Managing in Small Businesses and Nonprofit Organizations

Small businesses are growing in importance. Hundreds of small businesses open every month, but the environment for small business today is highly complicated. The Appendix provides detailed information about managing in small businesses and entrepreneurial start-ups.

One interesting finding is that managers in small businesses tend to emphasize roles different from those of managers in large corporations. Managers in small companies often see their most important role as that of spokesperson because they must promote the small, growing company to the outside world. The entrepreneur’s role is also critical in small businesses because managers have to be innovative and help their organizations develop new ideas to remain competitive. At LivingSocial, for example, founder and CEO, Tim O’Shaughnessy, spends a lot of his time promoting the rapidly growing daily-deal site and talk­ing with department heads about potential new products and ser­vices.⁴³ Small-business managers tend to rate lower on the leader role and on information-processing roles, compared with their counterparts in large corporations.

Nonprofit organizations also represent a major application of management talent.⁴⁴ Organizations such as the Salvation Army, Nature Conservancy, Greater Chicago Food Depository,

Girl Scouts, and Cleveland Orchestra all require excellent man­agement. The functions of planning, organizing, leading, and controlling apply to nonprofits just as they do to business orga­nizations, and managers in nonprofit organizations use similar skills and perform similar activities. The primary difference is

that managers in businesses direct their activities toward earning money for the company and its owners, whereas managers in nonprofits direct their efforts toward generating some kind of social impact. The characteristics and needs of nonprofit organizations created by this distinction present unique challenges for managers.⁴⁵

Financial resources for government and charity nonprofit organizations typically come from taxes, appropriations, grants, and donations rather than from the sale of products or services to customers. In businesses, managers focus on improving the organization’s prod­ucts and services to increase sales revenues. In nonprofits, however, services are typically provided to nonpaying clients, and a major problem for many organizations is securing a steady stream of funds to continue operating. Nonprofit managers, committed to serving clients with limited resources, must focus on keeping organizational costs as low as pos- sible.⁴⁶ Donors generally want their money to go directly to helping clients rather than for overhead costs. If nonprofit managers can’t demonstrate a highly efficient use of resources, they might have a hard time securing additional donations or government appropriations. Although the Sarbanes-Oxley Act (the 2002 corporate governance reform law) doesn’t apply to nonprofits, for example, many are adopting its guidelines, striving for greater trans­parency and accountability to boost credibility with constituents and be more competitive when seeking funding.⁴⁷

In addition, some types of nonprofit organizations, such as hospitals and private univer­sities that obtain revenues from selling services to clients, do have to contend with a bottom line in the sense of having to generate enough revenues to cover expenses, so managers often struggle with the question of what constitutes results and effectiveness. It is easy to measure revenues compared to expenses, but the metrics of success in nonprofits are typically much more ambiguous. Managers have to measure intangibles such as “improve public health,” “upgrade the quality of education,” or “increase appreciation for the arts.” This intangible nature also makes it more difficult to gauge the performance of employees and managers. An added complication is that managers in some types of nonprofits depend on volunteers and donors who cannot be supervised and controlled in the same way that a business manager deals with employees. Many people who move from the corporate world to a nonprofit are surprised to find that the work hours are often longer and the stress greater than in their previous management jobs.⁴⁸

The roles defined by Mintzberg also apply to nonprofit managers, but they may differ somewhat. We might expect managers in nonprofit organizations to place more emphasis on the roles of spokesperson (to “sell” the organization to donors and the public), leader (to build a mission-driven community of employees and volunteers), and resource allocator (to distribute government resources or grant funds that are often assigned top-down).

Managers in all organizations—large corporations, small businesses, and nonprofit organizations—carefully integrate and adjust the management functions and roles to meet challenges within their own circumstances and keep their organizations healthy.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.