To Profit or Not To Profit…That Is the Question

I recently heard an NPR interview (link to article) about the economics of streaming music services like Pandora and Spotify. These services have been screaming from the roof tops that they aren’t making money, so they need to pay lower royalties. The trouble is, they actually pay about the same percent of their income in royalties as Walmart pays for its inventory. In other words, the cost of the music isn’t the problem.

In fact, economist Jeff Eisenach points out:

companies like Pandora and Spotify are making a lot of money — they’re just using it to target new audiences rather than putting it in the bank and calling it a profit

Non-Profit World

K_Lewis-Infographic-web-620x2888Now let’s add in this nice little infographic (link to original) from ChurchMag. This is a summary of a TED talk by Dan Pallotta, and it points out that for-profit companies often have more flexibility to invest in their future, build for growth, and even lose money for longer periods of time than a non-profit. So the non-profit world can suffer from the lemonade stand syndrome. A lemonade stand has almost no overhead, but also has very little reach or earning potential. The requirement for razor-thin overhead can limit the reach, effectiveness, and scale of non-profit services and fundraising.

But let’s be honest: non-profits do have their advantages. They have tax advantages. They have perception advantages (have you ever donated money to a for-profit business because it made you feel good?). The key point, though, is that “overhead” can be both good and bad for a non-profit. If an administrator is getting overpaid to do very little work, it’s bad. If the organization is expanding to serve new people groups in new locations in new ways, that’s good and it’s going to take money. If the organization is serving in a corrupt part of the world, it’s going to take money to hire trustworthy staff to oversee the project.

A Third Way: Profit to Serve

I am a huge fan of (link to website). For the uninitiated, Kiva partners with micro lending organizations around the world to help small businesses, co-ops, and individuals get ahead. People like me lend money online through Kiva and through their partner lenders, and then the loan gets repaid. For example, I recently lent $25 to a man in Lebanon to expand his furniture business. I also lent $25 to a group of women in Peru to help them expand their various businesses. Here’s a link to my Kiva portfolio. Here’s the kicker: because the loans have a very high repayment rate, I have spent $110 to loan out $400. And that’s even with donating 10% to Kiva to help them cover their costs (which is optional).

Kiva isn’t perfect. The micro lenders they partner with charge high interest rates because of the risk. But since it’s a non-profit (Kiva) working with for-profit partners (micro lenders), my donation dollars have stretched almost four times further than a straight-up gift.

There are other ways of using for-profit businesses to do good in the world. Some companies like Tom’s Shoes (link to website) and One Laptop Per Child (link to website) donate one of their products to a place in need for every one they sell in the developed world. LSTN Headphones (link to website) helps restore one person’s hearing for every pair of headphones they sell. Or how about Homeboy Industries in Los Angeles (link to website), which helps current gang members become former gang members? They believe that “Nothing stops a bullet like a job.”

Expand Your Possibilities

If you are thinking about using your workday to serve someone in the name of Christ, expand your possibilities. You can be a non-profit, with all the benefits and obligations that entails. But you can also be a profit-to-serve company, with all the benefits and obligations that entails. Neither approach will work in every circumstance.

If you are already in the non-profit world, can you have the audacity to propose expanding your reach even if it increases overhead? You’ll face an uphill climb, but tell the story and see what happens.

Remember the story of the Israelites after leaving Egypt. They were about to build the Tabernacle to house the Arc of the Covenant, and so they needed skilled tradesmen. They needed people who had been successful in their trade. And so…

He has filled them with skill to do all kinds of work as engravers, designers, embroiderers in blue, purple and scarlet yarn and fine linen, and weavers—all of them skilled workers and designers. (Exodus 35:35 – NIV)

Profit isn’t always evil. God can put profit to use. Overhead isn’t always evil. God can put overhead (especially investment in growth) to use. God has filled you with skill to do all kinds of work. Wield it well.

Discussion Starter

  • If you could solve one problem in the world, what would it be and why?
  • When have you seen profit be used for God’s purposes? Against God’s purposes?
  • When have you seen a non-profit’s overhead expenses be used for God’s purposes? Against God’s purposes?
  • If you were going to start an organization, would it be for-profit, non-profit, or profit-to-serve?