I am often asked whether a client should form a nonprofit organization, a for-profit organization, or a social enterprise of some sort. This question is not unusual given my practice. This article focuses on the gating question I ask a client when they come to me to form a nonprofit.
Can you compete with Sarah McLachlan and kittens?
People always chuckled when asked this question. Here is what I mean: https://www.youtube.com/watch?v=ERRlDEoHG9Y. Can you pull a tear and a dollar out of someone’s wallet? If what you hope to do with your nonprofit organization cannot reach the level of saving the kittens and puppies with Sarah McLachlan, you need to really consider whether or not the nonprofit form is correct for you. I don’t say this to criticize the idea of every nonprofit founder. I say this to point out the obvious (and something that may become even more obvious with the recent changes to the tax code): nonprofit organizations are dependent upon the charitable whims of people and organizations that fund nonprofit organizations. If a nonprofit organization cannot engender goodwill with these donors the nonprofit solution is probably not the right forum for an enterprise.
Not all nonprofit organization’s raise money through charitable donations, but if a nonprofit will be dependent upon charitable donations from either foundations or from the public, the founder really needs to consider whether the organization can compete with the heavy hitters such as the ASPCA or other organizations that compete for people’s hearts and dollars.
But all hope is not lost if your idea cannot muster the emotional angst of the kitten in need. Beer, and I mean beer, has found a way to tug at the heartstrings of America. Almost nothing is more endearing than the Best Bud’s advertising campaign by Budweiser. Take a look at the 2015 offering: {[https://www.youtube.com/watch?v=VWeKtqWc2EA] and try not to cry.
Do you have a Clydesdale and a puppy in your idea?
If your “nonprofit” idea cannot induce the heart pulling angst of the kitten in need, look to the Budweiser campaign as an illustration on how a for-profit product can use the angst of a story and a concept of friendship at least as endearing as a Sarah McLachlan song with a kitten to sell a product as mundane as beer.
These are examples of immense advertising power and how large organizations can use huge marketing budgets to drive consumers or donors to their products. There illustrative of the competition in both the for-profit and the nonprofit marketplace when it comes to finding either donors or customers. It is far more competitive in the nonprofit marketplace to find donors than it is to find customers in the for-profit marketplace. I don’t make this statement lightly and I recognize that for-profit businesses fail just as swiftly as they are formed. But as nonprofit enterprises navigate the ever-changing tax code and the whims of donors, the nonprofit structure makes it very difficult for a nonprofit organization to pivot to another way of raise or obtain money.
So, when a client comes to me and says “I want to form a nonprofit” and I asked her if she has kittens and a songstress in her go-to-market strategy, I really do mean can you compete with puppies and kittens for the hearts and dollars of people.
Of course, in the modern era of entity formation we have additional options that blend the concept of mission and profit. Now this blending of mission and profit that is illustrated in the benefit corporation may not be able to compete with kittens and puppies and Clydesdale’s, but to the extent a social entrepreneur finds it important that his or her for-profit enterprise has a social mission, the benefit corporation form may be a good option.
Now go find your kitten, puppy, Clydesdale and songstress to bring your enterprise life!
