Is Profit for Purpose the next big disruption in the Not-For-Profit Sector?

Profit for Purpose is a growing sector of the Australian and Global Economy. Back in 2010, Barraket et al. estimated that there are up to 20,000 social enterprises in Australia (including not-for-profits with business ventures). Since then, the sector has exploded.

Some of the Giants of the Profit for Purpose sector that have emerged include:

Tesla,
Patagonia,
The Body Shop, and
TOMS Shoes

And some fast growers you may have heard of are:

Who Gives a Crap,
Thankyou, and
Pollinate Energy

With so many success stories coming from Profit for Purpose enterprises, should NFPs be considering a new approach to generating the funds they need to achieve their missions? Are there lessons to be learned from the Profit for Purpose sector? And finally, will the Profit for Purpose movement change the face of the NFP sector?

Funding Not-for-Profits

Building a For-Profit arm is not a new concept in the NFP sector. As reported by Todd Spear, Oxfam opened its first charity shop in 1948! However, in more recent times there has definitely been a growing interest among NFPs to create new, more sustainable and reliable income streams.

Now that makes a lot of sense.

NFPs that go down the social enterprise track have the potential to achieve HUGE benefits.

Undeniably, increased sustainability is a central reason for NFPs to diversify. Budget forecasts can be generated based on sales projections and market research rather than donor and grant predictions.

Independence is another strong reason for NFPs to create their own revenue streams. A reliance on charitable donations and government grants to fund activities means that organisations are not in control of how much funding they will receive. Funding is decided by factors outside their control, such as changes to government rules and regulations, economic conditions, and competition for limited donations or grants. The surpluses generated by an enterprise can be used to supplement or fund entirely the organisation’s social and/or environmental projects.

Profit generating NFPs can also further their cause through social enterprise. They may create additional social benefits by employing marginalised people and/or providing access to services or products to marginalised people. These positive impacts can be escalated through scaling their enterprise.

So why doesn’t every NFP have an income generating enterprise?

Not-For-Profits face a number of challenges to building their own social enterprise.

Firstly, the skills and knowledge required to run a successful business are often vastly different to running a successful NFP. A lack of business acumen makes it very difficult for a NFP to make it first steps towards profit generating enterprise.

Next, finding startup capital in a donor based organisation may seem virtually impossible. There’s usually grant funding available and impact investment available, but finding what’s right for the organisation is challenging (ProBono, 2015).

Finally, and perhaps the greatest challenge for NFP social enterprises, is meeting the triple bottom line of having both social and environmental ontop of financial priorities, adding layers of complexity upon which for-profit enterprises may not place importance.

Social enterprises are required to achieve a social goal and be a sustainable commercial business. The need to meet social priorities can lead to decisions that are not in the best long-term interest of the enterprise, putting it at commercial risk (Foster & Bradach, 2005; Seedco, 2007). Equally, decisions required in order to keep a business afloat (such as reducing staff or salaries) can challenge the social priorities and values of a NFP (The Benevolent Society, 2013).

But don’t be disheartened!

Overcoming great challenges are what Not-for-Profits do best! And I strongly believe that in the coming years we will see a disruption of how NFP finance their missions. More and more organisations are realising the benefits of social enterprise. Before we know it Profit for Purpose revenue streams will no longer be supplementary, rather, they will become central to funding NFPs.

If you are a Not-for-Profit looking for new income streams? One10 provides consultancy services to Not-for-Profits looking to increase their sustainability and income through profit generating avenues.

Tell us what do you think. Will the profit for purpose sector disrupt the NFP sector? And more importantly, should it?

References:

  • Barraket, J., Collyer, N., O’Connor, M., & Anderson, H. (2010). Finding Australia’s social enterprise sector: Final report. Australian Centre for Philanthropy and Nonprofit Studies. Queensland University of Technology.
  • Foster, W., & Bradach, J. (2005). Should nonprofits seek profits? Harvard Business Review, February 2005
  • Seedco Policy Center. (2007). The limits of social enterprise: A field study and case analysis.