Moving Forward with Profits for Nonprofits

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Dr. Melanie Rieback calls herself an ethical hacker-the first clue that she’s unafraid of challenging norms.

Born and raised in the United States by parents who worked at Bell Labs, she graduated from the University of Miami with a double major in computer science and biology. Having worked as a well-recognized computer scientist the past twenty years, she’s earned two post-graduate degrees in the Netherlands, and is also co-founder of a flourishing company called Radically Open Security.

Unlike the highly secretive methods of most internet security firms, her company’s forty ethical hackers operate transparently. But Rieback has also bucked American business as usual by creating a profitable nonprofit business-or what the Dutch call a Fiscaal Fondswervende Instelling (a Fiscal Financial Institution, or FFI). It’s a front-end money-making enterprise that provides a backend income for a foundation or other nonprofit.

Ninety percent of her company’s profits goes directly to the NLnet Foundation, which itself funds Internet research to support the open source movement and digital rights organizations.

Thus, the company’s relationship to the foundation is mutually beneficial to both parties-co-creating a business ecosystem aimed at keeping an open, free and collaborative Internet.

Over its six years, Rieback’s company donations provided $280,000 to the foundation.

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What makes this different is the intention to form a long-term and automatic relationship, skipping the usual song-and-dance that American foundations and nonprofits with high-minded missions must perform for donors every year. The subtle co-opting of organizations to fit donor demands was called out by INCITE! Women of Color Against Violence in their 2004 anthology The Revolution Will Not Be Funded. A skewed power dynamic they named “the nonprofit industrial complex” tends to perpetuate American big business as usual, not systemic change.

Rieback is doing it differently: “Instead of waiting to get rich and then giving away donations, I’m doing it now,” she says of her company. “The donation is built into the core of my business.”

“Strikingly Female Dutch History”

Her Dutch model carries with it a bit of strikingly female Dutch history. In the fifteenth century, the Vught nuns founded the Holy Order of St. Augustine to create a school to educate girls-a then-radical notion.

Religious women came to the Netherlands from many countries, and so teaching different languages became their specialty. When new laws insisted religion be kept separate, they reorganized their language lab as a Fiscal Financial Institution, empowered to donate its profits. They renamed their money-making school Regina Coeli, Latin for Queen of Heaven, its educational standards and innovations widely admired worldwide.

A New Kind of Business Model

The standard U.S. business mission doesn’t in the least resemble Melanie’s front-end company or that of the nuns’ Regina Coeli.

Highly individualistic U.S. businesses aspire to growing bigger and bigger, maximizing profits for shareholder dividends that are held by founders, CEOs and investors. The biggest corporate money is traditionally and persistently male, and U.S. corporate donations contribute only about 5 percent of charitable giving; much of that is through individual-giving programs.

American nonprofits, on the other hand are populated by a female majority. And while a nonprofit organization with a high-minded mission can create a for-profit subsidiary here, the work and the legal risk is all the non-profit’s, which few can afford.

So how did American-born Melanie come to follow in the nun’s footsteps and not go the American route? Like many internet-related startups, she did go first to a startup bootcamp in Amsterdam-”bootcamp” revealing the kick-butt attitude required. She was trained in how to pitch her then-new company, same as Google and Facebook, to win the support of the Big Boys with the big bucks: the venture capitalists.

She explained to a panel why radical open-sourcing was the safest way to security, which got nods, but then added her intention for her company to use its profits to support the NLnet Foundation and further strengthen open-sourcing. There was silence a moment, and then one venture capitalist at the table managed to respond: “I’m flabbergasted.”

Another said, “You don’t want to start a business; you want to start a movement.”

He wasn’t wrong. In her TedxTalk and in conversation with Ms. Magazine, Rieback makes clear why she has also developed an entrepreneurial course at the Free University of Amsterdam Business School and a website where anyone can learn about post-growth business philosophy and practice. Rethinking and questioning our addiction to growth is embedded in her course, but she says we also need to challenge our standard business schools’ separation from the liberal and creative arts:

“In my opinion, you can’t be a whole entrepreneur if you’re not a full human being…. Imagine if your business could be your most effective form of activism, or a mixed media for your art, or a vehicle for your spirituality. At its core, business is nothing more than a group of people working together to get things done in a financially self-sustaining way.”

She says we need to look closer at our language and semantics:

“Profit has a double-meaning. The word is confusing because we all think we understand what it means. Does your business have to be profitable? Of course! But there are two different meanings embedded in the word profit. The first is what I’d call a margin on turnover that your company needs to operate and and reinvest in the stability and development of the business.

“But there’s also a different meaning, which is financial extraction, the company value that typically goes to dividends to investor shareholders, or bonuses to the board and executives. It’s the extraction that leads to the one-percent.”

In Rieback’s model, both meanings for profit get parsed, and what is usually extracted is transformed into a mutually beneficial investment. It aims to cover the cost of doing business, while maintaining a margin to fund livelihoods and services or products.

There’s no financial extraction that goes to an outsized investor class; instead profits go to an institutional partner with a goal in sync with the company’s own mission.

In that way, the ecosystem of both institutions is strengthened and sustained, without outside pressure to outgrow viability. In reality, a nonprofit must also have enough cashflow buffer in order to maintain itself, but with Rieback’s model, both the money-making institution and the nonprofit can be more simply sustained without needlessly wasting energy and creativity.

She offers six hours of study at her website: postgrowthentrepreneurship.com. In it, she addresses the mismatch of exponential growth numbers with real ecological limits and the promise of creative businesses with a social purpose. In keeping with her faith in open sourcing and collaborative open security, there is no charge.

Rieback says routine financial extraction can be hard to see because it is so embedded in our thinking.

The Latin root of the word profit means to move forward, but our future may not be so linear or individualistic and male as our past has often been described. It more likely will be as circular and collective as our planet and the cycles of life.

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Originally published at https://msmagazine.com on June 8, 2020.