For-profit v non-profit a false dichotomy

Conventional wisdom insists that for-profits are for profit and non-profits not. But, says Joe Siebert, social media and e-commerce have enabled the emergence of a new kind of business model that’s found a way to take the best from both worlds.

seeds crowdThere has always been a bright line distinction between for-profit business and nonprofit charity, an “oil and water” dichotomy that paints their roles in society as not merely separate, but fundamentally incongruent.

After all, success in the free market requires a Darwinian mindset that prioritises self-interest to the exclusion of common good, right? And, conversely, true commitment to common good should require that self-interest be suspended in sacrifice to the cause, shouldn’t it?

Perhaps. But as our lives and economies become ever more entrenched in the digital world, a third option is taking shape. Over the past decade, social media has exponentially heightened our awareness of society’s greatest issues, and one side effect of this has been an increase in consumer pressure on corporations to become more socially responsible.

It’s this environment that has sparked a model of business that converges traditional for-profit/nonprofit roles under the a new banner that, contrary to old ways of thinking, boldly declares: “What’s best for business is also what’s best for society…and what’s best for society is also best for business.”

An ideal example here is TOMS, who is often seen as the forerunner of this paradigm shift. Founder Blake Mycoskie initially set up the company to provide shoes for needy children in developing countries. But what began as a modest side project conducted out of his apartment soon became an online sensation.

TOMS’ meteoric rise in 2006 (perhaps not coincidentally the same year Facebook expanded access to people outside the college sphere) was largely facilitated by word-of-mouth enthusiasm on social media. Word of their “One For One” program, promising that each pair of shoes sold would provide a pair to a child in need, spread like wildfire, captivating consumers and catapulting the company to household-name status almost overnight.

This was a signal to other entrepreneurs that a new era of commerce had begun, one that defied the mutually exclusive choice, as put by social activist, Dan Pallotta, between “doing well for one’s self” and “doing good for the world.” It was now possible to do both.

One of the largest factors responsible for this trend seems to be a particular proclivity of the millennial generation for supporting social good. A 2013 study by the World Economic Forum surveyed 5000 millennials from 18 different countries and found that their demographic believed “Improving Society” should be the number one priority of businesses.

The 2015 Nielsen Global Corporate Sustainability Report also found that 73% of millennial consumers were “willing to pay more for sustainable brands.” These factors, combined with millennials’ status as the first “digitally native” generation, has created an extremely hospitable online environment for businesses committed to providing sustainable benefits to society.

Venture capitalist John Levy famously called the mechanism behind this phenomenon the “double bottom line.” In order to maintain their financial bottom line, this new generation of business must simultaneously maintain its social bottom line.

When both of these silos are maintained in parallel, they feed into each other. The more social good into which a company invests, attracting millennial consumers, the more profit they make. The more profit they make, the more social good they can invest in, again attracting more millennial consumers.

This trend has grown since TOMS’ online debut in 2006, with many, many more companies jumping on the bandwagon: 

  • Warby Parker uses revenue from eyeglass sales to fund eye health programmes in the developing world
  • Bureo manufactures skateboards using recycled plastic from their local coastline in Chile
  • Better World Books resells books cheaply and, for every one sold, sells another to someone in need
  • Love Your Melon, whose primary product is hats, donates 50% of its profits to charity and has a mission of providing a hat to every child in America who has cancer.

At Seeds, we encourage spending on in-app purchases by donating a portion of that revenue to microloans that fund small businesses in the developing world.  Our free software platform compels more users to download and spend in apps through for-profit social good, with a portion of capital being channeled into microloans that fund entrepreneurs in the developing world.

seedslogo250While 97% of all app users don’t buy anything, Seeds users are up to 60% more likely to, creating more value for our developers, for our microlenders, and for microborrowers in need.

With the numbers of double bottom line companies on the rise, the false dichotomy between making a profit and doing good for the world continues to evaporate. And, with millennials becoming an ever more dominant force in the marketplace, projected to spend $1.4 trillion annually by 2020, what was once the exclusive domain of charity will become an increasingly lucrative space for businesses who are willing to invest in the common good.

Conventional wisdom insists that for-profits are for profit, non-profits are not, and never the twain shall meet. But social media and e-commerce have enabled the emergence of a new kind of business model that’s found a way to take the best from both worlds.

Joe Siebert is content writer for Seeds, a Brooklyn-based platform that encourages in-app spending for social good.