For-Profit v. Non-Profit is the Wrong Question

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What’s Happening When You Ask This

Outside of spoon or spork and burgers with mayo or mustard there’s no debate as infamous as whether a venture should be a for-profit or a non-profit. The number of times grief stricken entrepreneurs approach me with this questions is too many to count. And I get why people think it’s an important question to ask.

But here’s the thing.

We (well at least most of us) have come to accept that the world is round, yet still buy into other age old tales; such as people and profit conflicting with one another. And when you ask this question, you’re subconsciously telling yourself that choosing one means you can’t have the other. Which just…isn’t…true. So if you’re in the process of asking this question and find yourself frustrated it’s because you’re asking the wrong question.

What Are the Right Questions?

If I ask who you think is better, Lebron James or Apollo Ono, how crazy would you look at me?
I’m banking on this:

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Why wouldn’t you. I’ve clearly skipped a few steps. First of all, what do I mean by better? Better how? In what? What’s the metric?  So many questions?!
If we try to decide who is better than who before working through each of these questions we’ll wind up going in circles. Why? Because it  all comes down to context. It’s no different with the for-profit v. non-profit question.
They couldn’t be more different depending on the context. And by jumping to this question, you’re asking a question with a circular answer. You’re looking at the very beginning when you really need to be looking at the end.

When deciding how to organize any new venture, make your questions outcome driven. Focus on what you want to accomplish, how you plan to operate, etc. Because doing otherwise is the cart leading the horse.
What if you have no clue how things will operate? Then you’ve got bigger issues. I’m not expecting Ms. Cleo level vision here, but there should be a vision and a plan. How else will you know whether you’ve gone off course?
So the right question isn’t “for-profit v. non-profit,” it’s, “based on what I plan to do, do I plan to be more profit driven or impact driven?” Note, I say “driven.” That I’m driven by  profit doesn’t mean there isn’t a significant amount of impact, and vice-versa.

Sample Questions to Ask Yourself

  • What’s the goal? What am I trying to accomplish? Why am I trying to accomplish it?
  • How am I capitalizing this venture at startup?
  • What will be the earned income stream or streams?
    • Is the program or service self-sustaining? What are the different ways to bring in revenue and will they keep up with the costs?
    • Who is my client? Is it a consumer that can afford to support what I’m doing? And possibly support someone else?
  • Is the venture pretty specific (sell “x” widget) or does it require more systems/ecosystem thinking?
  • Will I need to build out infrastructure to do what I’m doing? Am I ok with that?
  • Usually everyone has a preference. What’s the reason I prefer what I prefer? Is it because of bias?  Is there “change the world” guilt?

Not too long ago, I created an infographic on other ways to think about this:

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What Now?

The upside of thinking through all of this, because I promise there’s a benefit, is it forces you to think through a good bit of your business. Incidentally, you’ll come out with a pretty good plan. And once you have a good idea of what direction fits best (profit-driven or impact-driven) you can put together the infrastructure pieces. Picking the entity, looking at the management structure, etc.

The funny thing is, by the time people get to me, whether or not they should be a nonprofit is usually a question that’s kept them stuck. Which is why they’re bent on skipping over the questions I list above. But by taking time to work through this th-our-ogh-ly, you find you’ll catapult forward.
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