Running a nonprofit is different than running a traditional business, but you can still import valuable lessons from the for-profit sector. One notable example is the lean management system, a philosophical devotion to small, experimental improvements and waste reduction. Through lean management, your nonprofit might be able to do more with less.
What Does “Lean Management” Mean?
Lean management is a business operational philosophy centered around maximizing customer value with the least possible waste. Lean organizations structure everything around this maxim; if a move doesn’t improve the end product or reduce expenses, it shouldn’t take place. The first iteration of lean management came from Eric Ries, who wrote “The Lean Startup” in 2008. Ries, an expert in high-tech startup companies, took several lumps during his few company launches, all of which failed. He turned those lessons into a company management method centered around experimentation, iterative product releases, and measured learning. Businesses in the United States and Canada loved Ries’ lean method, but he wrote it with for-profit, high-tech startups in mind. Your organization faces the challenge of adopting those principles into a workable nonprofit model.
Apply Lean Management Strategies to Nonprofits
The first step towards adopting a lean management method for your nonprofit should be simple: read and understand the principles behind lean management. The difficult part is trying to implement a lean-driven approach. Lean methodology is experimental and prone to errors. Each unsatisfying result shows how not to provide your nonprofit services most effectively. With a lean approach, your first ideas should fail as quickly and as inexpensively as possible. As a nonprofit you’ll face several unique challenges.
- Your donors and your board of director won’t always have the patience or perspective to follow through with lean management. By communicating your vision early and often, you should increase the likelihood of buy-in from these critical parties.
- Volunteers and employees can also be frustrated if they get the sense they’re not living up to the organization’s mission. Terms like “cost management” and “efficiency” may not be received readily by those driven to work in the nonprofit sector.
To overcome these challenges, you’ll have to come up with creative ways to measure your performance scientifically. You must also display diligence and clarity when communicating those metrics to key influencers.
Your Biggest Hurdle: Calculating Nonprofit Effectiveness
Unfortunately, nonprofits are not as well-equipped to interpret the data from lean management as their for-profit counterparts. This is doubly true for nonprofits that receive government grants. If you don’t sell products or provide services with the goal of earning a profit, then your balance sheet can’t really tell you if you’re doing your job correctly. If a for-profit business makes a mistake, it shows up in the form of losses. Customers evaluate for-profits every day at the cash register. Most nonprofits rely heavily on donations and grants money that isn’t directly tied to the satisfaction of those you hope to help. If you get a lot of government funding, then calculation based on financial performance is effectively meaningless governments operate off of tax revenues, which aren’t voluntary. In other words, your organization probably doesn’t receive clean economic signals about what works. There are a few workarounds to this problem. None are perfect, but you may still find them useful in your evaluation.
- You can’t really trust the revenue side, but you can always measure the expense side. Check to see if your decisions reduce costs over time.
- If your nonprofit serves people or provides them with goods, get feedback on everything. You’ll need this to evaluate the kinds of small changes that lean management promotes.
Lean management requires patience and vision, but it’s a proven system. If you want that next big idea to take your nonprofit to the next level, this could be your ticket. It should come in handy the next time donations dry up or if the economy takes a downturn.