PROFIT FOR GREED OR FOR GOOD? THE CASE FOR SOCIAL ENTERPRISES

At its most basic, profit is the value you add to something. It is the difference between the value of something in terms of what someone will pay for it, and the cost of providing it.  Hence the value added. 

If I was to ask someone, do they want to add value to other people’s lives, most people would say ‘yes’. But if I ask people if they want to profit from other people’s lives it reframes the question to sound like exploitation. And hence we have ‘charity’ and ‘not for profit’ so that people can clearly state that their intent is not to exploit others.

But is the avoidance of our concept of profit detracting from our notion of value add? The Inventorium is a social enterprise. This means that a minimum of 50% of any profit we make gets reinvested into the social good that we are creating – in our case education. This can be through scholarships, through project sponsorship, through reinvestment in expanding and writing new curriculum, etc – aiming to address the UN Sustainable Development Goal around equality of access to education for all. 

Would we achieve more or less towards that goal if were ‘not for profit’? Would we add the same ‘value’ holistically? While our obligation is 50% or more of profit to our social good intent, the remaining 50% can also be reinvested in this way – but it is our choice. This remaining 50% can also be used to give investors and shareholders a return on their investment, smaller than the share they may get if they were investing in a traditional enterprise rather than a social enterprise, but a return nevertheless.

Social enterprises find it particularly difficult to scale because the majority of investors seek higher returns, as the notion of ‘maximising shareholder returns’ is common in business, as is the notion of ‘maximising profit’. But what if the notion of profit shifted from greed to good? What if the focus became on maximising value add – both to shareholders and to society in a balance? Wouldn’t everyone benefit?

Social enterprises are generally not attractive enough in terms of profit returns to shareholder to attract large capital investments, but are equally not eligible for support through such things as DGR status that charities benefit from. The mandate of a charity is to provide a service/benefit to an eligible individual – it is a disabling mechanism that provides for people in need. Social enterprises exist to add value – it is an enabling model to power people in need to move to a position where they are no longer in need. 

Government supports charity through DGR status, and through awarding grants and service contracts to the not-for-profit sector. Social enterprises are excluded from this because the notion of adding value, or making a profit, is seen as counter to the public sector mindset. However there is ample funding to for-profit service providers such as independent schools, private aged care contractors etc. 

Social enterprises cannot compete equally in either market – they are disadvantaged against not for profits regarding their tax status and eligibility, and disadvantaged against traditional for-profit organisations in terms of shareholder attractiveness. If we want to see this ‘for profit, for good’ sector grow, we need to challenge our understanding of profit, focus on the notion of value-add, and reassess how we are making funding and investment decisions. 

Anyone can give money away and/or not make a profit. Adding value, being profitable, and doing so in a manner that contributes to the achievement of the UN Sustainable Development Goals, surely that is to both be encouraged and applauded. Time to move from Profit for Greed to Profit for Good.