What They're Sayin'

"Your Nonprofit Is A Business!"

" A nonprofit does not exist for the purposes of making profits for shareholders, but rather making profits for the benefit of the organization." - Chron


‚ÄčFor Profit or Nonprofit?


While I am a huge fan of Chron, the business section of the Houston Chronicle, I think its reasoning behind the existence of nonprofits is misleading. Both types of businesses, nonprofits and for profits, have only one reason to exist; to create a positive return on capital investment. (That's one of my three foundational tenets of being a business; the other two are understanding competitors/alternatives and tracking/evaluating desired results or RCR-Return Competitive Results).


What and Who are Direct Stakeholders?


I would say that a nonprofit exists to create a positive return, or profit, to its direct stakeholders. Direct stakeholders are those entities who have a vested interest in the fulfillment of a nonprofit's mission. They have skin in the game. Whether it's the client, the government, a donor, or a grantor, the stakeholder directly benefits from the success of the nonprofit.


Most nonprofits (especially those in the sustenance marketplace) look at their mission as one of helping clients. In reality, their mission (like those of most, if not all nonprofits) is to be a conduit for investors to help others. That's the reasoning behind the saying "no money, no mission." If nobody invests, there's no fulfillment of mission, as few sustenance nonprofits can generate sufficient revenue to cover expenses. So think about those last three stakeholders-- the government, the donor, and the grantor- as investors.


That's right, nonprofits are, in a way, stockbrokers. They take money from investors, use it as capital for a worthy investment, and return a profit to the investors. But what exactly is that return?


What is SROI?


For nonprofits, that return is called Social Return on Investment or SROI.  Although a tad wordy, I can live with this formal definition:


"Social Return on Investment (SROI) is a systematic way of incorporating social, environmental, economic and other values into decision-making processes. By helping reveal the economic value of social and environmental outcomes it creates a holistic perspective on whether a development project or social business or enterprise is beneficial an profitable." - BetterEvaluation 


In English, SROI is a measurement of the return on capital investment in terms of the return's total benefit to society. And believe or not, that is why nonprofits exist; to create a return on capital that is measured by the return's benefit to society.


Why SROI?


SROI is not yet a formally-accepted, formulaic methodology, so I look at it as more of a way of thinking. If a nonprofit can define, create, and evaluate value in social, economic, and socio-economics terms, it can differentiate itself from the alternatives. With the competition over investors, nonprofits must not only make a claim of value, but have an evaluation process to define and measure that claim.


And that's where Steadman & Associates comes in. We are about creating value in order to validate your claim. The greater the achievement of your mission, the greater the benefit to your stakeholders. The greater the benefit, the greater the value. The greater the value, the greater the SROI. And isn't that why investors invest where they invest; for a greater return on investment?







What They're Sayin' is an ongoing collection of articles from online sites Kenneth Steadman reads and respects

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"I'm Just Sayin'" is a business blog that manifests the attitude of some conversations Kenneth has with his wife, Marselene, when they're trying not to be obnoxious towards each other.