Social entrepreneurs create initiatives to address our society’s most pressing challenges – by using innovative, entrepreneurial approaches – with the ambition and primary goal to create a positive impact.
At the edge of charities AND innovative startups, the question of “profit making” is central when designing one’s social business.
As a consultant for (aspiring) social entrepreneurs, I see most people want to make a living out of their social enterprise, but feel uncomfortable with the idea of creating a profit-oriented business. Most common ideas I encounter are:
– “Money” and “for good” are contradictory
– I don’t feel comfortable charging money for something I love/really want to do
– Generally, this type of initiative is run by not-for-profit organisations
– People expect this will be free
– My beneficiaries cannot afford to pay anyways
– It will be easier to get grants from the government if we are a not-for-profit
– I don’t do it for the money, all I care about is the social impact
In this article, I want to share with you my arguments why I think for profit is better than not-for-profit. Now, you are free to choose the model you are most comfortable with, however I hope this will make you think twice before basing your social business on a not-for-profit business model ;)
Your social business will HAVE to be efficient
I agree, it is much more difficult to raise money as a for profit entity. Less grants are available, and traditional investors are still shy about for-profit-but-not-only enterprises. However, this is a short term challenge that should not prevent you from looking at the bigger picture.
No matter your country, or political opinion, I am sure you will most likely agree that governments are much less efficient than private companies at delivering a service. Yes it cost less for the beneficiaries, but it also is WAY slower, innovative and forward-looking. And I am not even mentioning the smile issue ;) Because not having to make profit makes institutions lazy! That’s all.
Bon OK, you might not share my opinion 100% (that’s why it is called an opinion ;). However I am sure you can project yourself in this example.
Option 1 : you get 10 000€ from the sky. You will be cautious, spend it wisely, not waste it, make it last as long as possible.
Option 2 : you need to sale stuff to earn 10 000€. You will be adventurous, take risk, innovate, distinguish yourself from others, work more then needed with enthusiasm, find ways to make thing happen fast and efficiently.
Now, what do you think is better for impacting your cause? Being cautious or adventurous?
Overtime, you’ll be able to invest more for your cause
Generating profit is the best way for an initiative to be self-sustainable, as it does not need to rely on grants or donations. Also, once the break-even point is reached and if you manage to keep your marginal cost (=cost per item produced/per client served) as law as possible, the profit generated will allow you to re-invest in your social business. Innovate, improve, expand, and even scale up internationally. Money will not be a limitation / a “cost” anymore, it will become a drive for opportunities. If you still think money is “bad”, do it for the sake of your cause then ;)
Free is not (always) a sustainable answer
It’s the story of the fish. Giving a fish to a hungry person is not a solution, it is a way to feel good about yourself. Teaching how to fish is a real answer. And Bill Drayton famously added that, beyond teaching how to fish, “social entrepreneurs will not rest before they have revolutionized the fishing industry.”
Not-for-profit social businesses tend to provide services for free, which is not always as “sustainable” or “helping” as it seems.
Take Toms for instance. Arguably the most famous social enterprise who made the one-for-one business model mainstream, they are also largely criticized all over the Internet. Is providing free shoes for children in developing countries a sustainable solution, as it also kills the local industry by competing directly with local shoe-makers?
Less clients/beneficiaries, but a more a engaged community getting better results
Here I will share with you a personal experience. When I started as an independent consultant, I did a couple of project “for free”. My best friend actually has been my very first laboratory rat ;) The social entrepreneurs I helped got good results..but nothing compare to my paying clients. Why? Because those who pay for my services make the most of it to reimburse their investment! They never cancel a session, do their homework, come up with sharp questions, feel motivated to achieve as much as possible during the 3 to 6 months we spend together.
Yes, I help less people then if I was helping everyone for free. BUT my community is much more engaged, and gets much better results faster!
This can apply to any social business. Weather you want to help, educate, share, connect.. making people pay for this service will keep away those who are not truly motivated! Between quantity and quality, I choose quality.
Money is a natural motivation for human beings, be honest ;)
This last one is for those of you who believe they are not money-motivated. Actually, I also believed I was not motivated by money (especially when comparing myself with other alumni from my business school for instance). One day, as I was looking for my first job, a career-advisor told me something I will never forget. He asked me how much I wanted to get as a salary, to which I answered it did not matter as long as I had a job I liked. “Big mistake!” he said. He then explained money is not just a way of providing for our basic needs, it also is a natural way for human beings to be motivated, as it greatly influences our self-esteem.
Imagine earning much less then your parents did while you where growing up. Much less than what you consider as your “social class”. Much less than the friends you want to hang-out with and go on holidays with. Much less than the partner you build your family with. If it is bearable for a while, over-time it can really damage one’s self esteem. Without self-esteem, no motivation. Without motivation, how do you expect being persistent enough as an entrepreneur?
Food for though: hybrids model exist as well! Some not-for-profit institutions develop services for certain type of paying customers, while for profit institutions may provide free/widely accessible (small) feature to enlarge their impact. It is all a matter of creativity :)
Solène is the Chief Empowerment Officer of Creators for Good.
She developed a methodology that allows Global Citizen to start and grow their own impactful businesses from anywhere in the world – and with no need for investors or government support.