For-Profit Executives Transitioning to Mission-Based Nonprofits: Common Pitfalls and How to Overcome Them

Takeaways

• We are in the midst of a generational shift where people are looking for more purpose in their professional work.
• As more leaders transition into the nonprofit sector, they experience five key challenges. One is trying to tackle too much without accounting for differences in resource constraints.
• Leaders can overcome these pitfalls by doing their diligence ahead of time and building support networks before the transition.
• The following exploratory research lays the groundwork for future research that can produce meaningful insights for sector switchers.

What’s Going On?

"Good is the new cool."

People of all ages are increasingly craving a deeper sense of purpose at work and many for-profit companies are failing to deliver. A Cone Communications Millennial Employee study found 83% of Millennials would be more loyal to an organization that helps them contribute to social and environmental issues. However, a recent McKinsey survey reported that only 42% of companies in the study’s representative sample said that their company’s stated purpose had much effect. In fact, the top two priorities of employees in McKinsey’s survey, contributing to society and creating meaningful work, are the focus of just 21% and 11% of purpose statements, respectively.

As good becomes the new cool, CEOs and board members across non-profit sectors are seeing more sector switchers - for-profit leaders who desire more purpose out of their professional work and seek to find it in the nonprofit arena. Yet, anecdotal evidence also suggests that executives who make the transition from for-profit to the nonprofit sector often end up leaving after 2-3 years. 

Why are leaders failing and how can the pitfalls be avoided? I spoke with executives at education, human services, and religious nonprofits to gain their perspective. 

First, A Bit About The Nonprofit Sector

If you’ve never explored nonprofits, here’s a 100 second, oversimplified summary:

• There are many different nonprofit statuses (27 as defined by the IRS, each with its own regulations).
• The non-profit landscape is broad. Per the NCCS, there are 1.5M registered nonprofits. The NCCS segments nonprofits in the following way: Arts, Education, Environment, Health, Hospitals / Primary Care, Human Services, and Religious.
• Organizations register as a nonprofit when their services are established explicitly to benefit the public good and when profits are reinvested back into the company to fulfill its mission (organizations designate as not-for-profits to form recreational organizations that do not operate with the business goal of earning revenue; organizations should be for-profit when the goal of operating is to make money).
• A large part of the workforce is volunteers and depending on the nonprofit, the stakeholder landscape could include employees, volunteers, board members, beneficiaries of services, the community, donors, activists, government officials, and other nonprofits.
• Most nonprofits secure funding through donations, reimbursement for service, grants, government funding, and / or corporate in-kind donations.
• And finally, and perhaps most important, success for a nonprofit is not measured in profits, but rather in achieving a mission (we’ll get to how this can be quite difficult later on).

5 Reasons Why Sector Switchers Fail

“Being in a for-profit company fed my ego and pocketbook, but not the soul.”

My conversations with sector switchers and nonprofit executives supported the notion that the urge and desire to do good in the world is often the primary motivation for making a transition into the nonprofit arena. Those that I spoke with shared significant challenges they had to overcome, or are still struggling with. They have seen these challenges force some of their peers out of nonprofit jobs and back to the for-profit sector or into retirement.

Across my sample size of ten executive leaders, five themes emerged for why sector switchers fail:

1. Not a fit to do professional work at a nonprofit or at the wrong nonprofit
2. Tries to tackle too much without accounting for resource constraints
3. Gets frustrated, impatient with slow moving progress
4. Tries to run a nonprofit like a for-profit without adapting methods for the context
5. Can’t pivot leadership style

1. Not a fit to do professional work at a nonprofit or at the wrong nonprofit

Sector switchers often will expect that a nonprofit leadership position will be easier or simpler. However, nonprofits are very complicated, if not more complicated than for-profit companies. Nonprofits often have, in business speak, a highly diverse set of businesses (e.g., retail, residential housing, counseling) to manage. And given the ever-present constraints on resources that I’ll write about more below, the nature of the nonprofit sector is that there will always be too much work. The nonprofit sector certainly is not an easy place to lead.

As one executive stated, “the urge to go to nonprofit organizations bubbles up in many of us,” but if a leader’s primary motivations are more aligned with volunteerism and board work, the incentive to sustain the effort and endure the nonprofit grind will be fleeting. Said differently, there are other ways to do good in the world without leading a nonprofit organization.

The nonprofit space is also broad and those that succeed have a deep alignment with the mission and values of the particular nonprofit they are leading. However in some cases, sector switchers fall into a nonprofit leadership role, without necessarily doing the diligence required to ensure this alignment is strong.

Two challenges can occur without this alignment - first, the leader’s background, skill set, or value-add isn’t relevant for the nonprofit and they fail to gain the respect and trust of an organization that likely is already skeptical of the sector switcher’s motivations. And second, the leader’s entry can come off as charity. The brand of “I’ve done the hard work in the private sector and I am going to share my experience, wisdom, and talents with this nonprofit” is of course incredibly off putting, and only further contributes to a sector switcher failing to win the trust of their organization.

