Make a difference or make money?
How to escape the non-profit vs for-profit dichotomy and see business as a force for good.
By: Adam Rao
During a meeting last December, a socially-conscious investor expressed his frustration to me (Adam) around the number of fundraising letters he was receiving in his mailbox: “Every year, I feel like the same organizations are asking for the same amount of money for the same programs and projects. I want to make a real difference with my money; am I really accomplishing anything by giving year after year?”
Around the same time, I met with an MBA student who shared the difficulty she had making ends meet working for a non-profit prior to business school. “I chose to work at a non-profit because I want to make a difference with my life. But, with the pay I was getting, I could barely afford groceries. I feel like I’m constantly torn between ‘selling out’ and sacrificing my needs for the greater good. Are these my only options?”
I can relate to these stories. Maybe you can, too.
As generous people, we want to contribute financially to organizations that are making a difference and moving the needle on society’s most pressing issues. But, it’s hard not to question whether the current way philanthropy is set up actually accomplishes that when, each year, we hear the same fundraising asks for the same goals.
And, as workers, we need to make a living and we want to make a difference. But, it’s hard not to wonder whether the only options in front of us are the traditional career path and “giving back” later in life, or the non-traditional career path, which, while rewarding, often requires struggling to make ends meet, a sacrifice not everyone is able to make.
The Changing Dynamic
Traditionally, at the big-picture level, for-profit and non-profit organizations have been seen on opposite sides of a spectrum.
In this way of thinking, for-profits and non-profits, business goals and social impact, making money and making a difference, are all seen in opposition to one another.
In this framework, businesses exist solely to make a profit. As Milton Friedman once famously wrote: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” Businesses create profits which are then distributed to shareholders who can, if they so choose, apply some of those profits to social impact through philanthropic giving to non-profit organizations. In this traditional way of thinking, these non-profits exist solely to make a social impact, and rely on the subsidy of business wealth to accomplish this goal
At the individual level, then, if one wants to make a living, you get a business degree, pursue a high-paying career, and then “give back” through philanthropy and volunteering, often later in life. If one wants to make a difference, you get a public policy degree, work for a non-profit, do meaningful work, yet struggle to make ends meet.
However, the paradigm is shifting. Opposed to either-or ways of thinking, today’s social innovators and investors are working to create new solutions that bridge this gap. Rather than seeing the goals of business and non-profits as opposite ends of a spectrum, these leaders see them as complementary.
Organizationally, “social businesses” are being formed with multiple bottom lines that create profits and a better world. And, at the individual level, the entrepreneurs behind them are passionate about creating opportunities for themselves and others to both make a living and make a difference.
Quite simply, in this new world, the for-profit/non-profit divide is disappearing.
Why is this happening? In my view, there are two key drivers: (1) At the big-picture level, there is a growing concern about the sustainability of the traditional non-profit organization in the post-Crisis economy; and, (2) at the individual level, there is a growing desire, especially among Millennials, to integrate one’s social values into every aspect of life, both outside of and at work.
The result of these concerns and desires is the emergence of a new ecosystem that is beginning to allow socially-conscious investors and innovators to thrive as we seek to create a better world
Growing Concerns About the Non-Profit Sector
Ask any non-profit leader about their work, and you will likely hear both (A) that impact work is extremely rewarding and (B) that working in non-profit organizations is extremely challenging.
Because the traditional non-profit relies on subsidies from business wealth to exist, legally, non-profits are required to be led by a Board of Directors. (It should be noted that certain kinds of businesses, including large, publicly-owned firms, are also required to have a Board of Directors. However, while business CEOs are usually expected to be visionary leaders who drive the business forward, non-profit Executive Directors are often expected to be implementers of the Board’s vision.)
This unique, often stifling, organizational structure is increasingly being met with skepticism when it comes to the effectiveness of the non-profit sector’s ability to create social impact. Dan Pallotta’s TED talk, “The Way We Think About Charity is Dead Wrong,” which has been viewed nearly 4 million times, is merely one example of this.
The post-Crisis economy is contributing to this growing skepticism as well. While giving to non-profits has recovered since 2007-2009, the Financial Crisis revealed, once again, the tenuous nature of traditional non-profit funding mechanisms. With stagnant wages and wealth concentration reaching its highest level in history, questions remain about both how much will be available and who will be able to contribute to non-profit organizations in the future. Will only the largest, historically well-funded non-profits receive funding (e.g., the Bill and Melinda Gates Foundation)?
Will individuals continue to give at the same level moving forward if their money doesn’t go as far? While crowdfunding has leveled the playing field in recent years, most philanthropic wealth remains in the hands of traditionalist, mostly white, power structures, which raises additional questions about the future of the sector given America’s growing immigrant, non-white population.
