Six Ways Non-Profit Entrepreneurs are Distinct from “Traditional”Entrepreneurs

A new report by Nonprofit HR found that half of nonprofit organizations hired new employees in 2014 and half are planning to hire at least one new employee in 2015. This rate will “outpace their corporate counterparts.” With more than 1.4 million charitable non-profits in the United States, non-profits have experienced tremendous growth in previous years. These figures show that creating new ventures that lead to job creation is not only for-profit entrepreneurs, but extends to the non-profit realm. A study by David M. Van Slyke and Jesse D. Lecy examining the demographics of non-profit entrepreneurs highlights some of their notable attributes. Below, I examine differences between “traditional” entrepreneurs and their non-profit counterparts using this study, as well as other research that examines traditional entrepreneurs.

Photo courtesy of Thomas Quine via Flickr.

1. Survival rates

The failure rate among non-profits is considerably lower than traditional entrepreneurial ventures. Among traditional startup businesses, about half survive the first five years. Comparatively, approximately 84 percent of non-profits survive the first five years. One explanation for the difference in survival rates could be the difference in revenue sources. Non-profits include universities and hospitals, which have built-in revenue streams, making them less likely to fail. Non-profits also include foundations, which typically already have the assets secured to be successful. Another reason why survival rates might be higher among non-profit ventures is the non-competitive nature of the industry. Non-profits are strengthened by interacting and sharing resources with other non-profits, and this collaboration could arguably booster survival rates of organizations that would have failed if they were for-profits.

2. Gender breakdown

The gender distinction between non-profit and traditional entrepreneurs is striking. Nearly 60 percent of non-profit entrepreneurs are women, while 41 percent are men. The opposite is true for new traditional entrepreneurs, with women representing 41 percent of traditional entrepreneurs compared to 59 percent of men.

3. Racial representation

A majority of both non-profit and new traditional entrepreneurs are white, although non-profit entrepreneurs are more likely to be white than traditional entrepreneurs. Seventy-four (74) percent of non-profit entrepreneurs are white, while 5 percent are black, and only 2 percent are Latino. Among new traditional entrepreneurs, 61 percent are white, while less than nine percent are black. Interestingly, 20 percent new traditional entrepreneurs are Latino; ten times the representation of Latinos within the non-profit sector.

4. Age of entrepreneur

Non-profit entrepreneurs tend to be older on average than their traditional counterparts. The average age for non-profit founders is 53, while the average age that traditional entrepreneurs start their first business is 40. Among new traditional entrepreneurs, only the ages 45-54 group experienced an increase in entering entrepreneurship. The 45-54 age groups represented 30 percent of new traditional entrepreneurs in 2013.

5. Educational level

Founders of non-profit ventures, on average, have much higher levels of education. Eighty-nine (89) percent of non-profit entrepreneurs have at least a bachelor’s degree. In contrast, only 31 percent of traditional new entrepreneurs have a college degree. Approximately one-half of traditional entrepreneurs have either some college education (26 percent) or are a high school graduate (27 percent); 17 percent did not complete high school.

6. Previous experience

Both non-profit and traditional entrepreneurs tend to have experience outside their field. Among traditional entrepreneurs, “more than half (55 percent) of entrepreneurs start businesses in industries other than those in which they had previously been working.” Similarly, most non-profit founders do not have prior experience in the non-profit sector. Non-profit founders tend to have more experience in the private sector or the academic sector than previous experience the non-profit sector itself. Sixty-seven (67) percent of non-profit founder teams had ten years or more experience the private sector, while 42 percent had the same experience in government and 39 percent had the same experience in the non-profit sector. Thirty-three (33) percent had a decade of experience in government.

Although non-profit entrepreneurs and traditional entrepreneurs have demographic differences, they have similar motivations to become entrepreneurs. Both types of entrepreneurs are often driven to begin their own ventures because they see a gap to fill and a need to meet. The two realms would benefit from learning lessons from the other. For example, while non-profits are often urged to become more “business-like.” However, given that non-profit ventures tend to have higher success rates, for-profit businesses might gain some insight from non-profit entrepreneurs on how to best sustain long-term survival.