We Can Do More Good With a For-Profit Model: The Lesson of Speed

I used to consult with nonprofits as part of a firm. What I’m about to write comes from my observations doing this work.

We can do more good and do it more quickly with a for-profit model.

Nonprofits aren’t bad, their model just has some flaws. A nonprofit has two tasks: to serve its cause or constituents and to raise money. A for-profit’s only task is to satisfy its stakeholders. The by-product of doing this well is making money.

A nonprofit doesn’t get to the ‘good’ fast enough. There’s a lot of preparation to get started on fighting the cause or delivering services. Nonprofits paid our firm to tell them how and where to raise money. They paid us to do the research and write the proposals. But they weren’t off the hook for time. They still needed to spend time with us on their programs, budgets and contacts. They still needed to woo grant-makers, find new ways to grab donors’ attention and write follow-up reports. All this time took them away from their mission and the cause they were fighting.

Think of a guy who decides to take up running. He spends the first weekend researching and shopping for running shoes. The second weekend buying running shorts, the third weekend mapping the perfect route. On the fourth weekend he goes (but only if it doesn’t rain). That’s how I see the nonprofit survival model.

Compare this to the guy who decides to take up running. He grabs the closest pair of shorts that he probably slept in, laces up the shoes he has lying around and walks out his front door. He’ll move his legs like runners do and figure the rest out from there. That’s how I see for-profit start-ups. Able to get to the mission quickly and willing to course correct along the way.

Which runner will be stronger, quicker and more knowledgeable about his activity in six weeks? I’m backing the guy who spends six weeks running instead of three.

I’m open to other ideas. Tell me what you think in the comments or email me, olivia[at]causecapitalism.com.

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  1. Steve Jennings March 25, 2010 at 11:20 am #

    “Nonprofits aren’t bad, their model just has some flaws. A nonprofit has two tasks: to serve its cause or constituents and to raise money. A for-profit’s only task is to satisfy its stakeholders. The by-product of doing this well is making money.”

    This post will be a wake up call for many, many social entrepreneurs and ‘non profit’ start-ups.

    501(c)(3) non profit is a tax status, not a business model!

  2. Heidi Massey March 25, 2010 at 12:05 pm #

    Steve and Olivia,
    Might be just the wake up call I needed…hmmmm. Scary thing to embark on…but “Just do it!” might be the rallying cry of the day. Overwhelming because, unlike running, there are so many pieces that need doing, many of which cost money-unlike just grabbing shoes and going. Just obtaining 501(c)3 status costs a significant sum when money is already tight.

    Glad to have you 2 as resources who continue to push from behind and pull from the front. Thank you! Now, where did I leave my running shoes…?

  3. Christine Guardia March 25, 2010 at 4:36 pm #

    Thought provoking post, Olivia!

    Dan Pallotta, whose company started some of the highest grossing fundraising “thons”, such as the AIDSRides and Breast Cancer 3-Day walks, wrote “Uncharitable” last year, a book that recommends nonprofits utilize for profit strategies. His website (http://www.uncharitable.net) has more information, including his speaking schedule (I highly recommend seeing him in person, if possible).

    Thank you for sparking an interesting discussion!

  4. admin March 25, 2010 at 5:20 pm #

    Christine: thanks. I’ll definitely check out his site! I know he’s speaking at the social enterprise conference in SF next month. Thanks for bringing more resources to the discussion.

    Heidi: It’s true. I know things aren’t typically as easy as I write them on paper. Is there a way to accomplish your mission through a for-profit model, skipping right over the need for a 501(c)3 (although I realize there are costs associated with both models!)? I’m glad we could push you. You’re always a driver for me.

    Steve: Thanks. How quickly can we launch this revolution? I’m thinking there’s even another uncovered sector–not for-profit, not non-profit, not even social enterprise, but a new model that allows organizations to sustain in other ways than pure profit or fundraising.

  5. Amy Carol Wolff March 26, 2010 at 10:19 am #

    Olivia, building off of Dan Morrison’s comment as it got me thinking last night.

    I would agree with Dan in that it’s less about speed but rather the opportunity to be efficient in the delivery of solid solutions. I would say that your argument would be more compelling if you focused on the fact that for-profit companies often have the resources to do the on-the-ground research sooner- or at least have the access to that research because they can simply buy it. Meaning they potentially have the opportunity to develop solutions- with an emphasis on development- sooner than non-profits do. But in your piece it’s almost as if you discount the need for research and true understanding of the art of “doing good” as you call it.

    The “let’s just get up and do something” mentality has actually been extremely detrimental in the developing world. It’s the mentality that fuels that mindset that crafted the MDGs and is the push behind foreign aid. As my good friend said a couple of nights ago- foreign aid has actually killed people. You have to take the time to figure out what is the best approach otherwise you’re just another voice in the crowd. Another organization that thinks it knows what it’s doing.

    I believe the call to action is much more complex than just “do something”. It involves a consideration of culture, politics, other actors. SMART strategy and fierce creativity. That kind of stuff is an art.

    Just some thoughts from a humble observer.

    Books I would check out: CK Prahalad’s Fortune at the Bottom of the Pyramid; Hernando De Soto The Mystery of Capital.

  6. admin March 26, 2010 at 10:56 am #

    Amy, thanks for your comment. Yes, my post was intentionally a little flip and simplified. The point I wanted to communicate was that a for-profit model (done well) provides for the money to sustain it through its services/mission. You nailed it when you mention “efficiency in the delivery of solid solutions.” The nonprofits I worked with were not focused on efficiency of the process (often they were focused at efficiency at the point of contact with their service populations, but not on the entire process…thus my comments about the time it would take to mobilize the resources to get to the “good stuff”).

    Research is important but it’s often seen as 2/3 of the solution. I spent a year doing development work in Micronesia and witnessed dozens of well-meaning NGOs and consultants meticulously research the problem and solution. The result? Their programs missed the mark with the local population. Instead, some initial research and then beginning a program and iterating as needed, in concert with the local population, would have been more sustainable.

    Thanks for your thoughts and for deepening the discussion.