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I'm a consultant and advisor  for social enterprises - using business to change the world.

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Profit vs Profiteering

There’s an old, outdated belief that comes up quite a bit in this industry, which annoys me more than it should.

Some people believe that they are doing good things in the world because:

 

We don’t make any profit”

“Our profits are given away”

“Oh, you don’t understand, we’re a SOCIAL enterprise, you can’t possibly make MONEY!” (Emphasis included to demonstrate the patronizing delivery)

 

The belief is that money is evil and terrible unless given to a charity, and the idea of making a profit is the work of the corporate devil.

 

This view is often found amongst the dinosaurs, who coincidentally, are now scrambling for grant funds and philanthropy in order to remain operational.

The problem is baked into the name of the sector; Not For Profits.

 

TDi co-founder Paul Steele always says “Never define yourself by what you’re not”, and he’s spot on. Not making a profit isn’t impressive, doing as much good as you possibly can is impressive.

 

One fascinating trick Paul taught me was the magic of changing the word Profit to the word Surplus. EVERYONE loves a surplus, it’s what keeps organisations alive. Not For Profits makes a surplus, and so they should.

Profit is such a malleable figure, there are so many accounting tricks that can make the profit figure look bigger or smaller. Charities can’t take on investors, but they could technically pay their staff enormous salaries. Let’s focus on the real problems, instead of arguing over legal structures.

 

I think I know where the confusion comes from. There’s an ickiness to the word Profit that stems from its ugly cousin: Profiteering.

Profiteering, we can agree, is unhelpful for groups trying to make a difference. Profiteering is a win-lose game; An investor/owner does well at the expense of the social mission. I do not encourage the organisations I assist to start Profiteering.

 

Comedian Dave Chappelle said “Money is the fuel of choices”.

We’ve all heard the cliché that money can’t buy happiness, but Chappelle argues that money can buy freedom and choices, and freedom and choices lead to happiness. What would your organisation do if you had an extra $100k to allocate? This usually leads to a wonderful debate, a fantastic problem to have.

So instead of declaring ourselves good because of how little profit our organisations make, let’s do good through the choices we make.

Sometimes the wisest path is to keep some retained earnings in order to scale up your business the following year. Great! We can often do more good by strategically re-investing than we can by giving our money away. It might not look impressive at first, but it builds the strong foundations that will keep your enterprise running for years to come, and ultimately, do exponentially more good for the world.

 

Break the habit of breaking even

How Pricing Strategy Shapes Your Business Model

How Pricing Strategy Shapes Your Business Model