Nonprofit, For-profit, or Something in Between?

The second most frequent question I get from startup social entrepreneurs is: “Should I start a nonprofit or a for-profit?” The first question is, of course, “Where can I find the money to pursue my dream of innovative social change?”

As someone who has started more than a dozen for-profit and nonprofit enterprises (a few of them successfully!), those are typically not the first two questions to ask. I believe that you need to think through your venture before trying to answer the structure and the capital questions. Figure out your value proposition, your motivation, and your definition of success. If you have a good handle on these issues, your path to launching and funding your social enterprise will be much clearer. You’ll also be ready to talk to an attorney who can help you with the process of setting up an organization that meets your objectives.

Looking at what other social entrepreneurs have done really illuminates the trade-offs you’ll face. I’ve learned a great deal by talking to my peer social entrepreneurs and reading papers on these issues (see the bibliography below for some of the key papers on these topics). A meeting a couple of years ago on hybrid forms, held at the annual summit of the Social Enterprise Alliance, crystallized for me the need to write on this topic from the practitioner’s point of view. And so I was delighted when the Stanford Social Innovation Review agreed to publish my article, “For Love or Lucre,” earlier this year.

The article generated a great deal of interest, and SSIR invited me back to give a webinar on the topic, scheduled for Thursday, September 22, 2011, at 11:00am PT, 2:00pm ET. Interested people can register online. It’s clearly a hot topic, as tons of people have registered already.

This is an opportunity to explore these issues from the practitioner point of view. We’re collecting questions from people who are registering, including startup social entrepreneurs, established social entrepreneurs, and people who help social entrepreneurs. It’s a chance to talk about issues faced by real social entrepreneurs and the structure choices they made (and how that worked out).

I’m looking forward to discussing these issues with people who share my goal of creating enterprises that are neither fully charitable nor fully profit focused. I believe that ventures that can do both business and social good have a great deal to contribute to society!

Bibliography of papers that influenced “For Love or Lucre”:
● Alter, Kim, “Social Enterprise Typology,” from Virtue Ventures website, November 2007.
● Bromberger, Allen. “Financing Social Ventures,” presentation at the Social Enterprise Alliance Summit, April 2009.
● Bromberger, Allen. “Establishing New Legal Forms for Fourth Sector Organizations,” from the “Establishing New Legal Forms for Fourth Sector Organizations” meeting, sponsored by the Fourth Sector Network, Social Enterprise Alliance and Corporation 20/20, held at the NYU Law School, July 2008.
● Bromberger, Allen. “Strategic Implications of Social Enterprise Forms,” in Mission, Inc. The Practitioners, July 2008.
● Bromberger, Allen. “Social Enterprise: A Lawyer’s Perspective,” white paper from the Perlman & Perlman website, March 2008.
● Emerson, Jed; Freundlich, Tim; Fruchterman, Jim. “Nothing Ventured, Nothing Gained? Addressing the Critical Gaps in Risk-Taking Capital for Social Enterprise,” a Skoll Centre for Social Entrepreneurship Working Paper, March 2007.
● Gair, Cynthia. “If the Shoe Fits, Nonprofit or For-Profit? The Choice Matters.” from REDF, downloaded from the Community Wealth Ventures website, December 2005.
● Wexler, Robert. “Effective Social Enterprise—A Menu of Legal Structures,” Exempt Organizations Tax Review, Volume 63/No. 6, June, 2009.
● Wexler, Robert. “Social Enterprise—a Legal Context,” Exempt Organizations Tax Review, December 2006.

Register for the “Nonprofit, For-profit, or Something in Between” webinar on September 22, presented by Jim Fruchterman.

Read the related “For Love or Lucre” article.

Read more stories by Jim Fruchterman.