Our similarities outweigh our differences. This is true in every aspect of life and relationships. Today’s article is going to focus on the similarities between nonprofit organizations and small businesses. The way I see it, there are many more similarities between these two business types, than there are differences. Before I get into the similarities (and a few differences), let’s dig into what we’re talking about here.
People often become disillusioned by large, “corporate” nonprofits. They see the leaders making big salaries, and make assumptions about the philanthropy or integrity of the agency. Let me be clear – that level of nonprofit organization is not what this article is focused on. Additionally, this article is not about the Amazons or WalMarts of the world.
97% of nonprofit organizations have annual budgets of $5M or less. Furthermore, 92% work with an operating budget of less than $1M, and 88% get by with less than $500,000. Similarly, of the over 30 million small businesses in the US, only 9% of them make over $1M in revenue. Small businesses with 20 or fewer employees make up 89% of all business in America. These are local organizations and businesses working hard to meet local community needs. And these are the focus of this article.
Obviously there are some differences, otherwise there would be no reason for different classifications. The only difference that always exists in every situation, is the IRS tax status. What makes a business a nonprofit is the fact that they obtain a tax exempt status. Businesses are awarded a tax exemption in exchange for the work they do to address critical social issues in their community.
Another key difference is related. Part of their tax exempt status requires a nonprofit to reinvest their profits back into the organization. This can be in the form of staff salaries, professional development, equipment, technology, investments, and more. They can make a profit, but it does not go to benefit an owner. While I’m filing this under differences, the difference is really in the IRS requirement. I say that because, in reality, there are many small businesses that do the same thing. They are not required to, but they invest their profit right back into their business.
The third difference has to do with ownership. A nonprofit organization is essentially owned by the community, with a volunteer Board of Directors responsible for its leadership and operation. In newer nonprofits, the founder often behaves like an owner. This person usually holds the vision for the business, gets others excited about it, and develops the board, programming, funding, and more. And this brings us to the similarities portion of this analysis.
There are differences in the leadership; nonprofits are led by a volunteer board, sometimes with a paid Executive Director running operations. Small businesses are generally led by an owner, partners, or a family. In either case, those business leaders have a LOT in common.
Small businesses and nonprofits both struggle with never having enough time, money, resources or people to do everything they would like to do. This means that their leaders need to be hardworking, scrappy, creative, and dedicated. They tend to be driven by a passion greater than a paycheck. Whether it’s the mission, a desire to create something great, a commitment to serving their community, or a dedication to meeting the needs of their customers; these leaders are intrinsically motivated.
In order to be successful, both sets of leaders need to have a strong connection to their community. By having their finger on the pulse of the community’s needs, they are able to identify issues and gaps in service. In knowing what is important in the community these business leaders can find their niche and remain relevant. Additionally, this connects the business leaders to the people in their community who will need their products and services. People do business with those who they know, like, and trust.
This brings us to mission. Nonprofit organizations have a mission that drives their work in meeting a critical social need. While for profit, small businesses may not be driven by a mission, that does not mean that they don’t work hard to meet the needs of their community. People need groceries and gas and insurance. They need someone to help them buy and sell their house, and they like to go out to dinner. While these things (and more) do not necessarily qualify as mission work, they are definitely community necessities.
The last two similarities (which initially seem to be differences) are fundraising and board management. A small business does not have to do traditional fundraising; however, they often seek investors and raise start-up capital or funds to develop new services and products. Likewise, a small business with investors reports to them as an Executive Director reports to their board. This involves educating them, building strong relationships, and managing communication.
I spent 30 years working in the nonprofit industry and the last 18 months as a small business owner. In networking, developing, and growing with other small business owners it’s been so interesting to see the similarities between these two worlds. I’ve discovered, not only that the two industries have a lot in common, but we have so much to learn from each other!
I love helping business leaders to grow and develop professionally. If you’re looking for leadership, team or board development, mail me at firstname.lastname@example.org to connect for a free 30-minute discovery call.
Kim is a mom, wife, lover of being active and the outdoors,
and helper of small businesses and nonprofits.