Not For Profit ≠ No Profit
If you believe in your cause then you owe it to your beneficiaries to make a profit.
A common trap for social entrepreneurs to fall into is thinking that you need to be a “not-for-profit” to be authentic in your social entrepreneurship identity.
There are other aspects that don’t necessarily fit not-for-profit but might include low or slim profits.
I think this stems from the idea that social businesses should be more affordable to increase access to a service, but also that any kind of profit is greed.
Profit is not greed. Profit is your lifeblood.
Profit is your capacity to scale to serve more people, create more jobs and ultimately build your security.
Profit is ownership of your fate and your future. It is the only way for you to scale your impact.
If you think that profit can be the bit that can be shaved down for savings to win a client, change that mindset now.
Without a solid plan for building profit you’re a slave to a job or an industry that will just keep ramping up the stress and you’ll be the one to carry it.
There’s one other aspect to this — the race to the bottom.
If you devalue yourself, you devalue your industry. If your industry is devalued enough then the downward spiral can destroy your chances of being successful.
This is seen time and time again in industries with a lower barrier to entry, which leads to a bad deal for cleaners, security and others where price triumphs over value and quality. The ones who end up carrying the risk being those rewarded least and with reduced security.
People will always seek better value, but that doesn’t have to mean lower cost. If you’re in a sector where it does, then you might need to answer the hard question of whether there’s long-term sustainability and viability for your social venture.
There’s a wider theory in this around paying yourself first. This concept is popular with freelancers, but has increased in popularity as a saving technique.
If you are thinking of shaving a bit of margin off a quote or project, then think about how you’re going to explain that to your business’ broadband provider or energy supplier if you’ve paid the money you’re owed from the business first.
Profit and Fairness
If you’re not generating profit then you’re not being fair on yourself, your team, or your service users and beneficiaries.
If you’re not earning more in your business than you would in industry or the public sector after three years from launching then you’re relying on generating enterprise value. This doesn’t really happen so much in the social enterprise sector, so the longer this goes on the longer you’re being short-changed. You’re not as likely to get the big exit or payday that justifies taking a reduced salary as you build the business.
For your team, if you’re not creating the profit needed to commit to new roles, or offer competitive salaries and packages then you’re not creating a fair environment for them. This can have a couple of negative outcomes:
- Their heads can be turned by other offers, which can put you in a really tricky position.
- If they do leave, you lose a lot of embedded knowledge, experience, and expertise which can take years to rebuild if you can even recruit a replacement.
- You might struggle to give them the tools and resources needed for them to do their job effectively. This might be simple capital items like a better computer or vehicle, or improvements to their working environment, but can extend to marketing resources, legal support or other professional services.
- They might be more prone to stress and sickness if they’re worrying about money but feel committed and loyal to your cause.
- When you are looking to recruit, you won’t be as attractive or compelling for the best talent matches, and your reputation as a tricky place to work can spread.
For your service users they will likely become reliant on your service. This might be customers who can go to market to get a replacement for your service, but for those who rely on the social side of your enterprise it might not be so straightforward. Other options in the market might not deliver the broader value.
But ultimately it is you as the founder that you need to watch out for. If you suffer burnout you can let down all of those who rely on you — don’t let it get this far.
Unlike your team, it’s harder for you to get out.
If you think profit is exploitation or greed then that’s a much trickier thing to convince you otherwise on. As a social entrepreneur, you have a responsibility to generate a profit, and invest that profit responsibly.
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