(written on May 5, 2011)
The distinction between for-profit entities and nonprofit organizations was often cut and dry: a for-profit existed primarily to make money while a nonprofit organization focused on helping the community or provided a service. Today, however, more and more for-profit and nonprofit businesses alike are focused on socially conscious missions and/or social responsibility either as the sole purpose or a byproduct of the organization’s day-to-day operations.
As the line between for-profit and nonprofit blurs, social entrepreneurs, business management, and nonprofit leaders are finding a variety of ways to build and tailor their business in order to contribute to social good. A recent piece by Inc. Magazine explored a variety of such models as the article built upon the (1) Traditional Nonprofit by discussing the (2) For-Profit with a Social Mission and the (3) Nonprofit with Earned Income.
A closer look at these three social good business models will reveal that there’s no longer one organizational structure nor model that signals that an organization is contributing to the greater social good:
(1) Traditional Nonprofit
These organizations, 501(c)(3)s, are fueled by tax-deductible donations – cash contributions from individuals, public grant funding, or money from foundations. The model is ideal when the organization creates value for an individual who cannot pay or when the organization does not want to make the individual pay.
Example: Khan Academy
The Khan Academy is a nonprofit started by Salman Khan. The goal? Changing education for the better. By utilizing technology, Khan’s goal is to offer a free world-class education to anyone, anywhere. The site’s resources are available to all, free of charge, with lessons ranging from Simple Equations to Bay of Pigs Invasion and from Basic Capital Structural Differences to Big Bang Introduction. (you can check out the full list of videos here: http://www.khanacademy.org/#browse).
Khan shared in a recent Bloomberg article that by giving away the educational videos rather than selling the curriculum to the public education system, he’s able to wield creative license in crafting the lessons. If, alternatively, his organization were constrained by profit motive, that would likely result in Khan spending much of his time tailoring the videos to satisfy curriculum requirements. Instead, as a nonprofit that is not looking to sell content, Khan is able to focus all of his attention on improving, and perfecting, the end-user experience in order to capture the attention and inspire many across the world.
While Khan originally funded the endeavor via his personal savings, the cash contributions have been rolling in: Two of the biggest backers of the Academy include the Bill & Melinda Gates Foundation ($1.5 million) and Google ($2 million). Bill Gates, a Khan Academy advocate, sees what Khan is doing as “the start of a revolution” and Google became a supporter after the Academy won a crowd-sourced contest called Project 10100 in September 2010.
Khan’s Academy is an impressive organization that’s not turning a profit, but, as Khan, Gates, and others believe, is poised to change the world.
(2) For-Profit with a Social Mission
New waves of social entrepreneurs who seek to make a social impact are weaving their respective social mission into the very fabric of their for-profit business. It’s simple, really: continually turning a profit means being able to sustainably do good, year after year.
Blake Mycoskie, Chief Shoe Giver at TOMS, intentionally bucked the traditional “do good via a nonprofit” example and created a for-profit business with a “one for one” business model: with every pair you purchase, TOMS will give a pair of new shoes to a child in need. Simple. Thus, TOMS is a sustainable answer to the “children without shoes” problem: for every pair of shoes purchased, one of those children has a new pair of shoes to wear.
With the commitment to the “one-for-one” business model, TOMS has leveraged the purchasing power of the individual to benefit the greater good. This model transforms customers into benefactors, which allows TOMS to create a sustainable business and thus, ensure the ability to continue with their cause.
However, while traveling the world, Mycoskie realized that, more than just shoes, people essentially need help with two basic needs: education and being able to work. To these ends, being able to see has a similar affect as wearing shoes (in the developing world, kids that can’t see can’t learn and adults that can’t see can’t work).
Thus, this past Tuesday, Blake announced the “next chapter” for TOMS: it’s no longer a shoe company, but a One For One company. The first step beyond shoes is to address the aforementioned issue of sight via eyewear: buy a pair of TOMS glasses and you give the gift of sight – glasses, cataract surgery, or medical treatment – to one person.
So TOMS, a for-profit business, is working to address the greatest needs around the world. As stated in a Fast Company article this week, “that’s the key to the new “one-for-one company model: solving the great needs through Western consumption.”
(3) Nonprofit with Earned Income
These 501(c)(3) organizations focus on generating income in addition to the aforementioned tax-deductible donations. This differentiated approach towards fundraising frees the organization from total dependence on funders who may or may not back the organization from year to year.
One such way that organizations have been generating income is via product licensing. In doing this, the organization leverages cause marketing, the byproduct of cooperative efforts of a for-profit business and a nonprofit for their mutual benefit. Benefits for the for-profit include positive PR, increased goodwill, and additional opportunities for marketing. Benefits for the nonprofit include leveraging the financial resources of the for-profit, the ability to reach new supporters via for-profit’s customer base, and, our focus here, additional income.
Example: LIVESTRONG Sporting Park
Something innovative if happening in Kansas City: LIVESTRONG and Sporting Kansas City (a Major League Soccer franchise) teamed up to unveil – yesterday – the new soccer-specific stadium, LIVESTRONG Sporting Park. Sporting KC has bypassed the guaranteed revenue typically secured by offering up naming rights to a franchise’s stadium. Instead, LIVESTRONG has licensed their name to them in exchange for a promise of $7.5 million over 6 years via a percentage of ticket and concession sales.
Doug Ulman, LIVESTRONG President and CEO, states that, “LIVESTRONG Sporting Park is more than just a stadium – it’s the first athletic venue in the world with a social change mission and offers an ideal avenue to champion the cancer cause.” Financially, this partnership means significant funding has been secured by LIVESTRONG over the next 6 years, even before individual contributions, grants, and public funding have been accounted for.
For LIVESTRONG, is an organization that is now bringing in over $50 million per year, the $7.5 million over 6 years for naming rights doesn’t exactly make their operating budget concerns go away. However, it’s an innovative approach to garnering additional income while easily exposing themselves to potential new supporters in the process.
Traditional nonprofits still have their place in the social good ecosystem, no question: As exhibited by Khan Academy, sometimes focusing on generating a profit gets in the way of the intended end goal. But as Mycoskie’s TOMS simplicity (one-for-one) and the Sporting Kansas City x LIVESTRONG partnership creativity shows us, for-profit businesses are getting in on the “do good” movement with innovativeness and, hopefully, really striking results.