What Is a Nonprofit for? with Judith Chevalier

Hosted by Blake Eskin

When I’m not making this podcast, I teach college students about journalism. ‌

Journalism used to be easy to spot. News stories came in distinct packages like newspapers, magazines, TV shows, but now it’s everywhere, mixed together with things that look and feel like journalism, but aren’t—rumors, marketing, propaganda, lies. ‌

So when my journalism class meets, each student brings in one recent news story and says what happened, why it matters, and where they found it. And, for the days we don’t meet, I built a website called Share a Story where they share one new story each day. And through this daily practice and with a bit of guidance, they start to choose better news stories. ‌

I think other teachers could use Share a Story with their classes. After all, media literacy is a huge problem. So one of my friends was like, “Whoa, tech founder.” But I’m not so interested in the making money part. My goal is to make a difference. So maybe I want this to be a nonprofit.‌

I think a lot of people really don’t understand exactly what a nonprofit is.

That’s Judy Chevalier. She is an economics professor at the Yale School of Management where she teaches a course on nonprofits. And even though I’ve worked for several nonprofits over the years, I seem to be one of those people who doesn’t really understand what they are. I imagine some of you may be in the same place, pondering an innovation that could improve society, but not sure how the business around it should be structured.‌

Today’s lesson is about what nonprofits are for and what it takes to run one. At SOM, Chevalier teaches an elective course about nonprofits. There are a few different reasons people take it.‌

The course attracts students who are interested in going into the nonprofit sector as a career. It also attracts students who have lined up a job in the for-profit sector, but want to be impactful in the non-profit sector in some way. So they’re thinking about being on boards or otherwise volunteering for nonprofits.

In her years teaching this course, she’s come to realize that most of her students, and really most people, have a lot of misconceptions about what nonprofits are.‌

And I think one of the reasons is the name is totally unhelpful. We know plenty of for-profits that don’t make profits, and we know plenty of nonprofits that are actually pretty profitable.

Like any business, a nonprofit needs to make sure there’s enough revenue coming in to cover expenses.‌

It’s true, I guess, the for-profit is expected to sustain itself a little more. So I think of the difference between a for-profit and a nonprofit is legally how it’s organized. In a for-profit, yes, there are shareholders, and those shareholders are expecting some kind of return, and they own the thing and they can shut the thing down if they don’t like it. In a nonprofit, it’s owned by the public at large, it’s managed by the board of directors, but it’s true that there isn’t this owner class that’s got sharp incentives to shut it down. On the other hand, if it can’t sustain itself, it’s going to shut down.

Another misconception: if your company has a strong sense of mission, you ought to be a nonprofit.‌

There’s a variety of organizations that are mission first. Some are organized as for-profits, and we typically call them social enterprises. Some are organized as nonprofits. We would call them nonprofits or NGOs in other contexts. And all of those I think broadly are organizations where the mission is at the center of the organization.

Lessons in Brief: A Nonprofit Model for News

The full name of Chevalier’s course is Strategic Management of Nonprofits—and being strategic requires thinking about the competition.‌

I think that many people, when they’re thinking about nonprofits, don’t think about them as competitive entities requiring a lot of the competitive strategies that for-profit firms also require.

So, for instance, I’m not the only person in the world working on media literacy. How am I going to get people interested in my project, build something that they want to use, and find a way to pay for it? Or take a theater company. Many of those are nonprofits, but they’re competing for ticket buyers and donations with all the other nonprofit theater companies in town. And there are plenty of instances where lessons from the for-profit world apply to nonprofits.‌

Things like how to set the ticket prices for your theater or how should we allocate something that we’re trying to give away or give to people—I think there’s lots of things where the lessons that we’ve learned from for-profits matter for nonprofits too, but often, they’re more complex for nonprofits.

So for example, how do managers motivate their employees or their volunteers?‌

You can’t use stock to motivate the workforce in the nonprofit, so you have to think about other strategies. There are ways in which there are similarities in the nonprofit, but often the nonprofit is actually the for-profit plus something that makes it more complicated.

So other than making things more complicated, what are nonprofits for?‌

I think a good reason to do it is, you have identified a nonprofit purpose or in a location where that mission is really not being served. So you certainly have local areas in the United States or elsewhere where some set of services which exist in other places don’t exist there, and you can understand creating a nonprofit to serve that local landscape.

Take affordable housing, a problem that Chevalier and her students examine in depth. In cities, governments have been loosening regulations to make more affordable housing available, making it easier say to build higher or to let people build an extra unit on their lot. But the national housing crisis, it also affects rural communities and the largest source of affordable rural housing that’s not subsidized by the government are mobile homes. In Strategic Management of Nonprofits, students learn about the New Hampshire Community Loan Foundation and their involvement with mobile homes.‌

And I think none of the students are interested in it before they actually read it, and they tend to be interested in it after they read it.

