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
- Charles Darwin speculated that wingless insects thrived on windy islands so they wouldn't be blown off the land.
- While the reasoning was slightly faulty, researchers have now proved Darwin's 165-year-old "wind hypothesis."
- This finding is yet another example of how environments shape the animals that inhabit them.
Photo: Christian / Adobe Stock<p>Monash researchers looked at three decades of data on various insect species living in Antarctica and 28 Southern Ocean islands—including Svalbard, Jan Mayen, Ellef Ringnes, Bathurst, and St. Matthew—and discovered a trend: wind (as well as low air pressure and freezing temperatures) made flight nearly impossible to resident insects. They simply didn't have the energetic resources needed to take to the sky. Better to crawl around and scavenge.</p><p>Darwin wasn't completely right. He thought the evolutionary adaptations were due purely to wind throwing insects off the island. But nutrition matters too. Flight consumes a ton of energy. The windier it is, the harder insects have to work. Battling a gale requires an inordinate amount of calories. As the team writes, </p><p style="margin-left: 20px;">"Strong winds can also inhibit normal insect flight activity, thereby increasing the energetic costs of flying or maintaining flight structures. This energy trade-off is more complex than Darwin's single-step displacement mechanism because it requires genetic linkage between traits associated with flight ability, flight propensity, and fecundity or survival." </p><p>Still, you have to hand it to the man. During a time when most humans assumed animals were all the result of metaphysical tinkering, Darwin gazed out into nature and connected the dots. His mind has inspired over a century-and-a-half of scientific progress as we continue to build on—and, as this study shows, prove—his theories. </p><p>Darwin knew that every animal is the product of its environment, and therefore must respect both its boons and its boundaries. Talk about a lesson we need today. Environments are known to become very hostile to foreign invaders when pushed too hard. Right now, we're courting disaster. Hopefully, we won't wait for evolution to ground our ambitions. </p><p>--</p><p><em>Stay in touch with Derek on <a href="http://www.twitter.com/derekberes" target="_blank">Twitter</a> and <a href="https://www.facebook.com/DerekBeresdotcom" target="_blank" rel="noopener noreferrer">Facebook</a>. His most recent book is</em> "<em><a href="https://www.amazon.com/gp/product/B08KRVMP2M?pf_rd_r=MDJW43337675SZ0X00FH&pf_rd_p=edaba0ee-c2fe-4124-9f5d-b31d6b1bfbee" target="_blank" rel="noopener noreferrer">Hero's Dose: The Case For Psychedelics in Ritual and Therapy</a>."</em></p>
Scientists discover burrows of giant predator worms that lived on the seafloor 20 million years ago.
- Scientists in Taiwan find the lair of giant predator worms that inhabited the seafloor 20 million years ago.
- The worm is possibly related to the modern bobbit worm (Eunice aphroditois).
- The creatures can reach several meters in length and famously ambush their pray.
A three-dimensional model of the feeding behavior of Bobbit worms and the proposed formation of Pennichnus formosae.
Credit: Scientific Reports
Beware the Bobbit Worm!<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="1f9918e77851242c91382369581d3aac"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/_As1pHhyDHY?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span>
The idea behind the law was simple: make it more difficult for online sex traffickers to find victims.
- SESTA (Stop Enabling Sex Traffickers Act) and FOSTA (Allow States and Victims to Fight Online Sex Trafficking Act) started as two separate bills that were both created with a singular goal: curb online sex trafficking. They were signed into law by former President Trump in 2018.
- The implementation of this law in America has left an international impact, as websites attempt to protect themselves from liability by closing down the sections of their sites that sex workers use to arrange safe meetings with clientele.
- While supporters of this bill have framed FOSTA-SESTA as a vital tool that could prevent sex trafficking and allow sex trafficking survivors to sue those websites for facilitating their victimization, many other people are strictly against the bill and hope it will be reversed.
