Pro's & Con's of a Not for Profit 'Business'

Not for Profit ‘businesses’, or social enterprises have been on the rise in America and Australia for the last decade or so but a new US report has found that while these enterprises are flexible and entrepreneurial they are not ‘magic bullets’.
The report is by the national research Not for Profit, Seedco in the US which says that in many respects, the social enterprise revolution has been a great success: it has fostered an emphasis among NFPs on achieving measurable results for clients; it has encouraged sound financial planning and fiscal responsibility and it has made many organisations more dynamic, more innovative, more efficient, and more effective.
But the report says the field has been prone to extremes. The report embraces the broad notion of social enterprise as flexible and entrepreneurial entities, but it raises cautions about the more specific notion of Not for Profits operating businesses.
It says in a zest to take social enterprise to the limit, some have emphasised starting businesses as vehicles by which to both earn money to support mission-driven work and as new tools with which to address social problems, and even as magic bullets with which to achieve both aims at once.
The researchers found that NFPs driven to meet a ‘double bottom’ line for customers and clients have far more typically led to frustration and failure, drawing attention and resources away from the organisation’s core work—and that even the oft-cited success stories are less cut-and-dried than they appear.
It says there is a collective tendency within the field to gloss over the difficulties and limitations of social purpose businesses. This is no doubt in part because the organisations have been driven by the pressure to continually innovate.
The differences between NFP organisations and for-profit enterprises were increasingly viewed as flaws in the NFP paradigm that could be cured by a more businesslike approach. In this light, it is easy to see why an organisation might make a bid for a new business venture—or at least feel the need to present a more entrepreneurial face to those holding the purse-strings.
However the Seedco report says it is time for a more balanced vision of social enterprise.
This is not to suggest that NFPs should be discouraged from pursuing innovative, entrepreneurial ideas, or from incorporating tools from the for-profit world when they are appropriate. There will always be a place for creative financing, earned income, and outside-the-box thinking in the NFP world.

But the report says the truth is that NFPs have always been entrepreneurial in this sense; they are perhaps the most adept organisations at stretching a dollar, or envisioning way to accomplish their goals on a dollar. However, there is also a reason that NFPs exist—and that is because they satisfy social needs and provide crucial services that for-profit business and the market alone do not.

Seedco has used the research to make significant changes to its own social enterprise activities.

First, Seedco no longer suggests that its social ventures will ever be self sustaining. Instead these programs are based on a mixed-revenue financial model.

Second, Seedco now builds in significant time for incubation. This is a phased in gestation period in which a social venture that may have revenue-generating potential is nurtured with heavy subsidies from the public and private sector.

Third, Seedco aims to launch new programs in multiple locations whenever possible. This gives the venture a fair shot of proving itself in a few different environments to truly determine if it is a viable model if given the right markets

To download the full report go to: www.seedco.org/publications/publications/social_enterprise.pdf