To-Profit or Not-to-Profit

Posted on Posted in Entrepreneurship, Social entrepreneurship

The post below is cross-posted with the website of the non-profit I helped to found, The Sustainability NEXUS, along with several other talented individuals.

Individuals, entrepreneurs, and companies across the world are re-examining the role of business in creating social and economic wealth. In a broad-based movement that has been building for decades, traditional delineations between “non-profit” and “for-profit” entities seem outdated, as companies adopt corporate social responsibility plans and NGOs move toward more business-based models of service delivery. Additionally, the economic downturn of the past years has forced thousands of individuals into the venture sector, as entrepreneurship has significantly increased in the face of high unemployment. It is a ripe environment for innovation in business models.

Any venture faces a set of choices upon inception: organizational structure; fundraising plan; collaborative partners, and more. The push to re-examine traditional business models has created vast new opportunities for businesses and ventures to pursue goals, but has also raised a whole new set of questions that can consume a lot of resources. How can for-profit organizations assure a social mission as part of the work? How can a non-profit pursue revenue-raising activities? Does acquiring and maintaining non-profit status interfere with more important work? Many ventures that bridge the goals of the triple bottom line (economy, environment, equity) can be weighed down, if not paralyzed, in the early stages of development just tackling these issues.

How to manage these decisions and growth? The Sustainability NEXUS is just such an organization in early stages, determining how best to structure for varied goals of education, fund-raising, and growth. For us, our mission of environmental + social entrepreneurship falls into both for-profit and non-profit models, while our goals of sustainability education for culture and infrastructure is probably more solidly non-profit. Our fund-raising goals for the NEXUS center pull us towards an investor-incentive model. So, we began doing the research, figuring that others had encountered this question. Using some market analysis (traditionally a for-profit activity), we found that to certainly be the case.

One great resource we found, which lays out the gamut of potential choices, is a recent article from the May 2011 edition of Inc. Magazine, entitled “How a Business Can Change the World.” Aside from the lofty profiles, there are very good, entry profiles of Social Entrepreneurship business models. Any venture, whether for-profit or non-profit, would benefit from reading through these and using them to affect your market analysis research and thinking. While a bit simplified, the article presents several types entities involved in the social entrepreneurship spectrum:

  1. For-profit corporations with a social mission. This includes highlighting the B Corp independent certification program, that have a social mission;
  2. Non-profit corporations, both tax-deductible and not tax-deductible, but in this category operating mostly through charitable donations;
  3. Non-profits with earned income, encompassing non-profits with business models that generate sales or money within the confines of the organization mission and boundaries;
  4. Hybrids, which would include combinations of the above, such as a non-profit umbrella with for-profit subsidiaries or partnerships.

The article focused on the concept of social entrepreneurship for these businesses, but this currently trendy keyword might interfere with some useful perspective. While an explosion of new models can potentially be labeled under the umbrella of social entrepreneurship, for-profit companies have been conducting charitable activities for years. A main difference, however, is removing the sole purpose of corporate existence to be profit, instead incorporating goals of social and/or environmental returns.

As we move through our growth, we will rely on the paths charted by others and likely chart some of our own. We will be tracking and discussing this growth, including the decisions and lessons encountered, as part of our mission.

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