Should you be for-profit or nonprofit? Why not both?
Cutting edge social innovators should consider hybrid models
Rich Tafel is founder of The Public Squared, a public policy training program for nonprofits and social entrepreneurs.
For the last decade, Tafel has provided strategic policy advice to nonprofits on a variety of causes, including AIDS programs for Africa, civil rights programs Latin America, and education and health care reform in the United States. He is a guest lecturer in Urban Health and Advocacy at Johns Hopkins University.
Prior to his international consulting, Tafel founded the Log Cabin Republicans in 1993. During his tenure, the Log Cabin Republicans went from an unknown entity to a well-known brand in American political life. At the height of the culture wars, he debated the likes of the Reverend Jerry Fallwell on Larry King Live. He has appeared on most major political TV programs and fought for appropriate AIDS funding and equality for gays and lesbians. He testified before Congress on the need to support the Ryan White Care Act. In 1999, he authored Party Crasher: A Gay Republican Challenges Politics as Usual. Tafel has also been appointed by Governor Weld (R-MA) to manage the adolescent health programs of Massachusetts.
Tafel's work in the public policy arena for social justice causes is inspired by his faith. After graduating from Harvard Divinity School he served at the University Chapel. He is an ordained minister in the Swedenborgian Church. He is a certified coach through Franklin Covey and certified through the International Coaching Association. He's an alumni of the Prince of Wales, Business and Sustainability Program, Cambridge College.
Over the past fifteen years, I've had the opportunity to provide strategy for well over a hundred social change start-ups seeking to make the world a better place. The most common question they ask, "Should we be a for-profit or a nonprofit."
My answer, "Why not consider both?" Let's review the advantages and disadvantages.
The nonprofit optionHuman hands holding polygonal heartHuman hands holding polygonal heart. Love, peace and donation concept. Charity event. Vector illustration for non-profit organisation
The nonprofit option is the most popular choice with over $410 billion given to 1.5 million nonprofits last year alone. Nonprofit leaders report back to me four primary advantages to this legal structure:
- "My donors get a tax deduction."
- "Foundations prefer giving to nonprofit entities."
- "Nonprofits have a good brand in our culture."
- "We don't have to pay taxes!"
They also cite three major disadvantages:
- "I feel like I'm in constant fundraising mode—I'm chasing donors not solving problems."
- "Instead of seeing our impact, donors scrutinize my salary and overhead costs."
- "No matter how much sweat equity I put into my work, I have no financial gain to show for it."
Impact investing for for-profit social ventures
The rise of impact investing into for-profit social ventures makes this is a powerful alternative to the nonprofit model. The Global Impact Investing Network reported that "225 investors, including pension funds, invested $35.5 billion across 11,136 impact investment deals in 2017. That is up 58% from $22.1 billion across 7,951 deals in 2016." That $35 billion is getting pretty close to the $66.90 billion donated by charitable foundations in 2017.
Nonprofit leaders are also looking toward for profit earned income as part of their future as well. A recent Bridgespan Group survey of US nonprofits' executives reported they "believe earned income would play an important role in bolstering their organizations' revenue in the future." According to Echoing Green, a nonprofit with a 25-year record of supporting early-stage social entrepreneurs, the proportion of their applicant pool proposing for-profit and hybrid organizations has grown to nearly 50 percent, compared to 15 percent in 2006.
For-profit social ventures name three primary advantages to choosing this model.
- "I no longer feel like I'm begging donors year in and year out."
- "There's untapped capital out there without sufficient social ventures to invest in."
- "We put in our own sweat equity and as owners, I might get a great long term financial return for my work."
Social ventures also described to me three disadvantages.
- "I don't know how to find impact investors."
- "We aren't able to get funding from foundations or other traditional donors."
- "It's hard to measure and report out both impact measurement and return on investment to investors."
Hybrid models that include both for-profit and nonprofit entities can maximize the advantages of each model, while minimizing the disadvantages. These hybrids come in many shapes and sizes.
