The Debate: For-Profit vs. Non-profit

The debate over a better structure; for-profit vs. non-profit has been misguided from the constructs of the argument. Which is better, more effective, mission drive? There is one difference that distinguishes the two entities.

Taxes.

Yes there are differences in how these organizations are formed and governance structures. At the root of all organizations, both non-profits and for-profits must generate revenue (donations or sales) and operating expenses are incurred. So what is the real question people are debating about between the two structures?

In my experience traveling the world assessing non-profit and for-profit microfinance institutions for Whole Planet Foundation, it boils down to two things, effectiveness and mission. A non-profit can be mission driven and yet very inefficient so it may cost them significantly more to deliver social services to their beneficiaries. In the end, it means that less people are benefiting which questions the non-profit’s effectiveness.

On the other hand, if a for-profit that loses sight of their original purpose in search of greater profits, they may risk compromising their ability to balance the social impact with the need for profits. This has been a point of major debate within the microfinance industry and it continues to be political fodder with the poor having the most to lose.

Today there is a concerted effort to change the perception of business as an equally powerful agent for change. Many labels have emerged to classify these organizations as different; Social Entrepreneur, Social Business, L3 Corps, B-Corp, 4th Sector, Conscious Capitalism and certainly others. Do you sleep better at night knowing your coffee is Fair-Trade certified? Will you buy from a company because it is Certified Good?

There is no one way, no one answer. No label, no legal structure, no tax code that will give us 100% certainty that an organization is effective, efficient, and driven to make a lasting impact on our society. With that said; it is exciting that we are trying. Businesses are going beyond corporate social responsibility programs and designing products and services starting with the needs of the poor. Non-profits are developing creative income generating models so that they can become a sustainable organization not held to the whims of donors.

Austin, Texas embodies these ideals and we have launched a new space, Center61 that will give small startup nonprofits and social entrepreneurs shared office facilities. We believe that collaboration between like-minded individuals will provide synergies so that each organization can accomplish more than if they were alone.

Center61 is a Social Business as defined by Professor Muhammad Yunus that will reinvest profits (after taxes) into providing additional services for the members and give back to the community through investments in social businesses and donations to local nonprofits.

Join the journey, www.center61.com