2. Tries to tackle too much without accounting for resource constraints

The desire to make broad and meaningful impact is even stronger at a nonprofit, but resources are even more scarce. Former for-profit leaders will likely have less access to full-time employees (most of the workforce could be volunteers), process rigor (many nonprofits operate with an entrepreneurial spirit), cutting edge technology (it’s too expensive), and open lines for financial infusions (funding comes from donors, not a market). However, they will constantly be asked to do more with less. This is quite different from for-profit luxuries where leaders could “get whatever they needed to execute” when tasked with large objectives. A nonprofit’s mission can be lived out broadly leading nonprofits to try to be “everything to everybody.” Entrepreneurial mindsets can even lead individuals within a nonprofit to pursue “really interesting work that is aligned with mission, but not related to the nonprofit’s strategic priorities.” Limited resources with a broad mission dilutes impact and can lead to burn out quickly.

Nonprofits are also incentivized to deploy any resources they have, even if collecting capital could produce more capital in the long run. Nonprofits can’t look “too healthy,” coming off like they are “sitting on capital.” This gives the image that the nonprofit isn’t investing that capital where it should be going - to the problems it has been set up to serve.

Finally, no one nonprofit can “solve it all” for really complex issues (e.g., climate change) and the inequities that one nonprofit is solving for are often entangled with another inequity. Thus building partnerships is exponentially more important, something a sector switcher may not think to pursue or is not skilled at pursuing.

3. Gets frustrated, impatient with slow moving progress

In comparison to a for-profit company, a nonprofit can be more risk averse, have consensus driven decision-making cultures to a larger degree, and implore shared governance models that distribute power and authority more evenly across the organization. However, these are not the only reasons why the speed and scope of change may be slower at a nonprofit organization. Many are actually human capital related:

• Staff are often younger and earlier in their careers, thus pivoting to a new set of strategic priorities takes more time. This workforce is not motivated by incentive compensation and career progression, thus instituting an incentive or KPI system to motivate quick action doesn’t work.
• Many nonprofits don’t have a direct feedback, continuous improvement culture, thus underlying blockers to change can persist longer than in a for-profit.
• The for-profit world often will “weed people out on it’s own,” as employees self-select out of roles or are forcefully moved out. However, it’s harder to get rid of someone who is passionately working to serve the nonprofit’s mission. Thus, the right people may not be in place to drive change for a while.

Because of these factors, sector switchers can’t use traditional levers to kickstart change (i.e., replacing talent, use of executive authority rather than consensus building) and may try to change too much at once, which loses them political capital and credibility within the organization.

Organizational alignment is also more challenging. Individuals work at nonprofits because they have a visceral connection with the organization’s mission. Because resources are scarce, entrepreneurial (or “start up” like) mindsets often set in. The entrepreneurial mindset is helpful in the short run, but can push the nonprofit away from pursuing or implementing governance, systems, and processes that would be best for long-term alignment and reduction of organizational friction that impedes progress.

Finally, sector switchers are used to producing clear evidence of impact and success in their for-profit pasts, however measuring impact at a nonprofit is much more complex. As one executive said, “measuring mission is messier than money.” Some of the ways it is messier include:

• Measuring impact differs based on the context, mission, stakeholder, and intended impact / change. There are many different KPIs that have been established, none of which have anything to do with profit maximization, and the math equations to measure impact aren’t intuitive, nor widely accepted. 
• Measuring impact (and attribution) is costly. It normally requires expensive randomized controlled trials and requires dual measurements of both positive and negative effects, as well as intended and unintended outcomes.
• It can often be unclear who is responsible for measurement (government, nonprofit, or both).

Without a good understanding of these limitations, sector switchers can get down on themselves, and the nonprofit organization.

4. Tries to run a nonprofit like a for-profit without adapting methods for the context

Fundamentally, the reason nonprofits exist is different from a for-profit company, which means the ultimate mission, goals, priorities, values, and objectives are different. In fact, some nonprofits aren’t trying to build “a sustainable organization for the long-term.” In nonprofit organizations, the mindset is one centered on cause and community - “the stories of how we’ve impacted people.” Some even feel that the true judge of success is solving problems that they were founded to eradicate and closing up shop once that’s happened. In comparison, the mindset of a for-profit organization is focused on continuous improvement - “how do we make this better and how do we make more money?” 

While some executives I spoke with made it clear that certain nonprofits would and do benefit from being run like a for-profit, sector switchers fail when they attempt to implement profit maximizing structures, rather than mission maximizing structures, or attempt to use the same strategies and execution tactics without accounting for differences in decision-making norms, governance, change time horizon, workforce make-up, workforce motivations, sources of capital, and impact measurement.

