It’s true that many social entrepreneurs enter the space, often from the non-profit sector, with the intention of doing good, first and foremost. Making a profit is a secondary concern, if that, and the idea of focusing on profitability can even make some social entrepreneurs quite uncomfortable. However, if social entrepreneurs want to be successful, they CANNOT shy away from the idea of profit. They must learn to embrace profit and appreciate it for what it is, a means to an end. Specifically, here are three more reasons to embrace profit:
- You need cash! Social enterprises, like any other company, need a cash base from which they can operate, particularly when times get tough. When you’re in startup mode, it’s easy to think that profitability is a hurdle you only have to overcome once. In fact, it’s foolish to think that, once established, any flow of profit will be constant. Recessions, competition, strategic mistakes, failure to innovate, etc. can all create periods of un-profitability for a company. When these periods hit, you’ll need cash reserves from past profits to draw on to ensure survival.
- Profit is not simply a tool for enriching founders/owners. Cash from profits is fungible. In other words, it can be used in many ways, and it is. While it’s common for people to believe that profits go straight into the pockets of founders or investors, this is most often not the case. More common is for profit to be reinvested in the growth of the business. Microsoft, for example, did not pay a dividend to shareholders until 2003, almost thirty years after its founding. Bill Gates and others were, of course, getting rich in the meantime, but their wealth was largely tied to Microsoft’s share price and not a result of kickbacks from the company’s earnings.
- Profit does not equal price gouging. People don’t generally buy products or services because they are forced to. Indeed, wherever markets are reasonably competitive, we should assume that transactions happen because they are mutually beneficial. In other words, people buy something at a particular price because they value the good or service enough to spend the money on it. Even though social enterprises often target the poorest of the poor, we must hold the same to be true in those markets. As long as social enterprises are able to find customers at the price they’re asking, we should assume it is because customers value their wares. That makes the exchange fair, even if it does yield a profit.