What is FOSTA-SESTA?<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="723125b44601d565a7c671c7523b6452"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/WBaqDjPCH8k?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span><p>SESTA (Stop Enabling Sex Traffickers Act) and FOSTA (Allow States and Victims to Fight Online Sex Trafficking Act) were signed into law by former President Trump in 2018. There was some argument that this law may be unconstitutional as it could potentially violate the <a href="https://constitution.congress.gov/constitution/amendment-1/" target="_blank">first amendment</a>. A criminal defense lawyer explains this law in-depth in <a href="https://www.youtube.com/watch?v=RoWx2hYg5uo&t=38s" target="_blank" rel="nofollow">this video</a>. </p><p><strong>What did FOSTA-SESTA aim to accomplish?</strong></p><p>The idea behind the law was simple: make it more difficult for online sex traffickers to find victims. FOSTA-SESTA started as two separate bills that were both created with a singular goal: curb online sex trafficking. Targeting websites like Backpage and Craigslist, where sex workers would often arrange meetings with their clientele, FOSTA-SESTA aimed to stop the illegal sex-trafficking activity being conducted online. While the aim of FOSTA-SESTA was to keep people safer, these laws have garnered international speculation and have become quite controversial. </p><p><a href="https://www.businesswire.com/news/home/20180321006214/en/National-Anti-Trafficking-Coalition-Celebrates-Survivors-Senate-Passes" target="_blank" rel="noopener noreferrer">According to BusinessWire</a>, many people are in support of this bill, including the National Center for Missing and Exploited Children and World Without Exploitation (WorldWE). </p><p>"With the growth of the Internet, human trafficking that once happened mainly on street corners has largely shifted online. According to the National Center for Missing & Exploited Children, 73 percent of the 10,000 child sex trafficking reports it receives from the public each year involve ads on the website Backpage.com."</p><p>As soon as this bill was <a href="https://www.pivotlegal.org/sesta_fosta_censoring_sex_workers_from_websites_sets_a_dangerous_precedent" target="_blank" rel="noopener noreferrer">signed into law</a>, websites where sex workers often vetted and arranged meetings with their clients could now be held liable for the actions of the millions of people that used their sites. This meant websites could be prosecuted if they engaged in "the promotion or facilitation of prostitution" or "facilitate traffickers in advertising the sale of unlawful sex acts with sex trafficking victims." </p><p><strong>The bill's effects were felt around the world — from Canadians being unhappy with the impact of this American bill to U.K. politicians considering the implementation of similar laws in the future.</strong> </p><p>Heather Jarvis, the program coordinator of the Safe Harbour Outreach Project (SHOP), which supports sex workers in the St. John's area, <a href="https://www.cbc.ca/news/canada/newfoundland-labrador/heather-jarvis-website-shutdown-1.4667018" target="_blank" rel="noopener noreferrer">explained to CBC in an interview</a> that the American bill is impacting everyone, everywhere: "When laws impact the internet — the internet is often borderless — it often expands across different countries. So although these are laws in the United States, what we've seen is they've been shutting down websites in Canada and other countries as well."</p><p>Jarvis suggests in her interview that instead of doing what they aimed to do with the bill and improving the safety of victims of sex trafficking or sexual exploitation, the website shutdowns are actually making sex workers less safe. </p><p>While <a href="https://gizmodo.com/the-uk-wants-its-own-version-of-fosta-sesta-that-could-1827420794" target="_blank" rel="noopener noreferrer">one U.K. publication</a> refers to FOSTA-SESTA as "well-intentioned but ultimately deeply-flawed laws," it also mentions that politicians in the United Kingdom are hoping to pursue similar laws in the near future. </p>
Has FOSTA-SESTA done more harm than good?<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTUxMzY5Ny9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY2ODUyNDc4OX0.dSEEzcflJJUTnUCFmuwmPAIA0f754eW7rN8x6L7fcCc/img.jpg?width=1245&coordinates=-68%2C595%2C-68%2C595&height=700" id="69d99" class="rm-shortcode" data-rm-shortcode-id="734759fa254b5a33777536e0b4d7b511" data-rm-shortcode-name="rebelmouse-image" alt="sex worker looking online for a job" data-width="1245" data-height="700" />
Is this really going to help, or is this bill simply pushing sex work and sex-related content further into the dark?
