I recently had an interesting conversation with a friend who teaches at a business school about some of the economics concepts he emphasizes with his first year MBA students. He shared that he consistently hammers home the distinction between growing profits and just getting bigger. That is, what ultimately matters (assuming a company aims to maximize profits) is the product of revenues and profit margins, not revenues for their own sake. While this emphasis goes against the growth-at-all-costs mindset that seems to drive many business decisions, focusing on profits is a better recipe for a company’s long term health.
This conversation got me thinking about one of the most common strategic planning questions that we get from our clients at Wellspring: “How can we grow our revenues?” Like the business sector, the non-profit world often uses revenues as a measure of organizational success. This makes sense, since revenues are necessary to run programs – and greater revenues suggest a greater scale that in turn suggests more impact. But is revenue growth really the right way to focus the objectives of a non-profit business? I am increasingly convinced that the answer to this question is “no”.
You may be wondering – if we are not focused on revenue when building out a strategic business plan, then where should we focus? Non-profits are in the business of maximizing social impact. To stretch the business metaphor, it’s like a non-profit’s margin, so total social impact is the product of scale and efficacy. Strategic plans that aim to scale up projects that less directly serve an organization’s mission, or that distract staff and management, can lead to a larger – but less impactful – organization. For those of us who care deeply about maximizing social impacts, this is not an optimized outcome.
An impact-centered model can help non-profits determine whether they should grow at all. If there are scale-up opportunities that don’t distract or detract from current work, consider seeking additional revenues to support this expansion. But remember, most organizations can only stretch themselves so thin without affecting their impact – good data, careful analysis, and organizational discipline are invaluable in determining (and then respecting!) where that point lies.