Some budding entrepreneurs want to make the world a better place by meeting a specific social need, and then struggle with whether they should start a for-profit impact enterprise or a non-profit organization. I reached out to participants in several LinkedIn groups to get their input, and added my own insights based on over 20 years of entrepreneurial and non-profit experience. Here are some ways to look at the non-profit vs. for-profit question that will help you to make the right decision.
Is there a clearly defined need? Perform market research or run a pilot program to find out more about your customer/beneficiary. You need to answer two key questions: (1) Is this a compelling problem? (2) What (if anything) can the customer/beneficiary pay to solve the problem? If the answer to #1 is no, then there is no need to do anything. If the answer to #2 is a dollar amount that can sustain a for-profit business, then follow the for-profit route.
KISS – Keep It Simple, Stupid. It’s hard enough to start a new organization – don’t make it more complicated than it needs to be. What is the simplest way to meet the need? What business model is the most financially sustainable? If it can be done with the for-profit model, then that’s what you should do.
Follow the money. A start-up for-profit needs investors. A start-up non-profit needs philanthropic support. Either way, you need an up-front financial commitment which will get you through the proof-of-concept start-up period. Funding sources have generally seen a lot of different proposals, so their responses can give you some keen insights into which model will work best.
Would you rather chase grant money or customers? Your gut level response to this question can be very meaningful in helping you to decide what type of organization best suits your personal profile.
Leverage Your Management Team. What is the background and expertise of the management team – for-profit or non-profit? They’re very different animals, so stay with what you know. If you want to go the other route, then first get experience by working for an existing organization.
Are you a control freak? Do you want control over the mission and vision of your organization? A for-profit impact enterprise will generally give you greater control than a non-profit.
Legal form follows organizational needs. Determine how you want to run the business/organization, and then utilize the legal form that supports what you want the organization to accomplish. Don’t let the tail wag the dog by settling on a legal form first.