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Challenge 37 in the series 50 Reasons Why It Is Hard to Run a Nonprofit
In 2010, the private equity firm Cerberus Capital Management acquired Caritas Christi, a nonprofit hospital system in Massachusetts. The promise was straightforward: private capital would bring efficiency, investment, and scale. The system was renamed Steward Health Care and converted to for-profit.
Fourteen years later, Steward filed for Chapter 11 bankruptcy — the largest hospital system bankruptcy in U.S. history. Here's what that looked like by the end: $9.2 billion in liabilities, $290 million in unpaid employee wages, nearly $1 billion in unpaid vendor bills, and five hospitals closed across Massachusetts, Florida, and Ohio. According to the Boston Globe, Cerberus netted approximately $800 million from its investment through management fees, dividend recapitalizations, and related-party transactions. A Private Equity Stakeholder Project analysis put the total extracted by Cerberus and Steward's CEO at roughly $1.3 billion.
If you run a nonprofit, that story should concern you. Not because Steward is unique — but because it isn't.
For-profit companies are moving into traditionally nonprofit service areas, and the pattern looks the same in sector after sector: private capital sees stable government funding streams, moves in with promises of efficiency, and extracts value from systems built to serve communities.
In childcare, KinderCare — backed by private equity firm Partners Group — went public on the New York Stock Exchange in late 2024. It serves roughly 200,000 children across more than 2,400 centers and reported $2.7 billion in revenue for fiscal year 2024, with over $1.3 billion in long-term debt at the time of its October 2024 IPO. A Congressional Research Service report examined private equity's growing role in large childcare organizations. Meanwhile, Colorado alone lost 347 licensed childcare centers between March 2019 and March 2024, according to Boulder Weekly — many of them small nonprofit and community-based programs that couldn't compete with well-capitalized chains.
In education, more than 1,100 for-profit charter schools operate across 26 states, according to the Network for Public Education. Research from the Thomas B. Fordham Institute found that for-profit charters spent less per pupil on instruction and achieved lower academic outcomes than their nonprofit counterparts.
The pitch is always the same. Capital. Scale. Efficiency. The results are often debt, service cuts, and communities left without the services they were promised.
I understand the anxiety. For-profit competitors bring advantages that nonprofits can't match on those competitors' terms: fast capital deployment, tolerance for short-term losses while building market share, equity compensation to attract talent, sophisticated marketing, and a willingness to close or cut services that don't hit margin targets.
When a PE-backed company shows up in your service area with a bigger budget and a shinier brand, it's easy to feel outgunned. It's easy to wonder whether the nonprofit model is actually viable — or whether you're running a horse-and-buggy operation in a Tesla world.
That feeling is understandable. It's also wrong.
The economist Henry Hansmann argued in 1980 that nonprofits exist in markets where consumers can't easily evaluate quality and must trust the provider. He called this "contract failure" — the idea that in complex services like healthcare, education, and social services, the buyer often can't tell whether they got what they paid for. In those markets, organizations that can't distribute profits to owners have a built-in credibility advantage.
That's not abstract theory. It's why parents choose the community-based preschool over the PE-backed chain. It's why patients trust the nonprofit hospital. It's why donors give.
Here are the structural advantages you should be pushing hard:
Community trust. When Steward closed hospitals and KinderCare closed underperforming centers, communities learned the difference between a mission and a business plan. Your organization doesn't abandon a neighborhood because the margins aren't attractive enough. That matters, and it's worth saying out loud.
Volunteer networks and donor subsidies. You access labor and capital that for-profits cannot touch. Volunteers, individual donors, foundation grants, and government contracts create a cost structure no for-profit can replicate. I wrote about this in my book — the financial architecture that lets you serve people regardless of their ability to pay market rates is something most nonprofits take for granted. Your competitors don't.
Tax-exempt status. This isn't just about income tax. Property tax exemptions, sales tax exemptions, and the ability to receive tax-deductible donations create real financial advantages that for-profits offset only through scale — and scale, as Steward learned, isn't the same as sustainability.
Mission credibility with funders and policymakers. Foundations rarely give grants to PE-backed companies. Government agencies increasingly scrutinize for-profit contractors in human services. Your mission isn't a marketing story — it's a structural feature that opens doors your competitor can't walk through.
Staying power. The nonprofit sector contributed 5.3% of U.S. GDP as of the fourth quarter of 2024, according to the Bureau of Economic Analysis. Nonprofits employed 13.6 million people as of January 2025, per Bureau of Labor Statistics data. This sector isn't fragile. It's one of the largest workforces in the country.
The economist Burton Weisbrod argued in 1975 that nonprofits exist to fill gaps that neither government nor markets serve well. When for-profits enter those gaps, they often discover why the gaps existed in the first place: the work is hard, the margins are thin, and the customers can't always pay.
If a for-profit competitor is operating in your space — or you think one might — here's how to respond.
Know your cost advantage and use it. Map where volunteer labor, donor subsidies, and tax exemptions give you a structural edge. Then make those advantages visible to funders and policymakers. You're not asking for sympathy. You're showing them math.
Double down on trust. Publish outcomes data. Open your financial statements. Invite community members onto your board. Trust is earned over years and lost in a news cycle. It's also the single hardest thing for a for-profit competitor to replicate.
Don't chase the for-profit's game. If they're competing on price and speed, compete on outcomes, access, and the fact that you'll still be there in five years. You serve everyone who walks through the door, not just the cases that pencil out. That's not a weakness. It's the reason you exist.
Watch the policy environment. For-profit entry into social services often triggers regulatory and legislative responses. Be at the table when those conversations happen. Your on-the-ground expertise matters more than their lobbying budget — if you show up. If you're trying to figure out how your nonprofit competes in an environment like this, that's exactly the kind of strategic question I cover each week in Nonprofit Good News Premium.
Tell the Steward story. Not as fear-mongering — as evidence. When a funder or policymaker asks whether for-profit models work in your sector, have the data ready. Nine billion dollars in liabilities and five closed hospitals is not an argument for the private capital model. It's an argument for yours.
Identify the three for-profit companies most likely to enter or expand in your service area. Look at your state's Medicaid managed care contracts, Head Start grantee lists, or charter school applications. Then ask one question: what do we do that they can't?
Write the answer down. That's the beginning of your competitive positioning — and it's probably more powerful than you think.
This is part of an ongoing series based on the 50 challenges outlined in Appendix 1 of Managing Your Nonprofit for Resilience (Wiley, 2023). Each post names one challenge clearly and offers a practical reframe with steps you can take this week. For deeper coverage of nonprofit strategy, risk, and resilience — including tools you can put to work immediately — check out Nonprofit Good News Premium.