By Adrian Dellecker, Head of Programme, Luc Hoffmann Institute
I write this fresh out of an inspiring Luc Hoffmann Institute convening event gathering together a diverse bunch of intellectually curious individuals, bringing a wealth of experience from across different sectors. The day started off with a slight provocation: after calling the event ‘innovative business models for non-profits’, we went on to invite a keynote speaker to start us off with a talk on… his for-profit social enterprise, Internet of Elephants.
Our mission at the Luc Hoffmann Institute is clear: we seek to drive change and impact in the environmental sector for a future worth living in. Our history, structure and hosting arrangement with WWF International, however, tacitly point to supporting the non-profit sector, specifically the non-governmental organisations actively engaged in this mission. Our founding contract even has a specific clause against making a buck.
This is part of a likely dated pattern that profits and impact are incompatible, or, rather more mildly, that they are mutual distractions: the search for profits deters from impact for the good of people and the planet, and the drive to achieve real and lasting impact precludes profits.
Yet this is a very narrow reading of ‘for-profit’ and ‘not-for-profit’. At their core, these are mere legal niceties. Although actual laws and regulations vary from country to country, being classified as a non-profit generally means an organisation must reinvest any profits into the enterprise. It is not a ban on making a surplus or having more income than expenditure. The staff of non-profits can also be paid handsomely.
In reality, as one participant in our convening framed it in the discussions: “if you don’t make a surplus, you die”, whether you are a for-profit or not. And if what we are really driving at is impact, there is little evidence to prove that a non-profit model is more effective than a for-profit. If you take negative impact, then clearly the for-profit sector has a far greater impact. Why could it not be a better model? This much has been touted frequently in the past few years and has forced a number of non-profit organisations to put business hats on.
But the more striking insight to me has been the exact opposite of this: might the non-profit model be underestimated? Might it not in fact be an excellent model…for enterprise?
Indeed, over the course of many interactions with entrepreneurs in this last year I’ve been working with the Luc Hoffmann Institute, I have been struck by how many do not even consider the non-profit model as worthy of their consideration. We get all sorts of innovators professing to desire impact – from socially conscious food packaging to virtual platforms for sustainable investing – yet none seem to consider the non-profit model as a real possibility, even when pressed. In fact, if one is really trying to have an impact first and foremost, why would the notion of doing this via a foundation, rather than a limited liability company, for example, be so risible?
After all, the non-profit model is not so undesirable: it allows a large operating space, it can be global in scope, it can attract dedicated talent, and donations made to it are often, to an extent, tax deductible. Income can come from a number of revenue sources – including licensing and selling merchandise – but non-profits can also tap into a large market of small donors or members. Currently, there are many millions of individuals willing to give sums of money on a regular basis to large and small non-profit organisations. So the entrepreneur set on changing the world, even through a product, could aim for this market of inspired and motivated individuals.
And yet we only hear of ‘the next Uber’ or Google or Tesla. The next disrupter is, in the minds of entrepreneurs and investors, necessarily a for-profit, albeit one that may or may not have a social or environmental goal. Nobody seems eager to be ‘the next WWF’ or Greenpeace or Oxfam. Yet for many of the entrepreneurs we talk to, there is a genuine desire for positive impact, markedly more so than a desire for profit alone.
That may well be the most damning evidence proving that the NGO model is outdated because it is misunderstood. It is not ineffective. Why would the vibrant and thriving realm of entrepreneurs not benefit the non-profit sector? Where is the next WWF? Who is competing for that market, ready to disrupt, and keep the established players on their feet and innovating? That is a challenge worthy of an answer.