That seems to capture the confused look I get when I tell people I work for a non-profit that has grown net profit by 80% from last year. Isn't a profitable non-profit an oxymoron? It's a legitimate question.

There has been a lot of non-profit hospital-bashing going on these days. Part of the increasing scrutiny around hospital pricing and billing practices is rooted in a misunderstanding of the world of non-profits. People aren't comfortable with that tension between mission and money. And honestly, I can't blame them. As a person in non-profit strategic planning, I've been living with that tension for almost two years, and yet I still can't always shake that feeling of uneasiness.

This is probably pretty basic for many of you, but here's what I've gathered so far...

What makes a non-profit a non-profit?

In the most basic sense, a non-profit is a legal entity that (directly or indirectly) benefits society. Under IRS Code 501 (c)(3), a nonprofit corporation may be formed to operate for some religious, charitable, educational, literary, or scientific purpose. Legally, no one "owns" the organization - there's no stocks, and thus according the HHS, "no part of the net earnings of such entity accrues or may lawfully accrue to the benefit of any private shareholder or individual."

How can a non-profit have profits?

The only way any organization, profit or non-profit, gets bigger is through profits. Through higher profits, non-profits can invest in new strategic initiatives to accomplish their mission in expanded and novel ways. We should root for profitable non-profits!

There's nothing wrong with a non-profit having profits. If anything, it could mean that the non-profit:
- has done a good job controlling expenses
- has provided goods/services that others valued enough to purchase or give
- has been smart in balancing short-term demands and long-term goals

How does a non-profit organization measure success?

Most define success by somehow measuring their impact on society. For the American Red Cross, it might be dollars donated to families. For a healthcare management association, it could be how many people attended their educational events. For a hospital, it could be how many patients they treated. Honestly, it's hard to truly measure impact - how do you measure the value of a changed life? Is one fully changed life worth the same as two half-changed lives?

Inevitably, though, financial metrics are also used to measure the sustainability of operations. That's the reality of non-profits. In my organization, we have 6 non-financial metrics and 1 financial metric. Our job is the mission, but our means is the money. Put another way, meeting the non-financial metrics means we are accomplishing our mission this year. Meeting the financial metrics means we are planting seeds for the success of our mission for the years to come.

What makes a successful non-profit manager?

Interestingly enough, non-profit managers need all the same skills that their for-profit counterparts need - finance, accounting, marketing, public relations, leadership, organizational development, you name it. But, I believe that the job of non-profit managers is even more sophisticated in these ways:
- they must balance financial goals with mission goals
- they must be comfortable with significant "service lines" that consistently lose money and find ways to stay afloat in other ways.
- they have to be more creative to "do more with less"
- they often must motivate staff and volunteers using non-financial means (you can't fire a volunteer, nor can you give them a raise or a pay cut)

It's unfortunate that the reputation of non-profit managers suffers on both extremes: many see non-profit managers as either greedy opportunists trying to cash in on others' generosity or 2nd-class businesspeople. That's probably true, but only at the fringes. I've met a lot of non-profit leaders who have 1st-rate business minds coupled with a 1st-class passion for a better world. Those are fun people to be around.

For more on becoming a great non-profit leader, go to Peter Drucker's site for non-profit leaders.

By the way, all non-profits have their tax returns available for public viewing. Visit Guidestar, register for free, and pull up your favorite non-profit.