A Case Study: Town Stages
A Town Stages production space
A good examples of a hybrid model was reported in Forbes magazine by Carey Purcell. In the article titled, "How a 'Robin Hood' Business Model Supports an Artistic Clubhouse in Tribeca," she tells the story of Town Stages LLC a "female-driven cultural institution and event venue owned by a nonprofit Sokoloff Arts." The founder Robin Sokoloff wanted to provide spaces to work and live for artists like herself to survive ever-rising NYC rent. Town Stages, with space rentals for weddings, bar mitzvahs, and business events, subsidizes Sokoloff Art fellows.
Artists can rent the space at the rate they can afford, and the revenue is used to subsidize other emerging artists. Not only does she provide spaces for artists, but her organization is also focused on the advancement of young women, minorities, and LGBTQ voices. Town Stages has become a home for underrepresented voices in the community and was able to expand its impact thanks to the success of her first artistic hub. Since 2012, they allowed 70,000 people to create almost 900 different works of art.
Social Venture hybrids have some profound advantages, especially when it comes to fundraising and equity. In particular, they allow the social venture to say "yes" to both impact investors and traditional foundations. They allow social entrepreneur teams to be owners and get a financial reward for the unpaid time they invest in the cause.
"Guard Rails" required
Hybrids also have the disadvantage of requiring more well thought out accounting "guard rails" to make sure the organization operates legally — nonprofit money must always serves the public interest, not someone's private interest. Arron M. Fox CPA at the Senior Tax Manager, at Raffa, Marcum's Nonprofit and Social Sector Group describes one way to create a hybrid model called a for-profit subsidiary in his piece "Considerations When Creating a For-Profit Subsidiary."
Rich Tafel is the Director of Raffa Social Capital Advisors - Marcum's Nonprofit and Social Sector Group
Marcum LLP. Rich.Tafel@MarcumLLP.com
In May 2018, the city of Paris set an ambition to be carbon-neutral by 2050.
- Countries, governments and companies are aligning on a need for net-zero - and this is an opportunity to rethink decarbonizing our cities.
- There is no "one-size-fits-all" solution – each city's needs must be at the heart of developing integrated energy solutions.
- A city can only decarbonize through collaboration between government, the private sector, and local communities.
The results could help NASA's Perseverance rover find evidence of ancient life on Mars.
- In a recent study, researchers simulated the environment of ancient Mars and tested whether a type of extremophile found on Earth could grow on fragments of a meteorite from Mars.
- Extremophiles are organisms that have adapted to survive in conditions in which most life forms cannot, such as ice, volcanoes and space.
- The results showed that the extremophiles were able to convert the rock into energy. What's more, the microbes left behind biosignatures that could help scientists identify evidence of past life on Mars.
Northwest Africa (NWA) 7034
NASA<p>Extremophiles are organisms that thrive in conditions where most life forms would die. Scientists have observed them in volcanoes, soda lakes, Antarctic ice and hydrothermal vents. Some have even <a href="https://bigthink.com/surprising-science/tardigrades-extremophiles" target="_self">survived the vacuum of space</a>. The team behind the recent study focused on a particular class of extremophiles called chemolithotrophs, which are microbes that use inorganic compounds as a source of energy.<br></p><p>To test whether chemolithotrophs might have been able to evolve on Mars, the team placed a chemolithtrophic microbe called <a href="https://en.wikipedia.org/wiki/Metallosphaera_sedula" target="_blank"><em>Metallosphaera sedula</em></a> onto bits of Black Beauty. The researchers simulated the ancient Martian environment by keeping the microbe-covered rock bits in a bioreactor that controlled temperature and levels of carbon dioxide and air.</p>
The high-angle annular dark-field (HAADF) scanning transmission electron microscopy (STEM) image of the focused ion beam (FIB) section extracted for STEM analysis from the NWA 7034 fragment used in this study
Milojevic et al.<p>Using microscopy, the researchers saw that the microbe successfully converted rock pieces into biomass.</p><p style="margin-left: 20px;">"Grown on Martian crustal material, the microbe formed a robust mineral capsule comprised [sic] of complexed iron, manganese and aluminum phosphates," Milojevic told Science Alert.</p><p style="margin-left: 20px;">"Apart from the massive encrustation of the cell surface, we have observed intracellular formation of crystalline deposits of a very complex nature (Fe, Mn oxides, mixed Mn silicates). These are distinguishable unique features of growth on the Noachian Martian breccia, which we did not observe previously when cultivating this microbe on terrestrial mineral sources and a stony chondritic meteorite."</p>
Mars 2020 mission<p>The study didn't prove that chemolithotrophs or any other type of life ever existed on Mars. But the results did show that the chemolithotrophs left behind unique biosignatures as they converted the rock bits into energy. </p><p>With these fingerprints on the books, scientists working with the Mars 2020 mission might be able to find similar biosignatures in rock samples collected or observed by the Perseverance rover, which landed on Mars in February. Rock samples collected by the rover are expected to return to Earth in 2031.</p>
While not the first such minister, the loneliness epidemic in Japan will make this one the hardest working.
