Social Enterprise: To Profit or Not To Profit?

On the outside, a corporate structure may seem to be a simple decision.  In general, if you are out to make money and want lots of shareholders – become a corporation; a few shareholders – an LLC.  If you goal is social change you become a non-profit.  However, when Gabe, Adam, and I were planning this operation the decision was not so simple.

Not A Non-Profit?

If you have read the different sections of our about page you are familiar with what we are doing with Mission Arabica and our goal to make a positive impact for Lao villagers (If you haven’t read it, you can check out a quick summary of our mission here).  Based on that information, it would be easy to think we are a nonprofit entity.  However, in reality we are a for-profit LLC.  This may seem a bit counterintuitive considering our mission and even when I was telling my dad about our plans, the first question he asked me was, “Why are you not a nonprofit?”

The Path To A For-Profit Social Enterprise

My dad’s question is valid.  Our primary goal is of a charitable focus so a non-profit would be a logical fit, but we had three important concerns that pushed us towards the for profit route:

  1. We Don’t Want To Be Ruled By Donations

    You Don't Donate To A Social Enterprise

    You Don’t Have To Donate To A Social Enterprise

    I have been a part of charitable organizations in the past and these organizations are typically run based on donations.  There is nothing wrong with that, but so often it seems that the organization’s time can get so consumed with trying to obtain donations that they get pulled away from the actual goal of their mission.

    Whereas the way we have structured our business, the very act of doing business with Lao farmers will both fund our expenses and achieve our mission.  We do not want donations.  We want to provide a product worth purchasing and by doing so, be helping Lao farmers.  I have come to learn this business model is called a social enterprise.

  2. We Want To Create Social Change Through Business, Not Charity

    Muhammad Yunus is a Nobel Peace Prize winning entrepreneur that used social enterprise to pioneer the microfinance industry and through his business efforts he helped lift millions out of poverty.  He is quoted saying:

    When we want to help the poor, we usually offer them charity. Most often we use charity to avoid recognizing the problem and finding the solution for it. Charity becomes a way to shrug off our responsibility. But charity is no solution to poverty. Charity only perpetuates poverty by taking the initiative away from the poor. Charity allows us to go ahead with our own lives without worrying about the lives of the poor. Charity appeases our consciences.

    Although I do believe there is a time and place for charity, our goal it to do more than provide just an immediate need of the Lao people, but rather enable them to to succeed in the long run.  Empowering them to meet their own needs and improve their overall quality of life.

    Although a non-profit could still do that, I believe that a for profit social enterprise is better suited for that challenge.  For example if we are a non-profit entity and we help these villages plant coffee, there is no need for them to produce a quality product because people would be buying their coffee for the sake of charity.  However, what would happen to that village if our charity went under and was no longer there to buy their crop?  They would have become dependent on us to buy their inferior product and would then have no one to sell to.  It would be devastating to their village.

    Whereas there are higher expectations on a for-profit business.  Quality and price become important when competing in a competitive marketplace.  If they are already producing a high quality product and our business goes under, it would be an inconvenience to the village, but since they are producing a quality product they will have no problem selling it to someone else.

  3. We Don’t Want Our Use of Funds To Hinder Our Mission

    For Profit Social Enterprises Don't Have To Worry About Offending DonorsBecause of my background in accounting, I typically examine the financial statements and annual reports of a nonprofit before I donate because I want to make sure they use their funds responsibly.  During my analysis though, I am amazed to see how often leaders of these nonprofit organizations have salaries that, in my opinion, seemed obscenely high for a nonprofit.  Although there is nothing legally wrong about that, I just have a hard time donating to a nonprofit where the leaders are clearly financially benefiting so significantly.

    The problem then becomes that at what point is a salary reasonable for leaders of a nonprofit?  My definition of an obscenely high salary could be vastly different than your definition.  However in a for-profit entity, that same salary for an executive may seem much more reasonable.

    I bring this up not to say that Gabe, Adam, and I plan on taking huge salaries once the company becomes successful, but rather if we ever do take a salary from the company I don’t want that salary amount to ever be a hindrance to you or the others that have “Joined the Journey” with us since the owners of a for-profit entity are entitled to profit from that entity.

    What I can promise is this: Neither Gabe, Adam, nor I are in this venture to get rich.  I don’t know if we’ll ever even take money out of the company. That being said, if we ever do take money out, the amount would be reasonable at best.  To prove this commitment, we will publicly share our financial information annually to prove our commitment to our mission is greater than any desire on our part to profit.

In The Footsteps of Greatness

Although there are many arguments that could be made to support the notion of why we should be a nonprofit entity, I believe the above points clarify some of of the reasons we have chosen to be a for-profit social enterprise.  What is funny to me is that I had never even heard of social enterprise until after we had decided on this business model.  However, I have since come to learn that we are not the originators of this business structure at all, but rather we will be following in the footsteps of many other great business leaders that have seen business as more than just a tool to profit, but rather a tool to promote social development.  In their wake they have enabled millions to have food in their bellies, a roof over their head, and a way to support themselves.

How About You?

Do you have any experience with social enterprise?  I would love to hear your thoughts on it in the comments below.  Also, if you like what we are doing we would love for you to be an active part of our mission too!  We really can’t accomplish this great goal without you so make sure to sign up for our email list and like/share this post on Facebook by using the buttons below!

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  • adamholroyd

    Pshhh…who really makes $500,000 for a non-profit…We should pilage their homes, take their money, and leave them to starve!

  • William Wallace

    I’ll show you pillaging…

  • steve soto

    Hi chris , great idea and well thought out explanation on ur stance of your business Mission. God bless

    • Chris

      Hey Steve, thanks for the kind words!