Stanford Social Innovation Review

My business consulting 2 cents is:  I think you should create a “for-profit” company that donates a % of its profits to “non-profits”. 

For example, Paul Newman set up a company that donates its profits, and I have also heard of other start-ups, e.g. an organic cosmetics company, where the founder has designated that profits from certain product lines, e.g. nail polish will go to support non-profit orgs. 

I believe you would have to incorporate with by-laws that indicate that this is part of your company mission.
Good luck!

Cheers, Melonie Brophy, MBA Class 1979

»» Posted by: Melonie Brophy, MBA Class 1979 on October 2, 2007 03:38 PM

Dear Corey,
You are looking to achieve the best of both worlds; this is possible.  I’ve helped create a US and a foreign non-profit.  We were focused at first just on education: early on with US high school students abroad, then also of Bahamian students at home, and recently doing marine science research.  But it was all motivated by a mission related to educational opportunities.  When the local community wanted more practical solutions (renewable energy that we modeled on our campus), we decided that selling solar hot water heaters and photovoltaics was outside the educational mission, and we untied the Gordian knot of “for-profit vs non-profit” by creating a separate for-profit subsidiary company.  This is not easy to set up, and has several potential pitfalls, but has allowed us to grow, serve the community, keep good staff inspired, all while protecting our reputational and legal assets.  This is one specific recommendation: make one legal structure the master, the other the subsidiary.  There are three main criteria I’d evaulate your decision on:

1.  Culture
One of your most important tasks in starting a genuine operation is to attract the best people.  Different people will have different expectations depending on where they come from and why they are there.  Your goals, I am assuming, are to create a culture where people appreciate having the profit motive present in order to encourage productivity and measure performance, but who know there’s more to the soul of a company that guides how you treat people, how you make decisions, and there’s a feel-good quotient that comes in the envelope along with the paycheck.  So far, all good.  So thoughts on that: Companies (like Google, say) offer a service or good that others find useful.  Therefore people benefit from for-profit companies; life wouldn’t be as good without them, and people applaud with their willingness to pay for things.  Do you really need a non-profit to do good?  Or, if you feel you do, why not do it like Google or Ford or Gates, give the money to a separate non-profit that you control, and let people who are better at giving money to needy causes focus on that job, while the computer programmers or assembly line operators get on with providing useful services that will turn a profit that spill over into the charity?  Separating roles makes sense.  Which leads directly into the second consideration:

2.  Competitive advantage
In which form will your company have the most impact, given your idiosyncratic circumstances?  Will you be able to motivate the best and brightest people by flashing the dollar signs and giving them part of the company, and driving toward profits?  Or will you be a master at talking money out of reliable wealthy donors, willing to give you guidance but not be overbearing and restrictive?  The donors realize an immediate 35% on their money just from the tax break by giving to a non-profit, and expect that the feel-good and do-good you promise will make up at least the other 65%, maybe even more in their non-monetary benefits as a return.  Do you get a reputation for excellence and attract the most generous people in your social millieu (and is your social circle the right one, primed to grow), or do you end up wondering how you can talk your staff into waiting an extra week to get their paychecks, again.  I can only imagine a hybrid startup trying to be best at both, and splitting its meager resources, and therefore not being competitive in either realm. 

3.  What next?  If you might ever want to cash out, or move on, or hand over the reins, the prospects depend entirely on the legal structure (and that you’ve made a big enough difference to get others to notice).  On options for structuring your for-profit company, Michael Roberts’ Harvard Business School class discussion notes on ‘The Legal Forms of Organization’ from August 2001 are a good primer.  I can offer a New York attorney with new york prices who is really good.

Finally, for more answers, try Linked-In social network question and answers.  And if you find a similar forum online for philanthropic or non-profit specific networking, let me know!

I received my MBA from Duke’s Fuqua School of Business in 2006.  I am Chief Financial Officer at the Cape Eleuthera Foundation.  Sie konnen mir freiwilling anrufen oder bei email kontakten.  Viel Glueck!  http://www.islandschool.org

»» Posted by: Christian Henry on October 26, 2007 04:00 PM