Social-Profit Organizations

In the current issue of the Chronicle of Philanthropy, Claire Gaudiani (author of The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism), argues that we should retire the word “nonprofit” in favor of the term “social-profit organization”:

Nonprofit should be nonexistent — the term, not the type of organization. The time is right to insist on a term that focuses on the investment, risk taking, and entrepreneurial imagination that have always been so essential to organizations that serve the social good. "Social-profit organizations" is a term that can better capture the contribution made by entities that have too long been known as charities or nonprofit groups.

Such a term would also give us a new way to name the people who support organizations that promote the public good: social investors, a term that better reflects this generation of hands-on donors who are willing and able to extend this nation’s great tradition of American generosity. Today’s social investors seek and expect a return on their efforts, in the form of an increase in the greater good.

You can read the entire article here (thanks to the Chronicle of Philanthropy for providing free access to the article for Tactical Philanthropy readers. The article is otherwise for subscribers only).

I think “nonprofit” should be retired too. Just from a marketing angle, you don’t want to define yourself by declaring what you’re not. But I’m not sure “social-profit organization” is the way to go.

I believe that the defining characteristic of the philanthropy/nonprofit sector over the coming decade will be two-fold, 1) increased rates of participation by individuals and 2) increasing sophistication of the financial tools used in the sector. One of those tools is reflected in the attention being paid to whether a “nonprofit” should consider choosing for-profit status. Not so they can pursue a profit, but because doing so may help them further their mission (via increased access to capital and reduced restrictions on how they operate).

Because the choice of nonprofit vs. for-profit is now beginning to reflect a strategic choice, rather than a choice of whether to “do good” or not, I think that the word nonprofit is losing significance. But the word “profit” is far too hardwired into the American psyche for it to be used effectively in a way that means something other than financial profit. Plus, there’s already a great phrase in use that works.

Social Enterprise

According to the Merriam-Webster dictionary, “enterprise” means, 1) a project or undertaking that is especially difficult, complicated, or risky, 2) readiness to engage in daring or difficult action, 3) a unit of economic organization or activity, 4) a systematic purposeful activity.

Social Enterprise means applying all of the above for social purposes. And nothing in the word refers to the corporate structure that the enterprise employs. It would apply equally well to a 501c3, a C Corporation, an LLC or even a B Corporation. Those letters and numbers are just taxation elections, not mission statements.

What do you think? Imagine a future where highly effective, risk-taking organizations compete for donor dollars and investments, and philanthropists structure highly sophisticated financial strategies to fund social good programs. What should we call these organizations?

Social Enterprises? Social-Profit Organizations? Something else? Leave a comment and let me know.