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Are nonprofits actually for-profits in disguise?
Well, nonprofits do enjoy a slew of benefits that their for-profit counterparts can only dream of, but that doesn’t mean profit is their ultimate and ulterior motive.
Nonprofits do work for the betterment of the society. True, the IRS exempt them from taxes, but only when they meet qualifying criterion. And the Federal law keeps its hawk eyes open to invigilate how they are using their assets.
For-profit organizations are SMBs and large corporate bodies in the form of sole proprietorship or limited liability or public limited companies. They eye at profit and never hide this.
For-profit enterprises can serve social purposes. An example is the International Council for Mining and Metals (ICMM). The intention behind setting it up was to explore the contribution of the mining industry to sustainable development. Soon after, 50 domestic mining companies and associations joined it.
The similarities between nonprofits and for-profits are proofs that they cross ways. The similarities indicate the gulf between them can be bridged. In the ensuing paragraphs, we’ll discuss how.
The key similarities
Akin to for-profit organizations, nonprofits have an intricate management structure. They both use cutting edge of human resource software. Both hire experienced managers. Nonprofits need to comply with relevant IRS codes. An organization with 501(c)(3) classification is a charity and the donations it receives come under tax. An organization with 501(c)(6), on the other hand, is exempted from tax.
Nonprofits promote themselves just like for-profit organizations do. They are active across digital channels, use nonprofit marketing tools, and are making a great use of social media and visual content like nonprofit infographics to drive traffic. Look at the pie chart below:
The differences in IRS codes require these organizations to have separate management procedures and accounting methods. Aside from that, both profit-based and nonprofits have organizational layers. People in the top layers are key decision makers and major stakeholders, responsible for the smooth functioning of the organization.
These similarities are at the structural level. More important similarities are at the functional level, which can be construed as ways to close the gap. In this article, I’ll discuss three such ways.
1. Corporate social responsibility
Both for-profits and nonprofits have social responsibilities. The term “corporate social responsibility,” in the narrowest sense, applies only to for-profit enterprises. But when used in a wider sense, it applies to any organization where responsibilities are shared among its stakeholders.
Corporate social responsibility (CSR) brings for-profits close to non-profits. Both engage in social activities without aiming for profit. Business organizations ask employees to voluntarily participate in CSR activities, similar to nonprofit organizations, where participation is at the participant’s discretion.
In case of corporate sponsorship for nonprofits, the corporate firm doesn’t directly involve in social activities, but promotes them through nonprofits. Corporate fundraising is a term that almost all nonprofits in the USA are familiar with. They even apply strategies for it and figure out what they can offer their sponsors beforehand. This is a viable model and puts the nuances of CSR in perspective.
What’s really interesting about CSR is it breaks the traditional boundaries that separate organizations. Educational institutes, NGOs, private sectors and public administrations all join hands and take actions to benefit the society. In the end, they learn the importance of collaboration and sustainable development.
2. Social enterprise ideas
If for-profits and nonprofits are two extremes, social enterprises exist in the middle. A social enterprise has characteristics of both for-profit and nonprofit organizations. Here are some remarkable social enterprise business ideas. For a better understanding, see the image below:
There are three venn diagrams instead of two. But you get the message anyway.
Unlike a traditional enterprise, a social enterprise is only partially profit-driven. Profit is undoubtedly its priority, but not the only priority. Other priorities are serving and enlightening people. Conformists often doubt the efficacy of such enterprise ideas.
Here’s an explanation of how such ideas can be successfully implemented:
Imagine there’s a restaurant that serves only vegan foods. The restaurant owner considers his venture a social enterprise because it highlights how a vegan diet can be good for an individual’s health and also for the environment. To share its vision, the entrepreneur makes use of infographics such as the one below:
Note, the infographic is all about the benefits of keeping goats alive. The entrepreneur is not marketing his restaurant, not even remotely. He’s only advocating the advantages of giving up goat curries and mutton chops, using an effective and highly shareable visual medium to communicate the information. He knows if people takes his campaign seriously, then they’ll look for vegan alternatives and may end up visiting his restaurant.
In short, social enterprise ideas don’t aim for short-term profit, but long-term growth, which comes as a package of sustainable improvement of the environ and the people around us. With more social enterprises springing up, the demarcation line between for-profits and nonprofits may get blurred in the near future.
3. Partnership between them
Competitors can’t collaborate with each other. But nonprofit organizations are not competing with money-minded, profit-driven entrepreneurs. Hence, there are chances of them forming an alliance and working towards a common goal.
David Cottrell, a visionary entrepreneur, busted the myth that offering giveaways evidence selflessness of brands. Even a 5-year child knows brands do it for marketing. In his own words, “If expecting something in return is your reason for giving, you are really not giving—you’re swapping. If you receive something in return for your gift, what you receive is a bonus—not a repayment of a debt.”
Amy Devita, a thought leader, explained in a webinar how a strategic partnership between for-profit and nonprofit can focus on the greater good. For private firms, the benefits of partnering with a nonprofit organization include increased media coverage, opportunity to network with other businesses, and receiving donations.
New business opportunities can unfold if profits and nonprofits partner up. Golf clubs have graphite shafts with carbon-fiber composites. A private firm can promote the idea of using carbon fiber alternatives to manufacture golf equipment and a nonprofit organization that encourages the use of renewable materials can bolster the idea.
With the passing of time, humans are becoming more and more compassionate. They are also warming up to the idea of sustainable and comprehensive growth. Many are taking individual social responsibilities seriously. Unless the gap between for-profit and nonprofit organizations are closed, the small initiatives taken by them will never realize. The three ways, discussed here can close this gap.