Nonprofits Can Build Risk Tolerance By Permitting Failure

Question markThe following post is adapted from “What’s After Next?: How Innovative Chief Executives Use Entrepreneurial Techniques to Lead and Motivate Their Staff and Volunteers to Succeed,” by Paul Lagasse, Advancing Philanthropy, Winter 2016 (reprinted with permission) You can read the whole article here.

Hybrid nonprofits—organizations that blend business management principles with mission-driven social outcomes—are a natural fit for energetic, visionary leaders. Their emphases on accountability, transparency, and measurable outcomes are in sync with today’s business-savvy, data-driven donors who are more likely to view their gifts as social investments. And increasingly, business leaders are encouraged to join nonprofit boards as much, if not more, for their fiscal and managerial acumen as for their wealth and connections. Successful leadership of hybrid organizations requires executives to possess a different suite of skills than they were required to have just a few decades ago, and that can be a challenge for even the most visionary leader.

One of the most important requisite skills for an entrepreneurial leader, and one of the most important concerns raised about hybrid nonprofits, is a tolerance for risk. Investors give their money to for-profit companies knowing that the venture may fail and that they may not see a return on their investment. Donors, on the other hand, have traditionally given their money to nonprofits with the expectation that their gift will see a return—not for them personally, but for the program they have chosen to support and, by extension, the community at large. Is it therefore unethical for a nonprofit to take risks?

“Probably one of the most important things for a leader to do in order to encourage risk taking is to allow people to fail,” says Lisa Petrides, Ph.D., CEO and founder of the Institute for the Study of Knowledge Management in Education (, a nonprofit research organization in Half Moon Bay, California, that supports the development of innovative teaching and learning practices through continuous learning and collaboration. Petrides calls it the “WD-40® approach,” after the popular lubricating and water-displacing spray whose name refers to it having been the 40th attempt at a successful product. “They embraced their failures,” Petrides observes. “They built the story of their failure into the success.”

Similarly, Petrides argues, entrepreneurial nonprofit CEOs should encourage a culture of risk and accountability throughout their organizations. Accountability is important. Leaders must still be able to demonstrate impact to donors, as they always have done. With sound metrics in place, an organization can use the outcomes of both its successes and its failures. “Metrics have to have built into them enough flexibility to encourage learning from your mistakes,” says Petrides, who credits the approach with sustaining the organization through the recession, as well as through a shift to create a sustainable business model for the nonprofit. “Successful or not, I always ask, ‘What worked, what didn’t work, and what have we learned because of it?” she says.

Author: Paul Lagasse

Paul Lagasse provides expert-to-expert communications services to nonprofit, business, and government clients in the metro Baltimore-DC area. Specialties include science and medical writing, technical report editing, and content marketing.