For-Profit By Default?

Published March 26, 2009 @ 07:57AM PT

An example of a base-of-the-pyramid (BOP) focused business on wheels, from Pedaleadas

There is an interesting expectation switch that seems to be playing out at the Skoll Forum. The default question when someone talks about their social venture is for the person their talking to ask something to the effect of "why not make it for-profit?"

Now this is certainly not universal, but there is an interesting recognition forming that if an organization is providing valuable services, it may be more sustainable in the long run to have the revenue stream be more closely aligned with the people who are recieving the services. An interesting example is a project supported by Innosight Ventures that is basically a washing machine business-in-a-box. The idea is that washermen in India, instead of taking people's clothes, washing them in a river and returning them a week later instead now have access to a washing machine on wheels that allows them to charge the exact same price but take on more clients because their job is now done in about a day. The firm made its money back in six months and is now getting a healthy return.

This doesn't mitigate the need for checks, and there are still lots of organizations who use the nonprofit status to affirm their mission-focus. It could have been a nonprofit, for example, that started that washer business and just plowed the profit into expansion. To some extent, this is the model that the Acumen Fund has taken, I believe. It also becomes a lot more complicated in those instances when the goods or services being distributed tend into the area of rights: health, education, etc.

My instinct is that the field that has dealt the most with this is micro-finance. There are both good and bad nonprofit and for-profit models of microfinance. In my work in Uganda, I've seen for-profit microcredit firms where the "sustainablity" argument (that for-profits are more sustainable) bears out, but I've also seen communities who view some of those firms as fundamentally extractionary and are working to create local alternatives.

Either way, it's fascinating to see so many folks who are asking "why not" be a for-profit rather than the other way around.

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Comments (2)

Glad to hear about the conversation! We launched http://www.buythechange.com as a means of leveraging local commerce to strengthen communities. We've been a for-profit from day 1, even though 1/3 of our revenues go back to local non-profits as chosen by our members. It was important to us to build a sustainable model of business as a tool for social change.

We believe that if there is to be lasting social change people need to understand the connection between their values and how they spend their money. We help them spend it in a way that strengthens their community. While there certainly is a place for non-profit organizations, we're advocates for a middle ground "fair-profit" model that sustains itself through profits while fairly compensating the resources (human, environmental, etc) that contribute to the profit.

Capitalism is a powerful force in the world and leveraging it for social good can have tremendous impact. I'm still struggling with the concept that someone can be an "entrepreneur" without some level of profit motive.

Thanks for furthering the conversation!

Posted by Zack Steven on 03/26/2009 @ 10:49AM PT
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It's where we came in too, first with a "what if" white paper defining a model for a profit for purpose business and the re-election committee for the US President provided the opportunity.

http://www.p-ced.com/about/history/

It led on in 1999 to sourcing a development project and microfinance initiative in Russia.

http://www.p-ced.com/projects/russia/

In 2004, we emerged in the UK as a profit for pupose software business funding a mission in Eastern Europe that persuaded a government to adopt new policy on institutional childcare and adoption.

http://www.p-ced.com/projects/ukraine/national/

Join me on Linkedin in the group Social Business and Creative Capitalism

http://www.linkedin.com/groups?home=&gid=80184

Jeff

Posted by Jeff Mowatt on 03/29/2009 @ 11:01AM PT
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Author

Nathaniel is the founding Director of the Center for Global Engagement at Northwestern University, which works annually with hundreds of students in dozens of countries around the world through curricular programs and student project incubation.