5 Lessons Philanthropies Can Learn From Businesses

If you’re looking to invest in philanthropic efforts or create your own charity, take some time to look at the organization from an operations standpoint. Many of today’s most successful philanthropic ventures, such as the Bill & Melinda Gates Foundation, have a very thoughtful and systematic strategic plan in place along with an operational infrastructure to ensure they are maximizing their efforts. Though there’s no rule that says you can’t give in meaningful ways as an individual or small business, there are  benefits to giving in an intentional, well-structured way.

Numerous local, national and international charitable organizations operate very much like corporations — with strategic and tactical goals along with robust performance and financial monitoring systems in place. Most importantly, they build, cultivate and maintain a strong culture composed of a dedicated and talented team of leaders and volunteers.

Here are some of the key ways successful philanthropies are run like businesses:

Cultivating Talent and Culture

In Uncharitable: How Restraints on Nonprofits Undermine Their Potential, fundraising consultant Dan Pallotta highlights the importance of paying competitive salaries to attract the best talent for operational positions and even enlisting investors to finance various projects. Just as a corporation will make the time and effort to recruit the best leadership and management talent possible, a philanthropic organization can follow a similar path to build its board and decision-making teams. Lack of experienced talent could undermine the organization’s efforts and potential, as well as, make it difficult to handle inevitable conflicts, crises, and challenges.  What this talent looks like will vary based on each organization. An early stage philanthropy needs talent that can rapidly grow whereas a complex existing organization may require an entirely different skill set. It is critical that the leaders of any organization first assess their talent needs and then devote the energy and discipline towards attracting that expertise. This may require getting creative on the financial side or possibly even stepping up in terms of compensation. That said, for the right people it can’t be just about the paycheck. Employees and volunteers will affiliate with an organization because they care about the mission and want to be part of something bigger than themselves. A passionate and talented team will elevate all aspects of the organization and the people they interact with. Whether it’s a start-up business or a complex multi-national corporation – it is all about the people. Philanthropies are no different.

As necessary as talent is, however, it isn’t everything. In fact, talent can be rendered useless if there isn’t a great culture for it to operate within. When philanthropic organizations thrive, it’s largely due to a shared sense of purpose and commitment, something that not only attracts talent, but amplifies it. A commitment to collaboration and progress is critical, just like in any rapidly growing company. There is a palpable difference when talent, at any level, feels a part of an organization’s mission. Building a great culture doesn’t happen by accident, but it does start from the top. Leaders must be communicative, inclusive and empowering. When interviewing for talent these skills be sought out and examined. Once on board, an effective leader must cultivate and ultimately promote other leaders.  

Have a Plan

A philanthropic organization of any size will have lists of tasks and projects that need to be prioritized and completed within a certain time frame. Determining a priority requires an organization to know where they are trying to go. Moreover, this understanding must be universal across all constituents. It is virtually impossible to make a smart decision if one doesn’t know where they are going. Developing a plan for an organization, business or charity, begins with defining its longer term strategic objectives. Once determined a tactical plan is created to highlight the steps required to get there. A plan, which is can be iterated on regularly or when situations change, enables an organization to improve organizational efficiencies and maximize their financial and human resources. My conviction for this step was generated at a meeting for a philanthropy that I was involved with whereby the board was asked to make a large capital allocation for a specific project. I stated that I couldn’t make this decision without knowing what the long term strategic objectives of the organization were. Everyone around the table nodded in agreement. Rather than reach a decision on the allocation we decided to embark on a several month process of developing the appropriate plans so that such confusion wouldn’t exist in the future.

A primary benefit of developing strategic and tactical plans is that they provide the information necessary assemble an organizational structure that defines roles and responsibilities. When there is a clear hierarchy the ability to prioritize and delegate becomes considerably easier and more effective. A philanthropy that operates smartly based on a plan  builds credibility and trust from those it interacts with – donors and beneficiaries. Using a plan as a baseline enables for the measuring and monitoring of activities in order to highlight those areas requiring a course correction or greater attention. Relentless planning, focused attention and discipline are critical components to the success of any organization.

