Making a Profit: A Great Problem to Have

When you walk into most of the small, locally-owned businesses in my hometown, you will find a framed one-dollar bill. The bill is fixed to a certificate handed out by the local chamber of commerce announcing that this particular dollar bill represents the company’s first-ever dollar of profit.

I always found this a bit odd growing up. After all, isn’t the point of a business to make a profit? So you did your job! You’re not a failure! Congratulations! Really, are we honoring that?

It seems that many of us in the world of social enterprises would have the same reaction. We take profit as a given. Then we spend lots of time worrying about and quibbling over whether a social enterprise should be for-profit or non-profit. If it’s for-profit, should it distribute the profits to shareholders, be required to re-invest them in the business, or is it morally obligated to give them back to the community and/or to customers?

While the debate is generally healthy, I’d like to shatter the underlying assumption, if I could.

MAKING A PROFIT IS REALLY CHALLENGING WORK!

Ask any experienced entrepreneur, and they will tell you that this is the case. (If you are really well-connected, ask Mark Zuckerberg at Facebook, which still is almost certainly not profitable, or Sergey and Larry at Google, who needed several years to figure out how to make money off their amazing search engine.)

Making a product or service that is really attractive to a range of consumers is hard enough (nice NY Times article on that here). Making that product or service at a price point that people can and will pay is even harder. And then you have to find a way to provide it at a cost of goods that yields a large enough gross margin to keep you in the black even after overhead and taxes are taken into consideration.

Sound like fun? Rewarding, absolutely. Not always fun, and definitely lots of hard work.

Particularly in the social enterprise sector, where the whole point is to be able to operate under a different set of structures and incentives, outside the system of grants and donor charity, we need to NOT take profitability for granted. A recent Social Enterprise article on patient capital emphasizes this point. Reliance on some grant funding is still a necessity for many social enterprises. In general, we are still learning how social enterprises can thrive and still in the process of proving that social enterprises can consistently and sustainably turn a profit.

So if you’re a social entrepreneur, do yourself a favor. Focus first on creating a business that can make money sustainably, ethically, and profitably. If you’re successful, you can worry about what to do with the cash. That’s a great problem to have.

Image Source: businessweek.com, benzironen.wordpress.com