Over the last year, we have been thinking about what it means to be a nonprofit as we have embarked upon a diversification strategy for SCAN Group, the nonprofit organization we work for.
The exploration has forced us to ask some difficult questions: How do we ensure we are not straying from our organization’s original mission? How do we balance the goals of achieving societal benefits with financial sustainability? How do we ensure we are building organizations that will make a lasting impact?
To answer these questions, we created a set of principles to guide our diversification journey.
1. As you reinvent yourself, use your mission as a guiding light
For organizations that haven’t experienced significant, rapid change in recent memory, transformative change can be tumultuous and destabilizing. Using mission as a North Star can create a link between your organization’s historic background and the current state of reality. It can help your organization determine whether to pursue expansions or acquisitions. Further, if the mission remains at the center of these decisions, messaging about them to internal and external stakeholders will be close to frictionless.
2. The external market is the ultimate arbiter of quality
Successful organizations live and die by this concept, and organizations born out of nonprofits are no different. From Day One, all new diversified organizations must be market-facing. The market forces organizations to constantly adapt and evolve their product offerings based on real-life market needs. This principle helps avoid the trap of complacency.
3. Returns matter, but not as much, and they don't matter in the short-term
Given that a nonprofit’s goal is to first and foremost achieve societal returns, achieving venture-capital-type financial returns shouldn’t be the target, but you also can’t sustain money pits. Achieving mid-single-digit financial returns over a 15-plus-year time horizon is a luxury and frankly a necessity in healthcare. Impactful healthcare businesses take a long time to create real value.
4. To make an impact, you need high-quality talent
In this competitive labor market, it is necessary to borrow a page out of the venture capital playbook and establish equity pools for your for-profit diversified businesses. Structuring equity pools to allow for investors to own an organization in perpetuity is an element that must be wrestled with.
At SCAN, we’ve lengthened vesting periods and are allowing management teams to get bought out of their vested equity over a long time horizon based on predetermined success metrics. This structure has allowed us to recruit individuals who want to make an impact without significantly sacrificing earning potential.
5. Balance the need for control with the need to be nimble
Large, nonprofit healthcare organizations in highly regulated markets must have processes, policies and procedures that allow them to operate within certain bounds. Entrepreneurial teams, on the other hand, must be nimble in order to evolve a fragile idea into a business. In governing your diversified organizations, it is crucial to delegate ample decision-making to organization-specific boards and management teams. You also must come to terms with the fact that smart, diverse minds increase a business’s chances for success—strategic investment partners are key to amplifying impact.
We refer to these principles often and hope other nonprofits that are building and investing in emerging healthcare organizations will too.
Binoy Bhansali is corporate vice president of corporate development at SCAN Health Plan. Sachin Jain, M.D., is the CEO of SCAN Group and Health Plan.