It’s time we stop calling social impact organisations “nonprofit”
Isn’t it kind of strange that organisations define themselves first and foremost by what they are NOT?
That would be like me saying “Well, I am NOT a doctor” when people ask me what I do for work.
The word “profit” comes from the Latin word prōfectus, which means progress.
So, in an etymological sense, a “nonprofit” or “not-for-profit” organisation would actually focus on non-advancement… Hmmm.
To be clear, I am not saying in any way that we should abolish non-profit organisations. Coming from a professional background in this sector, I can confidently say that these organisations provide enormous value to society. What I am suggesting is that we change the way we talk about them.
The term “nonprofit” does suggest that an organisation has been approved for tax exemption. But it really does not convey the organisation’s expertise, drive, and ability to create systemic change.
Organisations overcoming countless obstacles to tackle today’s biggest problems deserve a name that recognises their true value, not just a tax classification.
But what’s the big deal about a label like “nonprofit”? Does it really matter?
Labels Speak Volumes
I would say yes, because — whether we like it or not — labels are signals.
Humans are inherently pattern-seeking, and so labels help us to group things together and make sense of our complex world.
The problem with the label “nonprofit” is that it comes with a certain stigma and a whole package of pre-conceived notions.
It may conjure up visions of good samaritans handing out food at soup kitchens, volunteers caring for animals, or children picking up litter on the beach (which would be accurate for many organisations out there).
But does it also bring to mind multi-million dollar organisations using Artificial Intelligence to solve educational inequity, finance experts investing in banks to support low-income farmers, and healthcare mavericks manufacturing generic drugs at low prices to make healthcare affordable?
I would guess the answer would be ‘no’ for the majority of people.
What you call yourself is a signal to others and also to yourself, of what you are capable of. There are many nonprofits out there who have more experience, expertise and ability to disrupt markets than major for-profit companies but don’t get this level of recognition due to the way they are labelled.
What’s The Downside?
Nonprofits can be seen as do-gooders with less expertise, sophistication or ambition than their for-profit cousins — but this could not be further from the truth.
Under-valuing expertise, innovation and experience is a dangerous thing. It can choke organisations financially, lead to challenges with hiring, demotivate employees, and encourage scaling down of ambition.
From a financial standpoint, nonprofits can access grants and donations, but other more sustainable revenue streams may be less lucrative. For example, for-profit companies can generally charge higher consulting fees than non-profits — even if the service is essentially the same thing — just because of the hats they wear.
Another implication is in the realm of talent acquisition and retention; in a highly competitive environment, top talent may be less willing to join and stay in the nonprofit world due to substandard pay, lack of development opportunities, and perceived under-professionalism across the sector.
The Dirty “P” Word
There is one truth that needs to be recognised here:
ALL nonprofits actually need to make a profit (or at least break even), or they will die.
While a nonprofit organisation cannot distribute profits to any private individual via dividends, they can, of course, pay their employees or re-invest those profits into growing their organisation.
If we shy away from profitability and sound business principles, we run the danger of devaluing good business practices as if they were somehow morally wrong.
The result is that fundamental business operations like marketing, accounting, and HR are executed poorly, stifling growth and (in some cases) resulting in disaster.
So “profit” is not necessarily a dirty word —it is something we can leverage to scale our impact as we go about trying to solve major societal problems. Money is only a means, but it is absolutely critical to maximising our social impact.
What exactly is a nonprofit anyway?
The spectrum between traditional charity and for-profit enterprises is captured below. On the very left, we have traditional charitable models, and on the far right, we have purely profit-driven organisations. In between, there is a nascent, growing space that represents the blending of both PURPOSE and PROFIT.
Different organisations will find themselves on varying points along the spectrum; understanding where one lies can help to shape how you talk about your organisation.
Why should we care & what should we do?
Speaking differently about organisations primarily focused on solving societal problems could:
- Nudge external stakeholders (e.g. major corporations and government) to see these organisations more as equals and domain experts;
- Encourage a greater level of innovation and ambition across the sector;
- Increase funding and investment into the social impact space; and
- Help drive the “professionalism” of the sector (e.g. increase in pay, long-term careers, etc).
So what terms should we be using? It really depends on the nature and structure of the organisation, but here are just some alternatives:
- For-purpose organisation
- For-impact organisation
- Social impact organisation
- Social venture / Social enterprise
Ultimately, it’s up to all of us — practitioners and otherwise — to choose the terms we use.
The social impact sector represents millions of workers, billions of dollars, extremely rich and diverse expertise, and immeasurable value for today’s society and future generations.
Starting with the words we use, we can all play a part in the sector’s growth and evolution, and ultimately help to make greater progress towards a more just, sustainable and equitable world.
