I had the chance last night to moderate a Feast Debate (#FeastOnGood) on non-profit vs. for-profit models. Ruti Wajnberg and Jorge Vega did a great job orchestrating the evening, and it was a pleasure to host a conversation between Jo Opot, Global VP of Business Development at TerraCycle (and former Executive Director of StartingBloc) and Kate MacKenzie, Director of Policy and Government Relations at City Harvest.
With 120+ people packed into the beautiful Salt Space on West 27th Street, we set out to debate which model – nonprofit or for-profit – is better for pursuing social change (and once we quickly agreed that the answer was “it depends,” to dig into the strengths and weaknesses of each model across the very practical dimensions of fundraising, culture, revenues, getting and keeping great people, etc.)
I started the conversation by polling the audience, and of course my first question was how many people had heard of Generosity Day (couldn’t resist). At least one third of the attendees raised their hands. Sample bias aside, the idea that a third of people engaged in social change heard about Generosity Day and changed the way they acted for a day (and, I bet, for a long time after) just blew me away.
Then we got down to business, and I asked a bunch of questions of the audience around the biases we all carry around about nonprofit and for-profit models: with which is it easier to attract great talent; to partner; to raise money; to get things done; to create a great culture?
As Jo and Kate spoke, and as the Q&A with the audience unfolded, I increasingly realized the power our stock answers to these questions hold over us: nonprofits, the conventional wisdom goes, struggle to get “less dependent on – and beholden to – donor funding;” we can’t compete with the corporate sector for great talent; for profits are built to scale more rapidly; and on and on and on.
All generalities hold a kernel of truth: there’s no doubt that the 501(c)3 structure creates limitations and that there are certain things (like giving employees equity) that only for-profits can-do. But most of the perverse actions we take (as nonprofits and for profits) are not taken because of structures that keep us from behaving differently.
Take Sean Stannard-Stockton’s great post from yesterday about government crowding out philanthropy, he relates a story George Overholser tells about the need for creating an equity structure for nonprofits:
George used to be a venture capitalist and work with a venture philanthropy organization. He relates a story about how in the morning he presided over a meeting where the venture philanthropy group made a large grant to a nonprofit. Everyone was very excited and it was high fives all around with the nonprofit executives leading the cheers. The excited executive director happily pointed out that the grant met their entire fundraising budget for the year and so now they could focus on their programs.
That afternoon, George presided over a meeting where the venture capital group made a large investment in a for-profit. Again it was high fives and excitement, except this time only the venture capitalists were cheering. Looking over at the for-profit executive team, George noticed they all seemed nervous. When he asked what was wrong, the CEO said, “well, now that we have the growth capital, the pressure is on to generate revenue!”
To the nonprofit executive director, it didn’t matter if the venture philanthropy donors called their grant an “investment”. The only accounting treatment for money coming into a nonprofit is revenue. But for the for-profit, the venture capital money really was an investment. It would be booked as equity, not as revenue, and from here on out their success in generating revenue would be measured against the amount of equity they had deployed to build their business.
Sure, this is perverse behavior, but even in this stark example, there’s nothing structural keeping the nonprofit leadership from deciding to treat the large grant they just got as long-term capital, and to continue to aim for their revenue goal for the year. Yes this might be a harder story to explain to funders (“why do you have so much cash in the bank?”), yes it would be better to have a better way to account for this within 501(c)3 reporting requirements. But just because all of that is not in place doesn’t mean we can’t act differently.
I was surprised how much I ended up defending what was possible as a non-profit, since that wasn’t my plan going in and I don’t necessarily think being a nonprofit is the answer for most social mission organizations. But so often “we’re a nonprofit so we can’t…” (raise a lot of money quickly, hire great people, not be beholden to grantmakers who want to impose their agenda on us, be ruthlessly accountable in everything we do) is simply a cop-out for our own bad behavior, limited thinking, and poor execution.