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.
Contributor Profile: Mike Shoemaker
Mike is a graduate of St. Olaf College in Minnesota and a former Fulbright Scholar at the Universidad de los Andes in Bogota, Colombia. Mike currently manages strategic alliances for a global consulting firm, is a volunteer and advisor to The Ayllu Initiative, and blogs at Human Ventures.
Twitter: @soccapital
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Here's an illustration of for profit social enterprise applied to leverage social change:
http://people-centered.net/About.aspx
Your article confirms the need for the new L3C law that goes into effect Jan, 2010 in Illinois and is already in effect in several other states. If you are on LinkedIn check out the L3C Connect group to learn more.
Your article confirms the need for the new L3C law that goes into effect Jan, 2010 in Illinois and is already in effect in several other states. If you are on LinkedIn check out the L3C Connect group to learn more.
Can I propose the Buesiness structure that creates an aditional USP so
you can beat any competitors in the field.
You have many identical competitors and this in one pivotal way to
create a USP that will enable you to beat them. If so I would love to
work with you to enhance your business.
I would like to propose a way
to create an additional USP that will benefit* your company by creating
the cumulative mass needed to make your business a success by donating
100% of your companies Net profit to innovative charitable work.
*Increased goodwill with the financial benefits that lead to rapid
growth which causes a rapid increase in profit which leads to an
increase in performance related pay for all involved.
This would create a USP that your competitors will not be able to
compete against allowing you to grow rapidly taking market share as you
gain consumer goodwill. This will allow hard work to be rewarded with
performance related pay.
The open source community will still be able to develop your software
which will dramatically increase the speed of the softwares development.
This business structure will enable your organisation to evolve and work
within a more philanthropic structure while gaining goodwill from
customers/workers/suppliers by clearly explaining their NET donation
percentages.
Q&A
How will I make my millions if I implement this structure?
Hard work and innovation by founders and employees will be rewarded with
performance pay relating to the growth of the company so hard work is
still rewarded. This could be expanded to reward members of the open
source community too.
How will the company survive hard times?
The Net profit can be invested and then donated up to a couple of years
after it has been generated in order secure the companies financial
stability.
How will the company pay for R&D?
The net profit is profit after the company has spent on R&D so still
allows progressive business development.
What other effects will there be?
Workers will be more careful about how they spend the money knowing that
it is being taken away from the end good cause rather than from a
shareholders dividend, which will make the organisation more efficient.
Many benefits will be created from customers / suppliers / partners /
stakeholders / workers that will silently boost the business.
This would…
1 create funds for charity
2 make charity more 'efficient'
3 boost your companies success rate with added goodwill
4 enable people who created your project to get rewarded financially
though performance pay while creating an organisation that is able to
provide a platform for goodwill collaboration where everyone is rewarded
for their hard/clever work knowing that all benefits go towards 'good
causes':)
I would be happy to explain any more details as and when needed.
Ed Whyman
http://www.Traidmark.org