For-profit and nonprofit organizations work in different ways, on different problems, toward different goals — and those differences matter. Here are a few things I think are important as distinguishing features:

1. People
The people who come into our sector — whether in foundations or in the kind of nonprofits that foundations fund — come with passion for the work, they care about the issues we work on, and care enough to make the financial and other sacrifices the work requires.

To manage them in the same manner you would manage someone in the for-profit world, where the culture and motivations attract people who want to move up the hierarchy and earn a higher salary, is a mistake.

2. Measure of success
In the for-profit world, there is a single metric for success, everyone agrees on what it is, and it’s easily measured and tracked.

3. Competition
In the business sector, the success of your business organization necessarily comes at the expense of your competitors. Whereas in philanthropy, I’m not trying to outdo other foundations, or maximize the glory of the Hewlett Foundation. It’s exactly the opposite: I’m trying to develop and be part of ecosystems of organizations, including other funders with whom I want to partner, in ways that will help achieve solutions to social problems or help improve everyone’s social good.   It’s a profound difference at precisely the level where business principles could matter: me with everyone else is not me versus everyone else.

Making philanthropy effective

The idea of strategic philanthropy comprises three simple propositions:

  1. Have a clearly articulated goal about what you want to accomplish.
  2. Have a story about how your grantmaking or philanthropic activity is going to achieve that goal.
  3. Have a reasonable way to measure whether you are moving towards your goal.

Read the full article about making philanthropy like business by Larry Kramer at The Center for Effective Philanthropy.