Incidentally, calling something a mobile home may be about as useful as calling something a nonprofit.‌

They’re not actually all that mobile. Because of hurricane regulations and other things, they’re actually quite costly to move.

That could be $15,000 or $20,000, Chevalier says, depending on the size of the home and the distance. And mobile homes, or manufactured homes as they’re called, they tend to be clustered in communities. And while the residents of these homes may own the four walls and the roof, they generally don’t own the land underneath.‌

If you move into one of these communities and you establish your home there, it’s quite costly to you if the landlord raises the rent.

Rents tend to go up even more when a new landlord buys out the old one. So when the land beneath the mobile home community goes up for sale, the best way for residents to protect themselves is to buy the land together. But residents need to know how to make that happen or even that it’s an option.‌

So there have been a set of nonprofits that have facilitated mobile home communities, the owners in that community co-buying or forming a cooperative to own the land so that they’re not at the whim of the entrepreneur who owns the land underneath them.

That’s what the New Hampshire Community Loan Foundation does.‌

The reason I like the case is it’s one of these examples where the nonprofit steps in where the market hasn’t really solved a problem and is creating in some ways a boring financial solution, which is a collaborative ownership structure. But that collaborative owner structure really improves the well-being of the people who live in this community.

This kind of boring financial solution, it’s spread beyond New Hampshire and state governments have taken notice.‌

Connecticut actually just passed a law about a year ago that says that, if a mobile home community is being sold, the residents of the community have a right of first refusal to try to get a purchase together before it can be sold. So there’s been some legislation around trying to actually facilitate these kinds of transactions.

Sometimes an entire industry can take a turn toward nonprofit. Earlier, we were talking about theaters.‌

During the vaudeville era, theaters were pretty much all for profit. It evolved to most theaters being nonprofit because, as competition from television and other media arose, theaters survived because some people cared that other people had access to it and were willing to make donations.

Another example is local news. For many decades, newspapers used to be, or at least could be a lucrative business, even as they kept the public informed. Subscribers paid to get a newspaper delivered and the news gathering was subsidized by local advertising, department stores, movie listings, classified ads for jobs and houses. But then came the internet and this local advantage went away and so did the ads. Many investors looked at newspapers as distressed companies more than as mission-first community institutions, and they got rid of jobs for reporters and editors to cut costs. ‌

So some newspapers, like the Philadelphia Inquirer and the Salt Lake Tribune, have converted to nonprofits, And it’s not just big-city papers; in Strategic Management of Nonprofits, Chevalier’s students look at the Belmont Voice.‌

Belmont, a Boston suburb, used to have for-profit newspapers, but those merged and got acquired and lost their local focus. In 2024, the Belmont Voice launched as a nonprofit because its founders believed that their town needed an informed public.‌

So I might not just pay my subscription to a nonprofit newspaper; I might also donate to them because I think my community should have a newspaper. So I think we’ve seen the emergence of nonprofit news in part because I think there’s an understanding that news is at a crossroads, that news is in crisis, and there’s a set of philanthropists that care that nonprofit news survives and are willing to pay for other people to consume news.

Most new newspapers are digital only, but the Belmont Voice decided that everyone should have access. So each Friday they mail printed papers to all 11,000 homes and businesses in town. This at the post office discounted rate for nonprofits. The decision to print made sense for a newspaper in a town with a strong donor base and older readers who maybe like paper better and a median household income of about $150,000. But every community has different circumstances and different needs. In the class, Chevalier asks her students to imagine what else local news could look like.‌

Think about another community in Massachusetts. I gave them one, which was a relatively low income community, and I said, if you wanted to launch a nonprofit newspaper here, what model would you use and what lessons can you take away from the readings we did and from the Belmont Voice to think about what would be a strategy appropriate to this particular community?

And what kind of things did students come up with?‌

For this one, there were a lot of interesting ideas around how to work the advertising versus donation piece and whether it should be online or whether it should have a print component. I think the community that we were talking about had a large immigrant population, and so, the students had a lot of interesting ideas about how to have reporters that were tapped into what was going on into these various immigrant communities. But I think one of the interesting money-saving ideas that a number of the students wrote about in their projects was different ways in which students in journalism schools could interface with news creation in order to create a sustainable staffing model for a nonprofit news organization.

Nonprofit newsrooms can also take a more collaborative approach to news, which was once known for its ruthless competition for scoops and exclusives. Just as the Belmont Voice sends out free newspapers, some nonprofit newsrooms will let others republish their stories for free. Why? Because more access to the news advances their mission. Remember, when it comes to nonprofits, the mission comes first. That means, as much as you might be attached to all the things you’re making, the stories you’re reporting, or maybe the plays you’re producing, they’re all in service of some goal. And if the work isn’t serving that goal, well, you might need to think about whether it makes sense to keep your project going.‌

So if my mission is to create audience experiences, there is a sense in which another entity that’s creating audience experiences and doing it better than I am, I should be in some ways happy about that because that is advancing the mission. I think it’s a brave and challenging thing for a nonprofit to recognize, “Actually, we’re not really serving our purpose anymore and we should shut down.”

