I’ve also seen non-profits become their own cause, rather than the people they are supposed to help. For example, our organization delivers a broader scale and scope of healthcare services than any non-profit in our space. One of our segments is a school-based dental program that provides comprehensive dental care to low-income children, including procedures like fillings and extractions right at the school. We partner with thousands of schools. Believe it or not, there are non-profits who do far less, like only dental education, dental sealants or fluoride (which we do as well) who fight to keep us out of schools so they can preserve their lesser programs. In other words, they’d rather these kids live with their existing tooth decay than have us come in and fix the problems. Why would a supposedly socially responsible (non-profit) organization want to prevent poor children from getting healthcare? To exist, that’s why. They will hang their hat on the fact that they are non-profit as opposed to what they actually are able to accomplish.

The key advantage I see for non-profits is the perception that they are more socially responsible and therefore more worthy of support than for-profits. For this reason, more agencies may wish to align with them to further the social cause and/or business purpose. They also can qualify for certain grants that a for-profit cannot.

In healthcare, I’ve seen a lot of non-profits come and go. They are there one year after they get a grant and then hire a bunch of people and after a year or two they are gone or significantly reduced in scale and/or scope. While they exist, they spend their money on capital equipment that ends up under-utilized because there is not enough money left to operate it full-time. When the grant runs out they must liquidate these assets at rock-bottom prices (which our company then buys and employs in our sustainable, for-profit model for the identical socially responsible purpose except we do it better).

Whenever a for-profit model can get the job done in a sustainable and responsible manner, the for-profit model should be used. In cases where a donation/grant-funded model is the only way, then and only then should a sole non-profit model be used (i.e., providing healthcare services to those with no ability to pay). There also needs to be broader recognition by society that a for-profit entity can be just as socially responsible as a non-profit so that more entrepreneurs will consider the for-profit model. In the long-run we’ll all be better off for this.

I agree with you, much more needs to be done in helping
nonprofits understand and use outcomes and this is all part of a larger need for capacity and infrastructure in the nonprofit sector. I think funders can definitely help to finance that infrastructure, but I also think that nonprofits themselves have to work towards understanding how their work in the community is actually having an impact. Their business models have to include a measurable
social impact piece. So I think we are in agreement.

What the sector really needs to understand is the comparative advantage of the business and nonprofit forms. You’re absolutely right that the optimal form depends on the problem, but we need to know when the optimal form is business and when the optimal form is charity. This post is a very small step in the dark towards identifying the comparative advantage of business, but we’ll need more conversations like these and more research on the topic before we can truly understand when to apply a nonprofit solution and when to apply a business solution.