A Growing Desire to Integrate Our Values into Work
The topic of work-life balance is front and center in most workplaces today, and has been primarily driven by Millennials seeking to integrate their whole lives, both inside and outside the office. The old life framework, captured by Bill George, former CEO and Chairman of Medtronic, in his now-classic True North, of having a nice career and then “giving back” in retirement is giving way to a more holistic approach to work and life in which values are key.
Yet, pursuing a career in the non-profit sector is being met with increasing skepticism by this demographic.
While most non-profit workers agree that the work is meaningful, most also agree that the non-profit sector (A) offers lower pay; (B) is driven almost entirely by the redistribution model of fundraising, which contains myriad frustrations for workers (not least of which is the uncertainty of whether their job will be present next year based on what the “grant gods” decide); (C) often leads to burnout with fewer benefits for support; and, (D) is often the least innovative and efficient environment in which to work in an age of flexibility and experimentation. These factors continue to make acquiring and retaining talent difficult for the non-profit sector as a whole.
However, no factor will impact the sector more in the coming years than the growing student debt crisis facing America. While, in the past, many have gladly chosen the frustrations that come with the sector for the promise of more meaningful work, today, many Millennials are simply unable to make the financial sacrifice. With approximately 70% of newly-minted workers carrying an average of nearly $35,000 in student debt upon graduation, many are finding it necessary to forgo the traditional non-profit sector for financial reasons.
Yet the desire to do meaningful work with impact remains: In its 2016 study of Millennials, Deloitte found that 44% of Millennials say that, if given the choice, they would like to leave their current employers within the next two years. Two-thirds (67%) expect to leave their current organizations by 2020. Why? Along with other issues, “while they continue to express a positive view of business’ role in society … Millennials still want businesses to focus more on people (employees, customers, and society), products, and purpose – and less on profits.”
The Emergence of a Foundational Ecosystem
These factors, and more, are leading to the emergence of a foundational ecosystem for social businesses.
Social businesses are for-profit organizations that measure against multiple bottom lines. In addition to measuring the typical business “bottom line” of profit, social businesses measure their social and environmental impact and hold themselves accountable to these goals as much as they do to shareholder returns.
For example, Sunrise Banks in St. Paul “creates both people- and place-based [financial] products that make a difference in communities.” Originating small business and commercial real estate loans, Sunrise Banks operates as a for-profit business and is responsible to its shareholders to produce financial returns. In addition to business returns, however, Sunrise Banks is also a certified B Corp – a social business certification granted by an organization known as B Lab – which requires members to measure their impact on the environment, their employees, their customers, and their community. (Other B Corps of note: Patagonia, Ben & Jerry’s, New Belgium Brewing, Kleen Kanteen, and more.)
Legal structures, too, have emerged in recent years to support the social business movement. For example, Peace Coffee, with its vision of fair trade coffee before fair trade certification even existed, has modeled a transparent supply chain since its earliest days. From grower to cup, Peace Coffee embodies its mission “to make exceptional-tasting, organic fair-trade coffee that sustains the livelihoods of the people who grow, roast, and sell it; preserves and protects the environment that produces it; and delights the taste buds of those who drink it.”
Based on that mission, Peace Coffee became one of the first Benefit Corporations in Minnesota. Benefit Corporations are “a new, more transparent legal form of doing business. They enable corporate directors to focus not only on the interests of their shareholders, but other stakeholders such as workers, the community, and the environment” as well. In short, Benefit Corporations are required to take social impact into as much consideration as financial return as they make strategic decisions.
The future of social business is still being created, and there remains much work to do. But, for investors considering how their contributions might better move the needle on society’s most pressing issues, new investing mechanisms (including equity crowdfunding) are emerging that make it possible to invest in for-profit businesses that seek to create social impact as well as financial returns. And, for individuals seeking a way to make money and make a difference, opportunities are emerging for meaningful work in social businesses that are financially sustainable and values-driven.
The for-profit/non-profit divide is disappearing, and its traditional divisions are being replaced by a new movement of investors and innovators “using business as a force for good.”
A passionate advocate for using business as a force for good, Adam Rao currently serves as Senior Associate, Corporate Strategy & Innovation at Sunrise Banks, a mission-driven financial services firm headquartered in St. Paul, MN. Prior to earning his MBA at the University of Minnesota’s Carlson School of Management, Adam served as the Founding Executive Director of Exodus Lending, a first-of-its-kind payday loan refinancing program, and as Lead Pastor and Co-Founder of Lakeside Church. He is recognized for his work in launching and leading mission-driven organizations, designing and implementing effective business strategies, and inspiring people through compelling public speaking.