Credit: Евгений Вершинин on Adobe Stock<p>While <a href="https://www.businesswire.com/news/home/20180321006214/en/National-Anti-Trafficking-Coalition-Celebrates-Survivors-Senate-Passes" target="_blank">supporters of this bill</a> have framed FOSTA-SESTA as a vital tool that could prevent sex trafficking and allow sex trafficking survivors to sue those websites for facilitating their victimization, many other people are strictly against the bill and hope it will be reversed.</p><p><strong>One of the biggest problems many people have with this bill is that it forces sex workers into an even more dangerous situation, which is quite the opposite of what the bill had intended to do.</strong> </p><p>According to <a href="https://www.theglobeandmail.com/canada/article-anti-trafficking-activists-cheer-but-sex-workers-bemoan-shutdown-of/" target="_blank" rel="noopener noreferrer">Globe and Mail</a>, there has been an upswing in pimps sending sex workers messages that promise work - which puts sex workers on the losing end of a skewed power-dynamic, when before they could attempt to safely arrange their own meetings online. </p><p><strong>How dangerous was online sex work before FOSTA-SESTA? </strong></p><p><a href="https://www.beyond-the-gaze.com/wp-content/uploads/2018/01/BtGbriefingsummaryoverview.pdf" target="_blank" rel="noopener noreferrer">The University of Leicester Department of Criminology</a> conducted an online survey that focused on the relative safety of internet-based sex work compared with outdoor sex work. According to the results, 91.6 percent of participants had not experienced a burglary in the past 5 years, 84.4 percent had not experienced physical assault in the same period, and only 5 percent had experienced physical assault in the last 12 months. </p><p><a href="https://www.pivotlegal.org/sesta_fosta_censoring_sex_workers_from_websites_sets_a_dangerous_precedent" target="_blank" rel="noopener noreferrer">PivotLegal</a> expresses concerns about this: "It is resoundingly clear, both from personal testimony and data, that attacking online sex work is an assault on the health and safety of people in the real world. In a darkly ironic twist, SESTA/FOSTA, legislation aimed at protecting victims of and preventing human trafficking for the purposes of sexual exploitation, will do the exact opposite."</p><p><strong>Websites are also being hypervigilant (and censoring more content than needed) because they can't possibly police every single user's activity on their platform.</strong> </p><p>Passing this bill meant any website (not just the ones that are commonly used by sex traffickers) could be held liable for their user's posts. Naturally, this saw a general "tightening of the belt" when it came to what was allowed on various platforms. In late 2018, shortly after the FOSTA-SESTA bill was passed, companies like Facebook slowly began to alter their terms and conditions to protect themselves. </p><p>Facebook notably added sections that express prohibited certain sexual content and messages:</p><p style="margin-left: 20px;"><em>"Content that includes an implicit invitation for sexual intercourse, which can be described as naming a sexual act and other suggestive elements including (but not limited to):</em></p><p style="margin-left: 20px;"><em>– vague suggestive statements such as: 'looking forward to an enjoyable evening'</em></p><p style="margin-left: 20px;"><em>– sexual use of language […]</em></p><p style="margin-left: 20px;"><em>– content (self-made, digital or existing) that possibly portrays explicit sexual acts or a suggestively positioned person/suggestively positioned persons."<br><br> </em></p><p>Additionally, sections like this were also added, prohibiting things that could allude to sexual activity: </p><p style="margin-left: 20px;"><em>"Content in which other acts committed by adults are requested or offered, such as:</em></p><p style="margin-left: 20px;"><em>– commercial pornography</em></p><p style="margin-left: 20px;"><em>– partners that share fetishes or sexual interests"</em></p><p>Facebook wasn't the only website to crack down on their policies — the Craigslist classifieds section being removed and Reddit banned quite a large number of sex-worker related subreddits. </p><p><strong>Is FOSTA-SESTA really helpful?</strong> </p><p>This is the question many people are facing with the FOSTA-SESTA acts being passed just a few years ago. Is this really going to help, or is this bill simply pushing sex work and sex-related content further into the dark? Opinions seem to be split down the middle on this — what do you think?</p>
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