That dilemma gave rise 15-20 years ago to a social phenomenon that came to be known as “social venture” or “social entrepreneurship”–experiments in bringing for-profit business practices into the not-for-profit, social benefit arena. When I studied this arena ten years ago, I learned that it is not an entirely new practice but has called forth a great deal of new language and conversation.

I have always maintained that if not-for-profit entities were not expected to make money, they would not be governed by the IRS!  The key difference between a for-profit company and a 501(c)(3) organization is for whom the profits are accrued: the for-profit company creates wealth for shareholders (stockholders, if it is publicly traded) while the not-for-profit’s wealth is returned to the community by paying for more publicly-beneficial “mission.” In fact we have great models of not-for-profit organizations that have succeeded in earning income rather than only depending upon charity.

That’s why I wrote Models of Social Venture,  published by The Philanthropic Enterprise in 2002.  This paper explores  how social entrepreneurs create new models of venture philanthropy to produce business results and social benefits.  These are models where the benefits do not rely on charity or “gifts” alone, but include mechanisms to produce revenue, such as Goodwill Industries.

I don’t subscribe to the theory that businesses and charities or agencies should be such different entities. They exist to meet different purposes, for sure, but as an enterprise they all need accountability for the top line and the bottom line.

What do you think?

Let Them Learn: Outsourcing to Fund America’s Classrooms

Jane Addams, Hull House Founder, with children

The Hull House, having served Chicago residents for 120 years, had to close its doors in the face of huge deficits building  over as long as ten years.

The Chronicle of Philanthropy has an excellent blog post and readers’ comments about the circumstances that led to this outcome.

I have written extensively about what I call the “culture of scarcity” in nonprofit organizations. This is a culture of entitlement, an expectation that not much will be really earned and most needs will be met through giving in some fashion.  In the Hull House case, it seems increasing dependence on government contracts was a big part of the problem. The combination of public and nonprofit collaboration without a strong private-sector component has repeatedly proven to be disastrous. Why?

Part of the problem is the notion of nonprofit as a short-cut for not-for-profit. Far too often board members who are very savvy financially in their for-profit businesses and who understand sustainable business models take off their “real-world” hat and subscribe to the scarcity model.  I have known, worked with, worked for, and consulted with many board members who truly believe it is wrong for a nonprofit to earn money.

But here’s the thing–if the IRS didn’t believe they would make money, why would nonprofits be regulated by tax law?

A not-for-profit organization is a business.  That’s not a dirty word. It’s in the business of its mission–just as for-profits are in the business of their products and services.  The only difference is who benefits from the profits–shareholders or stakeholders?

Read the sad story of Hull House and consider its implications for your business and your governance roles.

Many thanks to my friend Lenore Ealy at The Philanthropic Enterprise for bringing this story to my attention.

Have you ever served on a nonprofit board and felt uneasy about financial reporting? We’d love to share your comments.

Culture

Smith Weaver Smith has been in business since 1996, and we have served hundreds of clients in business, higher education, k-12 schools, membership associations, and large nonprofit organizations. But in recent years we have been busy promoting other businesses, so it’s time to reframe and refocus our face to the market.

I’m going to start out this blog by giving you some ideas of who we are, what we care about, and what are the things we help others to accomplish. Because we’ve worked with so many clients in different in different spheres of influence and quite different missions, we’ve gained some interesting perspectives on how people come together to solve problems or take advantage of opportunities.

All of our work is about getting things done–as fast as possible, as well as possible, as efficiently as possible. Usually the many stakeholders have conflicting ideas about how to do things, what to do, and even what is the purpose of the project. They have differing notions of what is fair, just, or pragmatic; they use different languages to express themselves; they have differing senses of how to disagree productively and how to reach consensus.

All of these traits come down to culture. When I am working with one company that wants to grow their business, it’s their company culture that either supports the effort or gets in the way. When the company is stagnant or has reached a plateau, that’s a sign that they have a culture that worked in the past but won’t work for the future.

When two or more organizations come together in a joint venture, their differing cultures impede progress. We often work on partnership projects with education and business, or nonprofits and for-profit organizations.  Their fundamental beliefs, values, and ways of doing things could not be more diverse. Yes, in order to accomplish a bigger goal, they have to create a new culture within which they can operate together.

Edgar Schein, retired from the Sloan School at MIT, defined culture as “the shared history of what works.” When you think of it that way, you can understand why people resist or undermine culture change and prefer their own culture to that of others. After all, it it’s working, why would we want to change it?

The problem, of course, is that lots of other things are changing, and often what used to work, works no more.

That’s why we are strong believers in collaborative processes that help people define and create new functional cultures to accomplish their biggest goals.

That’s what we’re all about, and that’s what this blog is all about.

Have you ever worked in a culture that was getting in the way of progress?  We’d love your comments.

Barbara Weaver Smith

For more than 15 years, we’ve been helping companies and nonpofits accomplish their biggest deals in record time.  I started this company because I was frustrated with the slow pace of getting things done in the bureaucracies where I had been working–corporate, academic, and nonprofit. In each of these places, well-meaning people wanted to get the right things done, but the weight of the system held them down. It was maddening to be a leader inside systems that stifled leadership.

Especially in systems where decision-making is designed to be inclusive–like a university or a community agency–the processes of doing things were completely counter to getting them done.  Like Congress today.  When the inclusive processes fail, someone is going to step in and dictate the next move, thereby increasing the stress on the system and the people who work and live within it and further undermining people’s faith in that system.

So I started a company dedicated to learning and teaching new ways of getting the right things done fast.  We’ve taken on fascinating projects with huge barriers to collaboration, and I’ll write about those and our lessons learned.  I look forward to hearing your examples of overcoming obstacles to getting things done.