Non-Profit, For-Profit, or Something in Between?

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Image Courtesy of David Castillo Dominici at http://www.freedigitalphotos.net

 

When you want a problem tackled, possibly even in a creative way, who do you call? A non-profit. In this new world where we evaluate everything for usefulness, some people are questioning whether non-profits should exist, and if they do for how long. [1] Some say if you want to solve a social ill there is no reason to do it if you can’t make money at it. When it comes down to it, Non-profit and for-profit businesses are not all that different. They both need money to run, They both need to make their boards happy. It is just that a non-profit is working toward a goal that in the end may not pay their bills, so they need to count on outside donors to cover the TP, coffee, and pay the boss. They also get tax breaks, which is one of the biggest incentives for being a non-profit.[2] In return, according to the rules, your profit is not your own. A lot of the criteria we use to judge how much we want to support a non-profit and how saintly its motives are revolve around making sure those who work within the organization don’t get more than their fair share.

What is a non-profit?

Non profits have distinct differences from other types of organizations. Here are examples of some of the differences. [8]

  1. They have an altruistic purpose – While the sole purpose of a non-profit is not to make money, they are surely not against it, and they do need to cover their expenses and hopefully grow in the pursuit of their mission. The main purpose is to support the chosen cause, however, and not the money made, as is the case in the for-profit business.
  2. They are not owned by one person – Non profits are, in a sense, owned by the community. The assets, and even the pens and staplers, are dedicated to the cause, and can’t be given to anyone in the company with out selling that item at fair market value. If the non-profit folds for whatever reason, any assets must be given to another charity.
  3. The non-profit is controlled by a board – Even the person who came up with the ingenious idea for the non-profit does not have final say. The members of the board must work together to come to decisions that reflect what is in the best interest of the cause.
  4. Non-profits are accountable to the community – In the interest of being transparent non-profits make information available yearly to the government and the community. [8]

As a culture, we have, for the most part felt that doing good for others involves sacrifice. Volunteering often means doing something that isn’t your favorite thing to do, or doesn’t pay money. The payoff is a warm fuzzy feeling in your heart when you walk away from a job well done and people helped in some way. We demonize companies that claim to do good work when their leaders make more money than an average middle class family. Are we correct in thinking the best way to help others is by giving and donating, or could it be that a company turning a profit may be the best way to help certain social problems?

What should be done about zombie non-profits that live beyond their true usefulness? If they continue to exist after reaching their stated goal does that mean they are continuing good work, or does it mean what is left behind is a less focused, more inefficient shadow of what they once were. The March of Dimes is a prime example of an organization that actually met its original goal (eradicating polio), then refocused and still continues to exist. [6] When looking at the current rating for the March of Dimes on the site “Charity Navigator” [7] it looks as though this charity gets high marks for being transparent, which is a wonderful quality, but very low marks for financial efficiency, leaving it with an overall score of two out of four stars. Whether that can be connected to the long winding path the March of Dimes took is hard, to say, but worth looking into.

What is success for a non-profit?

Believe it or not the question of the success of non-profits is not so easy to answer. Fidelity Charitable points to clear goals and effective organization as keys to success. [9] Even if you have those key attributes what will success look like? Different people value different parts of the non-profit. Here are a handful of ways to look at non-profit success.

  1. If a charity is fighting a specific disease, and the disease becomes uncommon, non-existent, or easily treatable, does that 1. Reflect well on the charity because their goal was met, 2. Have nothing to do with the charity because it is more closely associated with advancements in science than money raised, or 3. Become a negative thing for the charity because it questions their future usefulness for a disease that currently poses no threat.
  2. On another front, is a charity considered a success because their concrete goal was to distribute bed nets in Africa and they distributed all of their bed nets? Why were the bed nets distributed? Were they trying do keep people from getting malaria? If that was the case shouldn’t their success be connected to the incidence of malaria outbreaks in the region where the organization worked. Also, if the numbers for malaria are used as indications of success, how much can a downturn in malaria be attributed to the actions of the group?
  3. Many charities are considered successes if a high percentage of their donations go directly to the cause they support, and not to building rental and salaries. This can be relatively easy to gauge, because non-profits are required to be transparent. Is this a milestone similar to the excitement we feel when babies walk early: something that is good, and people like to brag about, but doesn’t necessarily point to any great future achievement on the organization’s or baby’s part?

 

To put it simply, should the judgment of the organizations’ success be based on overall trends in the area they are working, on the specific goals the organization has set for themselves, or a combination? Needless to say a bulleted list would not do charitable success justice.

 

A Modern approach to charity:

 

To start off a discussion of modern approaches to charity let’s listen to what Dan Pallotta has to say in this Ted Talk: [9]

 

 

Trying to decide whether to be for profit, or non-profit can be a tricky turning point for an organization. The shoe company, Toms, decided that for profit was the way to go. Toms [3] was started by a guy who didn’t know shoes, but knew business. He decided to make a profitable business, but for every shoe he sold he gave one away. Up to this point The owner of Toms, Blake Micoski [4], has stuck to that plan, and the company has given away 45 million shoes to people worldwide. While on the surface that seems like a great thing, he is not without his critics. [5] Social entrepreneurs like him find creative ways to make money, while doing good along the way.

