Is your business for-profit or for-purpose?

The fact that we divide our world into business and nonprofits says a lot about our priorities. The word “business” dates back to the 14th century and pertains to purposeful activity. This differentiated it from “desport” (later shortened to sport) which referred to leisure activities. So the Executive Director of a homeless shelter is engaged in business (purposeful activity) every bit as much as our Wall Street friends. It’s just that one is focused on making a contribution to society while the other is focused on making a profit.

There are a number of problems with bifurcating the business world this way. First and foremost it introduces the strange misconception that a nonprofit business doesn’t need to be or even shouldn’t be profitable. I heard our town Zoning Commissioner light into the Executive Director of a local museum for operating a revenue-generating farmers market “You’re not acting like a nonprofit – you’re acting like a business.” This confusion is understandable given the nomenclature. If this were really the differentiating point then a friend of mine would be right when he called his auto-body shop a nonprofit – he admitted that had started it as a for-profit but it just didn’t turn out that way.

It’s interesting that while every nonprofit will declare itself as such early on in its mission statement, rarely do you hear the non-nonprofit describing itself as “for profit” anywhere. Maybe they think it just goes without saying, but I suspect there’s a touch of guilt in the omission. So Merk, the Fortune 500 pharmaceutical company says its purpose is “preserving and improving human life,” when the unspoken truth carries a significant modifier of that loftier goal.

My problem is not with the “for profit” moniker -I just think it should be required to be included in the for-profit’s mission statement in the name of full disclosure. Merk’s purpose would be restated as “our purpose is to make a profit from selling things that will hopefully preserve and improve human life.” I realize it goes without saying, but why aren’t we saying it? Other than it’s not as picturesque. Like asking Miss America to describe what she thinks is important in life and having her answer “Gee, well, the most important thing for me, of course my looks. I spend a lot of time at the gym and in front of a mirror to make sure I look my best. Then if there’s time left over, and that’s a big if (smile) then I’m all for volunteering to help save the world. (teeth).” The truth may set you free, but it may not win you the PR contest.

My bigger problem is why those businesses who have as their purpose making a contribution to society have to walk around with the label of nonprofit. It’s like “disabled” or “nonwhite” or “non[fill in your religious affiliation]” It just carries a stigma. There’s a value judgment inherent in the orientation. We create a certain filter for ourselves when we describe the world this way and it says a lot about our priorities.

First of all – it’s always a bad thing to label yourself as what you are not. It’s just so negative. I’m a middle-aged, quiet, laidback, sensitive, spiritual, mother and business owner. It would be equally true to describe me as nonyoung, nonreligious, nonmale, nonurban, nonfashionable, and nongregarious. But please don’t.

So let’s get away from what it’s not. The universe we’re talking about consists of people organized around “purposeful activity”. For some the purpose is profit. For others the purpose is to make a contribution – to have a positive net social impact (PNSI). So why not call them For Profit and PNSI organizations? I think it’s important to be clear and upfront about your purpose.

It makes a difference. Purpose matters.

What’s your take on the over-muscled body builder who spends all day at the gym watching his biceps grow? Now what if I told you Mr. Universe was an EMT and regularly used his strength to rescue people and animals from tight situations and that once he single-handedly lifted a semi-tractor-trailer off a car which had been pinned, allowing his team mates to rescue a woman and her baby from the car before it burst into flames. Muscles with purpose are so much sexier.

At least if we define the universe as For-Profit and PNSI we’ve more correctly divided the universe. But aren’t profits a contribution? Depends on how they are used. Providing a return to investors is positive. providing a return to employees is positive. Providing a return to community and planet is good. And providing needed goods and services to customers is good. But if you harm any of these stakeholders while serving the others this creates negative impact. It’s important to look at the whole equation. The danger of focusing on any one piece is that the others get lost. And when we look only at profit there’s danger ahead.

Here’s an experiment you can try at home. Bring up one of your children as Forprofit. Let him know that the single most important thing is how much money he earns. Don’t let a day go by without asking him whether he’s earned anything, and give him a quarterly report card on what his worth is as measured by the money he earned over the expenses of keeping him in your house. When he does make money be lavish with the praise, tell the neighbors, and write about it in your blog. Give him a bonus, and suggest that with some small percentage of his earnings he may want to think about giving back. Whatever. When he has a bad week, use it as a learning opportunity. Explain how the free market works and the importance of having revenue exceed expense. Don’t listen to the sorry excuses of having spent time or money helping a friend. Suggest he stop feeding his dog, or better yet selling it. If he continues to over spend or under earn threaten to trade him in for a kid that can do better.

Raise your second child to focus on her PNSI (positive net social impact). Explain that every one of her actions has an impact on the PNSI and that her goal is to maximize it over the years. Tell her that earning money, sharing, helping others, and being a steward of the planet all add to the positive and that being greedy, reckless, lazy, and abusive of others or the planet create a net loss. Tell her that happiness- hers and others’, is important and that true happiness doesn’t come from stuff but from our ability to be grateful for and find joy in what we have right now. Tell her to work hard, laugh often, and never to lose focus on her PNSI. Tell her it’s important to be grateful, to share, to give, to make a contribution.

Then wait 20 years and let me know.

How do you measure PNSI? Unfortunately it’s not as simple as Revenue-Expenses, nor can it always be measured in dollars. But we’re clever people we’ll figure out a way. The first step is realizing that profit is only part of the equation.