5. Can’t pivot leadership style

The tone of executive leadership in a nonprofit is quite different than at a for-profit. It’s less about swagger, delegation, and exuding confidence, and more about humility, serving, and “getting stuff done.” Many of the executives I spoke with talked about using “facilitative” and “legislative” styles of leadership. One also likened a nonprofit leader to that of a start-up CEO: “I’m the CEO but I still go and make my own copies at the printer.” If a sector switcher comes in too confident, believing nonprofits have been “doing it wrong all along,” they won’t gain the respect and trust of their peers and the organization and they’ll never be seen as belonging.

Additionally, credentials appear to be less valued, while tenure and networks are more valued. Obviously a sector switcher won’t have direct tenure, but they normally have a vast corporate network to leverage for fundraising. Having said this, not all sector switchers are comfortable or enjoy this “sales” aspect of being a nonprofit leader. 

How To Avoid The Pitfalls

The 3-2-1 Plan

So what to do about these potential pitfalls?

3 Diligence Steps

• Do the soul searching: whether someone realizes it or not, sector switching constitutes an identity shift - one that defines success as significance rather than achievement. Why do you want to be a nonprofit leader? Could your motivations for doing good in the world be achieved by being a highly active and engaged board member or volunteer? Doing your homework before making a transition is critical. One sector switcher I spoke with even gave a general rule of speaking with 2 nonprofit leaders for every year working in the private sector.
• Complete volunteer, board, or pro-bono work: this investment helps someone determine if there is a strong, visceral connection with the mission of that specific nonprofit. It also helps someone build relationships in that nonprofit sector, get experience with fundraising, and get educated on the space (learning how to drop business jargon and still get your point across, learning how to serve with humility and without ego, or even learning differences in common operational activities such as for-profit accounting versus nonprofit accounting).
• Study nonprofits: this is especially important with regard to success measurement (becoming familiar with impact measurement methods, established frameworks, and limitations) and the stakeholder landscape (understand the motivations and incentives of nonprofit stakeholders, especially volunteers, donors, and government officials). And generally, learn and appreciate the history of nonprofits and the type of nonprofit you aspire to serve in. Doing so gives a leader insight as to what’s worked in the past, what hasn’t worked in the past, and why. There are some excellent resources available to complete this study, such as Northwestern Kellogg’s Executive Leadership program (shameless plug!) and organizations like the HalfTime Institute or Bridgespan.

2 Transition To Do’s

• Build your support network: Like any transition, there will be hard and frustrating times. Having people to vent with, seek and receive advice from, and continue to mentor you through the transition cannot be understated. Some executives I spoke with even mentioned having “coaches” to help the sector switcher educate their nonprofit organization on how they provide value to the organization.
• Leverage your strengths: This article has focused largely on where sector switchers may be deficient, however former for-profit leaders have fantastic skills that are value-adds in the nonprofit sector. Two came up during my conversations. First is knowing how to create change. While change doesn’t happen at the same pace, that shouldn’t stop a leader from doing it. Creating change at a nonprofit entails empathizing with the teams that are working incredibly hard to make an impact in the world, even if current methods aren’t as efficient or effective as they could be. It requires listening and understanding the uniqueness of the nonprofit where you want to create change, and then having a sense for what can (or should) be changed and how change should be sequenced. “Some nonprofits should be managed like a for-profit, but you’ll need to know which hills to die on.” And it means creating a culture of positivity. Given the change journey is longer, this tone is required for the organization to sustain the change journey. Second is the ability to complete strategic planning (conducting current state analysis, facilitating collaborative problem solving and future-state definition, and building consensus around the future-state) and execution (setting goals and expectations for accountability, helping to maintain focus and allocate capital accordingly, and making tradeoff decisions).

1 Overarching Principle

• Act with intentionality to build trust and respect: If a sector switcher doesn’t feel like they belong and feel like they are making an impact, it becomes very easy to leave. Leaders can only do these things by gaining the trust and respect of the organization, which is earned not given.

Where To Go From Here

I hope this exploratory research provides for-profit leaders with a practical framework for managing a transition to the nonprofit sector . I also hope it provides a useful foundation for further research. Answering some of the questions below would produce meaningful insights for sector switchers, especially as the nonprofit and for-profit worlds continue to blend:

• Are there specific characteristics about a leader that makes them more susceptible to failure? (i.e., coming from a certain for-profit industry, stage of career entering the nonprofit space, functional expertise / background, etc.)
• Are certain segments of the nonprofit space more suitable landing spots when a leader makes the initial transition from a for-profit industry? (e.g., leaders have a higher probability of success going to Human Services than Education)
• When a leader leaves the non-profit arena, where do they go and what does that tell us about what is harder in a nonprofit setting? (i.e., to another nonprofit, back to for-profit, retire)
• Do the for-profit and nonprofit sectors satisfy human needs differently? (e.g., the need to connect, the need to feel accomplishment, the need to achieve one’s full potential)
• And finally, what is it that for-profit work does to a person’s brain over a couple of decades that makes it so hard for that individual to change when they transition into the nonprofit space?

Good luck to all the sector switchers out there.