You want your business to be a force for social good. Most importantly, you want to meet the needs of some target population with the warmth and care reminiscent of the most nurturing presence as opposed to a cold, heartless corporation. You believe your only option to be registration of your business as a non-profit. Chrystalyn Reid of non-profit Queen Esther Ministry states that she didn’t consider anything other than a non-profit, “Because I wanted to help people without worrying about a profit-making business.”
Social Good Dreams
Other options exist, but I want to first challenge your start-up launch with several organizing questions:
Are you under the impression that non-profits always have low budgets and low pay for employees? The average non-profit CEO makes between $97,000 and $123,462. Seventy-six of 4,587 charities pay their CEOs more than $500,000 per year in compensation. Seventy of those have an annual budget above $13.5 million.
Have you created an Outcome Logic Model for your social good business identifying the revenue streams that are possible within the business operations? The typical non-profit today makes only 21% of its revenue from donations. Over 72% comes from program service revenues which include government contracts. Many of those contracts are open to non-profits and for-profits alike.
Have you considered how your board and funding structure will impact the mission of your social good business? You may have heard recent public broadcasting stories about mission drift or mission creep. You will want to ensure that your business bylaws are written to guard the mission.
Another Option: B Corp
A B Corp is an organization founded for social good. According to the B-Corp website, B Corps “meet the highest standards of verified social and environmental performance, public transparency, and legal accountability, and aspire to use the power of markets to solve social and environmental problems.” Over 2,221 B Corporations are now certified from over 50 countries and 130 industries.
The choice of a B Corp structure over a non-profit structure for many is a question of funding. They choose non-profit proposing to fund the business through grants. A non-profit is the choice for those who want to provide a tax write-off to their donors and want to be eligible for grants that specify that only 501c3 corporations may apply. Yet, that explanation is a premature determination about how your corporation can make money. More specifically, if you conclude that your social good company can ONLY make money through donations from donors who require a tax write-off,
More specifically, if you conclude that your social good company can ONLY make money through donations from donors who require a tax write-off, non-profit is your only option. On the other hand, you can create value beyond the tax write-off. You may develop revenue streams other than grants. You could have a non-profit partner organization. In these cases, you may consider starting a for-profit with B Corp certification instead.
Mission Creep & Creepy Mission
Many launch non-profits because they believe that the money is not as important as the difference they can make. They focus on the people that they will help, the social good proposition, and the lives that will be changed rather than the bottom line. “My mission was never to make money. It was something that God called me to, to make a difference for women aging out of the foster care system,” Reid says about her non-profit.
This often means that these social entrepreneurs also neglect to focus on sustainability. Therefore, Marvin Olasky can tell the story in Renewing American Compassion of the multi-million-dollar social welfare building with few visitors. He compared this to a beloved, yet poorly funded child services non-profit. The non-profit operated with client numbers above its capacity.
Social workers and others working for social good are coming to grips with the fallacy of money as a dirty word (or after thought). They are also redefining their business models to avoid mission creep. They diversify offerings to access additional revenue streams without overextending the mission. The innovative method involves building programs for sustainability as well as mission achievement. They couple a profit mechanism within the service provision mix as the social good business model. The result are programs that support themselves.
Mental health agencies have been doing a version of this at the insistence of managed care organizations—billing for specific services. The difference in more recent innovations is to go beyond the billable scope of practice. Include a more holistic service cadre for clients. Those extended services, formerly out of scope, are funded through private donations, fundraisers, and now sales of manuals, merchandising, or sponsorship agreements.
The take away is that profits are not the enemy of social good. Failure to meet the mission is. As Reid of Queen Esther Ministry confirms, “As I’ve learned more about my business, I know the value of diversifying my revenue streams in addition to honoring my mission. I’m now exploring other revenue ventures through my business like holding a Summer camp.”