This case study of a specific organization shows some of the thought process behind making the decision of what kind of organization to run. [10] [11] The idea of innocent non-profits and charities and greedy monster corporations isn’t always accurate. It seems that a better measure of which organizations are actually helping needs to be based on real measurements, and shouldn’t be colored by instinctual biases. Look at the way statistics helped Esther Duflo make her charity work more effective. [12]: http://www.ted.com/talks/esther_duflo_social_experiments_to_fight_poverty

 

So it would seem that, like among people, one can’t judge a good deed by superficial means. Solving problems is not so simple as handing out shoes, or donating to an organization that doesn’t pay its staff well. Maybe the best way to eliminate social ills is by making sure that whatever one is inspired to do makes sense financially and in results. Maybe a more scientific approach to heartfelt actions will lead to more effective and long-term results.

 

But where does that leave us who want to spend an afternoon doing good, or send our spare $20 to a place that can do something good in our stead? Maybe that means we need to do a bit of homework. Or maybe we need to let go of our assumptions that charity requires sacrifice, in preference of the idea that charity does good work, no matter what type of business it is.

  1. “Why Charities Should have An Expiration Date”, By Nancy Lublin, December 2010, Fast Company Magazine, http://www.fastcompany.com/1702245/why-charities-should-have-expiration-date
  2. “‪What is the difference between a nonprofit organization and a for profit business?” by Alex Genadinik “Start and Grow Your Business” Published on Jan 7, 2014 on youtube
  3. https://www.youtube.com/watch?v=fhv54GvoBZI, Amazon author page: http://www.amazon.com/Alex-Genadinik/e/B00I114WEU
  4. http://www.toms.com
  5. ” The Way I Work: Blake Mycoskie of Toms Shoes”, as told to Tamara Schweitzer, INC. Magazine, published on June 1, 2010, http://www.inc.com/magazine/20100601/the-way-i-work-blake-mycoskie-of-toms-shoes.html
  6. “ Tom’s shoes: Does Buy-One-Give-One Work?” A radio interview with Amy Costello, March 29, 2012, http://www.pri.org/stories/2012-03-29/toms-shoes-does-buy-one-give-one-work
  7. March of Dimes.International Directory of Company Histories. 2000. Encyclopedia.com. 22 Dec. 2015 <http://www.encyclopedia.com>.
  8. Charity Navigator report card on the March of Dimes: http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=4045#.VnoF4Xg-MaI
  9. “How is a Non-Profit different from a For-profit Business? Getting Beyond the Myths” By Joanne Fritz, on About.Money.com, updated October 31, 2015, http://nonprofit.about.com/od/qathebasics/f/nopvspro.htm
  10. “What Makes and Effective Non-profit”, 2014 Exponent Philanthropy, http://www.fidelitycharitable.org/docs/What-Makes-An-Effective-Nonprofit.pdf
  11. 10.“The Way We Think About Charity is Dead Wrong”, Dan Palotta, March 2013, http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong
  12. “A Social Entrepreneur’s Quandry: Nonprofit or For profit? By Esha Chhabra, July 10, 2013, The New York Times, http://www.nytimes.com/2013/07/11/business/smallbusiness/a-social-entrepreneurs-dilemma-nonprofit-or-for-profit.html?_r=0–
  13. A Social Entrepreneur Transforms a Nonprofit Into a Profit-Making Enterprise”, By Esha Chhabra, July 15, 2013, The New York Times You’re the Boss blog, “http://boss.blogs.nytimes.com/2013/07/15/a-social-entrepreneur-transforms-a-nonprofit-into-a-profit-making-enterprise/#more-77081
  14. “ Social Experiements to fight poverty” a TED talk by Esther Duflo, filmed February 2010, http://www.ted.com/talks/esther_duflo_social_experiments_to_fight_poverty

Other Sources

 

  1. If you missed all of the financial details about Non-profits, here is the direct link to your friend, the IRS. https://www.irs.gov/Charities-&-Non-Profits/Other-Non-Profits
  2. Four experts debate whether charities are more effective than the government on the New York Times Opinion pages. http://www.nytimes.com/roomfordebate/2012/11/27/are-charities-more-effective-than-government/voters-not-tycoons-should-set-priorities
  3. “How do We Measure Nonprofit Effectiveness?” by Nell Edginton on the website “Social Velocity” October 2012, http://www.socialvelocity.net/2012/10/how-do-we-measure-nonprofit-effectiveness/
  4. If you are interested in the history of Non-Profits, This article by Shannon Laliberte Parks should enlighten you. https://shannonlaliberteparks.wordpress.com/2009/09/21/history-of-non-profits-in-america/

 

Questions

 

  1. What is one of the most meaningful volunteer experiences you have had and why? If you have not had many volunteer experiences, is there a charity or non-profit that really touches your heart? Why?
  2. What are some of the biggest problems standing between those who need help and those who want to offer it?
  3. What do you propose is the best way to bridge that gap? What is the best way to not just alleviate but get to the root of the problems we face as a society? How can an organization best address that?
  4. If you were to begin an organization to address a problem you see in society what would that organization look like and why? Would you have very many staff? How would you define and address the goal you have for the organization?
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