I’ve been doing some thinking lately about business
structures, specifically around my organization’s UnCommon Sense sustainable operations leadership program. This
program is operated under the umbrella of The Yellowstone Business Partnership,
the non-profit for which I’ve worked the past 6 years. It’s a two-year peer
support program for businesses, local governments and organizations seeking to
operate more efficiently and responsibly. When I stop to think about it, it’s a
non-profit doing great work and it’s
also a business. We have participants that pay a tuition fee and partnerships
with grantees (revenue), and we have staff and workshop costs and materials and
overhead (expenses). Applying my prowess for complex, higher mathematics, at
the end of the day (year, etc.), if our expenses are greater than our revenue,
we’re not going to be around for very long.
I have always been drawn by nature to the concept of non-profit work. Non-profits are generally mission driven and have a “greater good” mentality that aligns with my personal values. Non-profits don’t pay taxes, but they also can’t use profits for anything that isn’t in line with the mission. The terminology “non-profit” is misleading, though sadly reality for many of us. Being a 501(c)3 does not mean that your organization can’t make a profit. Indeed, it must make a profit, or at least break even, to stay alive and continue to do their work.
Does being a “not-for-profit” lend an air of credibility?
According to the Ivey Business Journal’s research
on why Canadian companies aren’t more sustainable, “Claims made my some
businesses and NGOs regarding sustainability are perceived to be credible,
whereas others are met with skepticism or disbelief. The different reactions
are likely related to attributes of the organization making the claims—its
size, its structure, its actions, or its motivations…Companies want to know how
to communicate their message credibly, so the integrity of their efforts is
clear…One manager noted: “Polls show people consider academics and NGOs more
credible than corporations and government.”
A business’s primary purpose, in the conventional sense, is
to turn a profit and to create maximum value for its shareholders, everything
else be damned. Until recently, the only way to get around this was to
structure your organization as a non-profit, so you could have the “freedom” of
being mission driven and not be beholden to the financial bottom line. Today many
companies are challenging that single bottom line mentality and expanding their
responsibility list from shareholders (those that have a financial stake in a
company) to stakeholders, including customers, communities, flora/fauna, and
even the Earth itself. This allows them to make business decisions beyond just
what is financially the most profitable. A new corporate structure called a B Corporation enables corporations to be
purpose driven and create public benefit for all stakeholders, not just
shareholders. The B Corporation declaration of interdependence states:
·
That all business ought to be conducted as if
people and place mattered;
·
That, through their products, practices and
profits, businesses should aspire to do no harm and benefit all; and that
·
To do so requires that we act with the
understanding that we are each dependent on one another and thus responsible
for each other and future generations.
For fun, I did a quick google search on “for profit vs.
non-profit” and came across a great Harvard
Business Review article on the subject. The author (Jane Chen) outlines the
fundamental difference between a for-profit and non-profit organization is how
it can source capital. “A for-profit can raise money from private investors,
for which it must give equity or dividends to shareholders; ultimately, a return
on investment is expected. A nonprofit, on the other hand, can seek donations
from individuals, foundations and corporations. Such stakeholders generally
expect a “social return” on capital.” I wonder if UnCommon Sense could be structured in such a way to provide a
combination—a financial return on investment from savings from more sustainable
operations, and a social return by quantifying the collective benefits from
each participant’s actions?
The article further describes the ways they tried to run
their non-profit like a business: sell products/services at a margin and
reinvest any profits back into the organization to fulfill long-term goals.
This is easier said than done, as they discovered, and ended up created a
for-profit arm that was a spinoff from the mission-driven non-profit, whereas
the non-profit retained ownership of the intellectual property and through
philanthropy could provide their product to the poorest communities that needed
it, and the for-profit arm that raised money from venture capitalists and was
responsible for capital intensive aspects of the work and setting up
distribution networks and selling at a premium to those that could afford it.
This sounds like the best of both worlds, if it’s done well,
and certainly an option that deserves further exploration. Chen’s final
paragraph solidified this: “Making social impact requires innovative thinking,
not just in terms of developing a new product or service, but also in terms of
organizational structures and mechanisms for raising capital. The challenges
that social entrepreneurs are trying to solve are some of the most formidable
problems in the world, in areas with significant market failures, poor
governance, and a complete lack of infrastructure. Effectively tackling
problems in this environment may require leveraging both capital and expertise
from grant makers and private investors alike. Ultimately, social enterprises
should not be confined to a single type of legal structure. The most important
part of choosing the right structure is starting with your mission, and then
adopting a structure that allows you to best achieve it.”
Interesting comments, Heather. Thanks for laying this thought process out. I never knew, for instance, about the "B" corporation. And I like the idea of using a hybrid model for UnCommon Sense. Is that something you plan to pursue, or just a musing of the mind?
ReplyDeleteHeather,
ReplyDeleteThanks for posting this, I think it is interesting because I always want the best of both worlds in most every situation! Wouldn't that beat all if we could achieve that? I wonder how many people began their business non-profit and for one reason or another had to change to a profit driven company? It seem that for Uncommon Sense, this model could be a great fit. I appreciate that you bring to life the realization that if companies hope to be a dynamic, healthy, and reliant company, they will need to become a learning organization; one that can engage multiple concepts and practices at the same time, even though they may be from different or (perceived) contradictory ideologies.
Thanks for the post, Heather. I think about this exact conundrum all the time which reminds me that you and I have very similar professional directions and visions. Let's talk more about this space of how non-profits can be more effective, strategic, and successful. I am deeply interested in working in the space of non-profit evolution and transition. I appreciate how you outlined the key components of this work, how it can be successful, and how to incorporate these goals into your current organizational structure and alp project.
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