Prudent Financial Management

The financial resources for a philanthropy are precious regardless of whether they are raised through fundraising efforts or were received when the organization was established. The bottom line is that the more capital the organization has the more it can allocate to achieving its objectives. Accordingly, smart financial management should include two key aspects:  1) prudently managing the resources or assets of the organization, and 2) efficiently managing operations. l have had the privilege to use my investment management experience to help several organizations optimize and manage their endowment portfolios. Structuring their investment portfolios in a manner similar to the most sophisticated investors can maximize earnings and minimize risk.

Just like businesses, philanthropic organizations need to have a system in place to manage expenses and capital expenditures. Depending on size and complexity, they may even need an internal accounting department or an outside accounting professional to oversee finances and cash flows, incoming donations, and distributions. Regardless of size, organizations must be responsible for generating and providing financial reports that highlight their activities. Whether it’s the use of sophisticated accounting software or a simple tracking spreadsheet, the operative issue is that activities are being monitored. For some smaller charities even the most routine business reporting can seem foreign. In several cases I have worked with an organization’s leadership to design reports that will assist their management efforts while also being valuable  for their supporters. Often serious investors/donors, especially those with business acumen, will review these reports to confirm operations are efficient and investments are proper before making a meaningful contribution. It is virtually impossible to prudently manage assets, liabilities and expenses without knowing what they are and how they change over time. Reports will highlight these facts and sometimes lead to opportunities. For example, with one asset rich organization I have worked with it became clear that employing a smart financing technique would be advantageous relative to using precious cash or securing incremental donations.  

Creating Scalable Systems

Philanthropic efforts at the local level are valuable to the community but the organization doesn’t necessarily need to limit its efforts to a certain neighborhood or city. Most charities and the people associated with them aspire to maximize the ability to do good. This drive requires creating a scalable system that can be replicated or scaled to benefit similar neighborhoods or groups. This isn’t always easy, especially for programs that need to be customized. A well thought-out plan can address these issues so that programs and protocols can be designed that are easily replicated and leveraged to different markets or an expanded base. The organization and its programs can be built to incorporate capacity for future growth because it is considerably easier and more efficient to expand efforts from an existing foundation versus scrambling to build capabilities in response to current opportunities. A major byproduct of successful growth is inspiration and motivation it has on the individuals affiliated with the organizations.

Developing Strategic Partnerships

No matter how large or small an organization may be, there is tremendous value in forming strategic partnerships with businesses or other charities that are interested in supporting the mission of the philanthropy. A strategic partnership may take various forms including the most simple which is donating directly or indirectly to the charity. A strategic partnership in some cases allows a philanthropy to focus its own efforts and resources more effectively by “outsourcing” roles such as marketing, accounting or technology to those more experienced or efficient. Finally, strategic partnerships may facilitate the classic “one plus one equals three” scenario. This may involve two or more charities partnering to jointly promote and manage their individual goals in a more efficient manner and accomplish more together than they could separately.  Currently I am exploring with a handful of organizations how their physical infrastructures might be combined and coordinated to provide greater capabilities, minimized costs by virtue of reducing operational redundancies and expanded outreach through complimentary marketing efforts. Partnerships of this nature may also involve for profit corporations and a charity. There can be meaningful opportunities when a corporation’s efforts are aligned by working with or supporting a specific charitable cause.

Closing Note

Many of today’s most successful philanthropic organizations are run like businesses. The corporate and financial savvy that makes rapidly growing companies and well-established businesses successful can be replicated by philanthropies to manage, scale, and maximize their efforts. Success starts with building a team and creating a plan. Once these are in place management is essential. Activities should be monitored, tracked and optimized to reach and impact the communities they serve. This discipline enables the leaders to better plan and make the corrections necessary to ensure survivability and growth. Successful charities embrace all of the above points, which when coupled with vision and dedication can make for extraordinary impact.

If you are thinking about starting a philanthropic venture, running an established philanthropy or just looking to begin a local philanthropic initiative, there are many lessons transferrable from the business world. While in some cases the lessons will need to be adapted to the nuances of the charity, there is no need to reinvent the wheel. There are benefits to be gained from understanding the successes and failures of businesses and other charities if only to practice seeing philanthropy as a successful, long-term venture.