Tuesday, April 23, 2013

Non-profit ? Or Beyond Profit !

I had the good fortune to meet Harold Rosen , the CEO of Grass Roots Business Fund in Mumbai, at a meeting they held for the Mumbai Angels, of which I am a member.  GRBF has have been doing some great work with helping social entrepreneurs create businesses which are sustainable, scalable and have a social impact . He talks about converting Social enterprise ( with a capital S ) to a social Enterprise with a capital E. The logical extension would be to create a Social Enterprise with both a capital S and a capital E !

Is it possible to achieve that balance between doing both social good and being profitable ? This is very similar to the question of achieving work-life balance which all of us face in our daily lives - how do we manage to balance both personal satisfaction with professional achievement ? We manage to learn over time  as we mature - and I think companies can learn this as well, as they mature - they need to learn to balance profitability with impact !

The problem is that because it‘s so easy to measure profitability , this is what economists have spent most of our time and energy doing. It’s easy to work with numbers ! However, it’s much harder to measure impact, because it’s often intangible  . However, businesses do this all the time – for example, when they put a value on their brand name or goodwill. The Grass Roots Business Fund is now creating social metrics , to allow us to do this for impact as well.

I do not think these companies should be called nonprofits. This is a very negative word, which suggests  that they make losses – and that it’s acceptable for them to do so ! A far better word for them would be Beyond Profit Companies - BPC or BPO ( Beyond Profit Organisations)  . As you grow older , you realize that the measure of your life should no longer be just how many dollars you earned , but far more importantly - what legacy you have left behind and what impact you have had on the world .  As we mature , we understand the importance of going beyond just counting the amount of money we have in our bank balance ! As capitalism matures, companies will realize that just being profitable is not enough !

Rebranding these companies as being Beyond Profit companies, rather than calling them nonprofit companies is important, because the term nonprofit really doesn't express anything. We need a better meme !

A Beyond Profit company is one which not only makes a profit, but also does extraordinary things which ordinary companies don't do – they help to make lives better , while making money ! This also fits in well with the aspirations of the younger generation , who understand it's important to strive both for making money and for creating an impact. Otherwise you end up becoming a very rich 50-year-old senior bank executive,  who have a humongous bank balance , but who now suffer form mid life angst, because they wonder what good they’ve accomplished with their lives !

They then start thinking about what they can do to help other people who are less fortunate than them – which is why you have people like Bill Gates who set up philanthropic foundations ! Now this is a good thing to do – but a better model would be to start when you're younger , and start doing both things – making money and doing good  simultaneously,  so that you then create a positive virtuous cycle !

Names are important, and the problem with the label non-profit is that these nonprofits are considered to be a second class asset class. Investors are reluctant to invest in them because they feel that the returns on investment are not going to be good enough. The only reason these companies design themselves as being nonprofit is that they have the insight to understand that the only goal in life is not to maximize their profits ! Trying to do so means that you often end up ripping customers and charging them an arm and leg. This is not always the best way of doing business – either for the customer, the company, ,or its employees ! In the long run, it may be more enlightened to reduce the amount of money you make , to ensure that everyone benefits in the long run . These companies are driven by vision , and if they need to remain honest to their mission, it's important that they think about goals which are more important that on maximizing profits.

Take the example of Healthwise , whose mission is to help people make better healthcare decisions . This is one of the reasons why they will not accept any funding from any pharmaceutical company or medical device manufacturer, even though these companies would be very happy to buy out Healthwise ! If Healthwise were a for profit company, it'd be extremely logical for them to sell out and make big bucks ! After all , if your first responsibility is to your shareholders, and you run a company for making money, then this is the “ right “ thing to do. However, if you take that route , the trouble is that the information you provide gets corrupted and contaminated as a result of corporate influences , and then you are no longer an influence for good - you actually end up being and influence for creating harm ! 

Rather than think of them as being as second-class companies , which don't offer as good a return on investment as for-profit companies , we need to realize that they actually offer a better return on investment , because not only are they capable of making money, they are also capable of doing something which is far more important - doing good in this world. The world has more than enough money - what it really needs is more people and more companies whose focus is on doing good , and not just one getting rich.

As an analogy, compare the life of a CEO and a doctor . While the financial income of doctors is a small fraction of a corporate honcho, their emotional income is a hundred times better ! The satisfaction we get when we see our patients smiling because they are getting better; the satisfaction we get when patients say thank you because you saved my life; the satisfaction we get when patients say Thank you , Doctor , for doing such a good job of taking care of my father – how can the happiness a CEO gets by doubling his bottom line possibly compare with this kind of joy ? One of the reasons people become doctors is because they want to help others. Being of service to others is very fulfilling - and after a particular point, the amount of money you have in your bank balance makes very little difference to the amount of happiness you have in your life. The best way of being happy yourself is to create happiness for others,  and doctors have the good fortune to experience this delight daily, by being of service to others.

Beyond profit companies also have the same ethic ,  and this is why these are the kind of companies which attract mature and motivated  employees , who are extremely faithful and committed , and who will remain with the company for long periods of time , because they understand that there is more to life than just earning money . They are grateful that their company gives them a chance to interact with people whose lives they can improve – and this helps them to feel good about themselves. This gives them far more job satisfaction than just earning a little more money !

Does the fact that not-for-profit companies are less profitable than for-profit companies mean that the grapes are sour, and that I am concocting arguments to justify their poorer financial performance ? Not at all ! It actually requires a lot of maturity for a person to say - I have enough for myself, and I do not need anymore ! My focus should no longer be on just trying to earn more money , but on trying to create a better and happier life both for myself , my employees , and my customers ! It's when you reach that stage of enlightenment that not only are you personally satisfied , you are also professionally contented that you will leave behind a legacy which you can be proud of. This is what our focus should be on. Many of us take a long time to reach thus maturity – and some of us never get it. Often by the time they're 45 of 50 , many of us have an epiphany, by which time it’s often too late to reinvent yourself. The good news is that the younger generation seems to be much smarter , and realizes that there is far more to life than just earning a higher paycheck .

Beyond Profit Companies have the wisdom to be able to say – Enough ! Others are forced to resort to gimmicks and window dressing in the garb of Corporate Social Responsibility, in order to salve their conscience.
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