- The Japanese government has appointed a Minister of Loneliness to implement policies designed to fight isolation and lower suicide rates.
- They are the second country, after the U.K., to dedicate a cabinet member to the task.
- While Japan is famous for how its loneliness epidemic manifests, it isn't alone in having one.
The Ministry of Loneliness<iframe width="730" height="430" src="https://www.youtube.com/embed/I5FIohjZT8o" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><p><a href="https://www.jimin.jp/english/profile/members/114749.html" target="_blank" rel="noopener noreferrer">Tetsushi Sakamoto</a>, already in the government as the minister in charge of raising Japan's low birthrate and revitalizing regional economies, was appointed this <a href="https://www.japantimes.co.jp/news/2021/02/21/national/japan-tackles-loneliness/" target="_blank" rel="noopener noreferrer">month</a> to the additional role. He has already announced plans for an emergency national forum to discuss the issue and share the testimony of lonely <a href="https://www.japantimes.co.jp/news/2021/02/12/national/loneliness-isolation-minister/" target="_blank" rel="noopener noreferrer">individuals</a>.</p><p>Given the complexity of the problem, the minister will primarily oversee the coordination of efforts between different <a href="https://www.insider.com/japan-minister-of-loneliness-suicides-rise-pandemic-2021-2" target="_blank" rel="noopener noreferrer">ministries</a> that hope to address the issue alongside a task <a href="https://www.japantimes.co.jp/news/2021/02/21/national/japan-tackles-loneliness/" target="_blank" rel="noopener noreferrer">force</a>. He steps into his role not a moment too soon. The loneliness epidemic in Japan is uniquely well known around the world.</p><p><a href="https://en.wikipedia.org/wiki/Hikikomori" target="_blank" rel="noopener noreferrer"><em>Hikikomori</em></a><em>,</em> often translated as "acute social withdrawal," is the phenomenon of people completely withdrawing from society for months or years at a time and living as modern-day hermits. While cases exist in many <a href="https://www.frontiersin.org/articles/10.3389/fpsyt.2019.00247/full" target="_blank" rel="noopener noreferrer">countries</a>, the problem is better known and more prevalent in Japan. Estimates vary, but some suggest that one million Japanese live like this and that 1.5 million more are at <a href="https://www.nationalgeographic.com/photography/article/japan-hikikomori-isolation-society" target="_blank" rel="noopener noreferrer">risk</a> of developing the condition. Individuals practicing this hermitage often express contentment with their isolation at first before encountering severe symptoms of loneliness and <a href="https://www.sciencedaily.com/releases/2020/01/200110155241.htm" target="_blank" rel="noopener noreferrer">distress</a>.</p><p><a href="https://en.wikipedia.org/wiki/Kodokushi" target="_blank" rel="noopener noreferrer"><em>Kodokushi</em></a>, the phenomenon of the elderly dying alone and remaining undiscovered for some time due to their isolation, is also a widespread issue in Japan that has attracted national attention for decades.</p><p>These are just the most shocking elements of the loneliness crisis. As we've discussed before, loneliness can cause health issues akin to <a href="https://www.inc.com/amy-morin/americas-loneliness-epidemic-is-more-lethal-than-smoking-heres-what-you-can-do-to-combat-isolation.html" target="_blank" rel="noopener noreferrer">smoking</a>. A lack of interaction within a community can cause social <a href="https://bigthink.com/in-their-own-words/how-religious-neighbors-are-better-neighbors" target="_self">problems</a>. It is even associated with changes in the <a href="https://bigthink.com/mind-brain/loneliness-brain" target="_self">brain</a>. While there is nothing wrong with wanting a little time to yourself, the inability to get the socialization that many people need is a real problem with real <a href="https://bigthink.com/mind-brain/brain-loneliness-hunger" target="_self">consequences</a>.</p>
