Social Innovation Businesses: Nonprofit or For-Profit?

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Earlier this month, the New York Times published an article entitled A Social Entrepreneur's Quandary: Nonprofit or For-Profit? The case study focused on a social entrepreneur grappling with some tough decisions about the direction of his business – the case of Saul Garlick, founder of ThinkImpact, reignited a conversation on the benefits and drawbacks of operating as a nonprofit, a for-profit, or a hybrid (blended for-profit/nonprofit) company. The Times asked three experts with experience in the social enterprise world which of the routes ThinkImpact should go – and each gave a different answer.

In a follow-up interview, Garlick stated that he identified most with UC Berkeley lecturer and social entrepreneur Jonathan Lewis' advice that he should go commercial. One of Garlick's comments resonated with us, as it captures an important viewpoint in social enterprise discourse. "People make the mistake of distinguishing for-good vs. for-money. The notion that nonprofits are the right - or even, better - vehicle for doing good in the world is no longer true," said Garlick, "that may have been the case at one time, but today, ethical, well-run businesses with products that make life better are remarkable at improving lives at scale."

JessWith the emergence of Benefit Corporations, companies that incorporate social and/or environmental impact into their business models, social entrepreneurs are presented with a menu of options for legally incorporating their businesses. One of the qualifications for our Yoshiyama Entrepreneurs is a revenue generating component to their business, no matter what classification their business falls under. Our Yoshiyama Young Entrepreneurs - 9 for-profit and 6 nonprofit - are exemplary entrepreneurs with much variation in their approaches to profit and financial models. Although our program is relatively young (this is our 4th year in operation), we are proud to see that all of the Yoshiyama Entrepreneurs are still in business and are seeing the benefits of tackling social issues through innovative business models.

 We recently visited Jessamyn Rodriguez, founder and CEO of the successful Hot Bread Kitchen, in New York City to discuss the growth of her business and plans for the future. Over freshly baked bread and coffee in Hot Bread Kitchen's East Harlem bakery, Jessamyn discussed the challenges of operating as a nonprofit. Despite a strong revenue stream from the bakery and renting kitchen space to other budding food entrepreneurs, Jessamyn is hesitant to expand her business to other cities using a nonprofit model. "Non-profit capital is expensive. Cultivating donors and cultivating foundations is a very hard way to grow a business," said Jessamyn, "I will not raise the funds to expand to other cities through a strictly non-profit space...It's the question that my board and I grapple with."

There is no magic bullet for entrepreneurial success. As entrepreneurs focus on innovative ways to ameliorate poverty in the United States, we hope to see more budding enterprises learn from the triumphs and tribulations of our entrepreneurs. They have seen the business value of investing in social ventures – regardless of their company's business classification.

For more information and to watch our 2012 Yoshiyama video, visit: Yoshiyama Young Entrepreneurs

For more information on becoming a certified B Corporation, visit: B Lab 

Blog posts are authored by Hitachi Foundation staff and do not necessarily reflect the views or opinions of the Foundation Board, Hitachi, Ltd., Hitachi America, Ltd., or any Hitachi company affiliate.


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