Of course, shutting down a nonprofit will also have its complications.‌

When I donate money to a nonprofit, that money is in the nonprofit sector forever. It cannot come back out of the nonprofit. So if I donate to a food pantry that you’ve started up and then you decide you’re bored with this and you don’t want to do it anymore, you can’t just sell the assets and put them in your pocket and go away. You either have to run your food pantry until you don’t have any assets left, or you’ve got to find some other nonprofit to take the assets because, once I’ve donated money into the nonprofit sector and gotten my tax benefits of doing that, that money cannot come out of the nonprofit sector.

Chevalier is an economist and her research has looked at the markets for things like caskets or college textbooks. More recently, she’s been using data science to study things like vaccine distribution and the gig economy.‌

So for example, I have a set of papers on Uber drivers and how Uber and the Uber interface impacts drivers and how they use it.

She’s also interested in how technologies like Uber’s ability to match drivers and passengers are being adapted to serve nonprofits. Her SOM colleague, Vahideh Manshadi, wrote a paper about one nonprofit that can match perishable food with available volunteers.‌

It is the same kind of thing, right? It’s, I’ve got food that’s perishable, I’ve got volunteers, but if I didn’t have something to get the volunteers who happen to be free right this moment together with the food that’s perishing right this moment, I wouldn’t be able to make that transaction happen. So I’ve heard of other nonprofits trying to use similar technologies that are doing shared equipment for farmers. You can think of ways in which the technology, which is what I look at in my research, does enable two parties to come together and have a transaction that they wouldn’t be able to have, whether it’s a volunteer transaction or a market transaction.

Chevalier doesn’t only teach about nonprofits, she also serves on nonprofit boards, big and small. One, the Alfred P. Sloan Foundation, has a multi-billion dollar endowment that they use to fund research and education for economics and other STEM subjects. At the other end, there’s the Horizons Program at the Foote School in New Haven.‌

So it’s an interesting model where there’s a chain of independent Horizons affiliates at different schools around the country, and the idea is to use the campus of a private school during the summer for free programs that emphasize swimming, literacy, math, and social and emotional skills for kids who maybe wouldn’t have the opportunity for summer enrichment if it weren’t a free program.

Serving on boards has given Chevalier insights into how nonprofits run and what board members should bring to the table.‌

I’ve thought very differently about how you set expectations for board members when they join a board and what you want to tell them beforehand. And so, I think that the role of the nonprofit board, which is an important part of governing a nonprofit, I just think about very differently because I’ve been on a board. Many boards.

Chevalier also directs SOM’s Program on Social Enterprise, Innovation, and Impact.‌

The program is an umbrella program for a lot of impact activities here at the School of Management. One of the student groups that we work with is the Golub Capital Board Fellows Program. This is a program where students join a nonprofit board as a non-voting member for 18 months and help the nonprofit by bringing in their MBA skills and also learn about nonprofit governance in a very experiential way.

In fact, one of those fellows served on the board of the Belmont Voice, which was started by an SOM alum. Toward the end of Strategic Management of for Nonprofits, students work on a project.‌

A few students will propose a new nonprofit that they think needs to exist and pitch why it needs to exist. Other students will look at innovation in the nonprofit sector, critiquing strategies that nonprofits are using, or maybe look at a specific challenge facing a nonprofit or set of nonprofits. I have a student this semester who is very interested in misinformation and is thinking about what would be the structure of a nonprofit attacking misinformation. I’ve had students from various parts of the world thinking about pieces of their nonprofit sector that are missing. I had a student who was very interested in integrating disabled people into the workforce in her home country. I’ve had students interested in a nonprofit clearinghouse to help churches use their excess space and how to think about creating an app or an interface to make that work.

Thinking about my own media literacy project, I asked Chevalier what she tells people when they say they want to start a nonprofit.

Typically, when someone wants to start a nonprofit, I do say to them, “Let’s think about whether the landscape is already offering what it is that you think should be offered, because your mission is important, and it may be somewhat differentiated from what other people are doing, but there are certainly other organizations out there that are aligned with the mission that you are proposing, and you don’t want to start another one and crowd the landscape unless there’s a good reason to do it.”

I haven’t figured out whether my media literacy project should be part of a nonprofit, but now that I’ve talked to Chevalier, I’m realizing that may not be the right question. I think I had this idea that nonprofit somehow meant that it would be easier or require less money, or I wouldn’t have to worry so much about competition and attention. Now, I know that it’s going to have to prove itself and find a way to keep going however I proceed.

And if you have a project, you might want to think about, are you really doing something that’s original? Is this a problem that the market can’t solve, and what happens if you can’t make your idea sustainable? Well, sorry for making things more complicated.‌