The virus that broke the camel's back<iframe width="730" height="430" src="https://www.youtube.com/embed/Hp-L844-5k8" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><p> A global loneliness pandemic existed before COVID-19, and the two working in tandem has been catastrophic. </p><p>Japanese society has always placed a value on solitude, often associating it with self-reliance, which makes dealing with the problem of excessive solitude more difficult. Before the pandemic, 16.1 percent of Japanese seniors reported having nobody to turn to in a time of need, the highest rate of any nation <a href="https://www.japantimes.co.jp/news/2021/02/21/national/japan-tackles-loneliness/" target="_blank" rel="noopener noreferrer">considered</a>. Seventeen percent of Japanese men surveyed in 2005 said that they "rarely or never spend time with friends, colleagues, or others in social groups." This was three times the average rate of other <a href="http://www.oecd.org/sdd/37964677.pdf" target="_blank" rel="noopener noreferrer">countries</a>. </p><p>American individualism also creates a fertile environment for isolation to grow. About a month before the pandemic started, nearly<a href="https://www.npr.org/sections/health-shots/2020/01/23/798676465/most-americans-are-lonely-and-our-workplace-culture-may-not-be-helping" target="_blank" rel="noopener noreferrer"> 3 in 5</a> Americans reported being lonely in a <a href="https://www.cigna.com/about-us/newsroom/studies-and-reports/combatting-loneliness/" target="_blank" rel="noopener noreferrer">report</a> issued by Cigna. This is a slight increase over previous studies, which had been pointing in the same direction for years. </p><p>In the United Kingdom, the problem prompted the creation of the Jo Cox Commission on Loneliness. The commission's <a href="https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/active-communities/rb_dec17_jocox_commission_finalreport.pdf" target="_blank" rel="noopener noreferrer">final report </a>paints a stark picture of the U.K.'s situation in 2017, with millions of people from all parts of British society reporting feeling regular loneliness at a tremendous cost to personal health, society, and the economy.</p><p>The report called for a lead minister to address the problem at the national level, incorporating government action with the insights provided by volunteer organizations, businesses, the NHS, and other organizations on the crisis's front lines. Her Majesty's Government acted on the report and appointed the first Minister for Loneliness in <a href="https://time.com/5248016/tracey-crouch-uk-loneliness-minister/" target="_blank" rel="noopener noreferrer">2018</a>, <a href="https://en.wikipedia.org/wiki/Tracey_Crouch" target="_blank" rel="noopener noreferrer">Tracey Crouch</a>, and dedicated millions of pounds to battling the problem. </p><p>The distancing procedures necessitated by the COVID-19 epidemic saved many lives but exacerbated an existing problem of loneliness in many parts of the world. While the issue had received attention before, Japan's steps to address the situation suggest that people are now willing to treat it with the seriousness it deserves.</p><p>--</p><p><em>If you or a loved one are having suicidal thoughts, help is available. The suicide prevention hotline can be reached at 1-800-273-8255.</em></p>
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