Guest Post – Is It Time For New Terminology?
A post by Jim Thalhuber
In a recent Harvard Business Review posting (HRB Blog Network, January 14, 2013), author Deborah Mills-Scofield argues that the historical distinction between “social” and “non-social” businesses, and “purpose” vs. “profit” is artificial and antiquated. Ms. Mills-Scofield cites several examples of companies that “profitably and purposefully balance doing well and doing good,” including Patagonia, Virgin and Cemex.
Right on, Ms. Mills-Scofield! And I would add to your list the terms “nonprofit” and “for-profit.”
Over the last couple of decades of my career in the nonprofit sector, I have noticed that the line between what have been historically been labeled “for-profit” and “nonprofit” business entities has blurred. For good reason. More and more for-profit businesses, like those cited by Ms. Mills-Scofield, have popped up on the radar screen, touting their business models that emphasize “social purpose.” And more and more nonprofits have been intentionally and deliberately planning for profit, not simply hoping to have something left on the bottom-line at fiscal year-end.
Profit is Good
For eight-plus years, I worked for the nonprofit National Center for Social Entrepreneurs. We consulted with scores of traditional nonprofit organizations around the country, helping them to adopt smarter marketing and business practices (and sometimes even create new business ventures) in order to generate more profit so they could do more mission. In introducing the concept of social entrepreneurship to the boards of directors and staffs of these nonprofits, we would have them in a group setting shout out loud the mantra, “Profit is Good!”
Profit is good; it is essential in the nonprofit world. No money, no mission. Every nonprofit organization I have worked for has budgeted for a year-end surplus of revenue over expense (i.e., profit), regardless of where that excess came from (fee-for-service, government grants or fees, charitable contributions, foundation grants, etc.).
Key Question
The key question, in my mind, is not whether the business entity generates a profit, but where the profit goes. Is profit distributed to shareholders, or is it all plowed back into the business operation? That’s the meaningful distinction. It’s time we had some new terminology to describe it.
In fact, using the term “nonprofit” today is actually confusing; it leaves the general public with the clear impression that the “nonprofit sector” actually cannot or is prohibited from making a profit, when that, in fact, is a definitive business priority. I wish I had a nickel for every time I have heard the response, “I had no idea!” when describing nonprofit business models to those unfamiliar with the field, and that nonprofits are motivated to make a profit.
Like I said, it’s time for new terms.
Jim Thalhuber has more than 30 years of leadership experience in nonprofit organizations, holding leadership positions in resource development, marketing and planning. He is currently Vice President of Development and Marketing for Goodwill/Easter Seals Minnesota, where he has directed fundraising, marketing, public policy and volunteer efforts since 2004. He previously headed an outsourcing company for nonprofits, directed a nonprofit consulting organization, and served in various capacities with several healthcare organizations. Mr. Thalhuber has been a member of the board of directors of several nonprofits and is an adjunct professor at the University of St. Thomas, from which he received both his undergraduate and graduate degrees.