In my opinion, non-profits are not always the best way to start a business whose main goal is to make a positive impact in the world. Furthermore, having worked in the non-profit industry, I believe that there is just as much ego in non-profits as there are in for-profits.
It is very unfortunate that people think that business in and of itself does not create social good.
Think of what a transaction is at its core. It is two parties coming together and walking away with mutual benefit. The scaling and vibrance of the free enterprise system is what has knocked our standard of living out of the park in the last century. Large companies are former small companies that were able to scale this impact and create even more good for society. Businesses create jobs, buy goods and services from other companies which in turn employ people, and create innovation that improves people’s lives.
The problems we hear about business are not because people have the ability to freely buy and sell from each other. The problem is that people misuse that freedom and act out of integrity. The same is true for money.
Successful entrepreneurs and companies look at the life-time value of customers, not just the value of each transaction. Entrepreneurs have an extremely strong incentive to treat their customers like gold so that they’ll stay with them. The more competition there is, the more companies must improve what they offer to the customer. All of these incentives are healthy for the world.
It is easy to sell $10 for $1. The problem with this is that it’s not sustainable or scalable. By making a profit, you’re able to invest in improving and scaling your company and product/service.
I’ve been poor. I’ve had $30,000 in credit card debt and tens of thousands in student loans. I don’t think there is anything glamorous about it. Money’s impact certainly tapers off at a certain point. However, it allows you to invest in your education in and out of school, invest in your children’s future, eat healthy foods, invest/donate in companies that make a difference, live in an environment and neighborhood you’re proud about, and much more.
- Harder to scale. Non-profits are not able to raise money via equity, which is the main way high-growth, for-profit companies raise funds. This drastically reduces the speed at which and size to which many successful non-profits can scale.
- Harder to attract talent with. Non-profits cannot offer equity to potential employees and executives. Ownership is where over 90% of the the wealth in this country is, and a non-profit isn’t able to let its employees take advantage of this. There are many talented individuals who want to make money and a difference.
- Harder to exit from financially. If you start a non-profit that changes the world and devote 40 years of your life to it, you will not be able to sell your shares in the company. While you can still earn a high salary as a non-profit executive, you may still have to worry about retirement, despite the huge success of your organization. Furthermore, while you’re worrying about your own retirement, it may be harder to focus solely on how the business can make an impact.
- Not able to switch to being a for-profit. On the other hand, if you realize that your social purpose for-profit company is not viable in that structure, you can turn into a non-profit.
- Sometimes a hindrance to a healthy market forming. Non-profits providing free or subsidized products or services may impede a healthy, competitive, scalable for-profit market from forming, because prices are too low.
Of course, I love non-profits too! I plan to start one in the future. They play a critical role in the world. There are many markets where it is not possible for a for-profit to exist, yet there is a huge social need that is not being met by the government. Non-profits have played a critical role in my own life personally.
I just think that is unfair to label profitable businesses and individuals as greedy.
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