and then going back out of business within 3-5 years. A statistic that is often touted is that about 50% of all business will fail within that time frame. This is usually due to not being able to generate or manage cash flow quickly enough.

Non-profits, however, rarely die when they run out of money or are poorly managed. They stumble on like zombies.

Operational Soundness is all of the non-sexy, non-profit stuff like: enough money, management systems and policies, staff policies, consistent administration, functioning equipment and technology, etc.

Large non-profits have typically figured out how to be operationally sound. They tend to struggle more from the situation I described above – drifting form Clear Mission Impact and becoming donor-driven or donor centric.

However, small and medium sized non-profits are prone to struggle with operational soundness. Because things like money, systems, administration and so on don’t sound like “Mission” – there can almost be a philosophical resistance to them. Additionally, small and medium non-profits are often led by very passionate, mission-drive people – who may not have the skills or capacities needed for Operational Soundness. So, they avoid areas that they aren’t comfortable with.

As a result, many non-profits limp along. Unable to fully leverage opportunities, unable to expand services, unable to fully pursue their missions.

Take time to understand your operational needs for revenue, staffing, systems, management and anything else. Don’t be shy about including those into your strategic priorities. Boards need to ensure that this is happening. Executive directors need to be supported to help make it happen.

Don’t become a zombie.

Clear Return on Investment (ROI)

Most businesses have developed a sense of how to answer the question of, “Will this investment of time or resources produce greater revenues or reduce costs?” It doesn’t mean that business don’t miss it – but they are usually comfortable with the question. Or they don’t stay in business for long.

Many non-profits avoid the ROI question. Sometimes adamantly. It is very common to hear that, “We can’t know.” So, they measure activities and just hope that if they do enough stuff a return will happen.

Non-profits are often fuzzy or disinterested (often defensive) about what the return should be on a given service, or hiring a specific position, or participating in a training. Because there isn’t clarity about the return there is very little sense of the appropriateness of the investment.

An example: My consulting practice started to take off when I started asking about the ROI on small business decisions that I was making. Like who I took out for coffee or lunch.

For too many years, I thought I was being productive when I met with people I liked, who had fancy titles, worked for big organizations or seemed be interested in me. But I was rarely hired as a result of those conversations or relationships.

I didn’t know what kind of return I should expect – so I was comfortable with poor investments of time and resources.

A mentor challenged me on this. He challenged my poor return. Because I was willing to accept the challenge I could start to figure out what to change.

In this case, I changed who I met with. I began meeting, at least 80% of the time, with people who had the ability to hire me. I asked the right kinds of questions, early on, so that I knew if this person had the ability to hire and at the level that I wanted to be hired for. I learned how to have the right kinds of conversations.

All of a sudden, I was busy. I was generating a dramatically better return and making a smaller investment.

• What is the purpose of a particular meeting? What should it accomplish?
• What is the purpose of this new staff position? Is it just adding overhead or is there a justifiable return we should expect?
• How do we measure “soft” returns? Are we willing to have a hard conversation about what should be different if we succeed at what we are doing – and how we’ll measure it?

Learn to steward your time, your resources and your people. The more that they are focused in areas that produce the desired return on investment – the more effective your non-profit will be.