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What is wrong with profit?

Thursday, October 27, 2022

I see this dilemma a lot. Do I work for the profit or the non-for-profit sector? Do I make money or do I change lives? Do I get a corporate job or do I work for an NGO and do good? Most of us end up choosing one or the other or compartmentalising our lives so we have some activities that we do "for work" to "earn our living" and others that we do "because we can and want to make a difference" and an impact.

The underlying assumption that underpins this behaviour is that we will not be able to earn a comfortable enough living by only making a difference and doing good.

I am here to remind you (as others have hopefully done before me) that this is not true. You can do both it just takes thought, innovation and iterations to find the model that works best for your priorities, as there is no one size fits all.

Part of our problem is that we have entangled these two activities (earning an income and doing good) with the concept of profit. If we are earning a living then we are in the profit making space, if we are doing good we are in the philanthropic and not-for-profit space because we supposedly do not care about money when we do good, and just look for the bare minimum to cover our expenses.

However the challenge is that we need money to do good. As a colleague recently reminded me - you cannot earn income without creating value first, and most certainly not at scale or for a long period of time. So the mentality of doing good without caring for money, doesn’t really work. It is not really sustainable and stops organisations from achieving the greater goals and aspirations they dream of for the people they serve.

And not only that: forgetting to recognise the importance of planning to earn income, fuels the vicious dependence on donors for funding and encourages a tendency to spend more and more time (up to 90% in some cases!) seeking donors. Which begs the question - doesn’t this defeat the point of prioritising impact in the first place?

I believe that at the heart of this problem is our scaringly misleading focus on and definition of profit. Profit is associated with greed. Not-for-profit is associated with being frugal. But in many ways these definitions of greed and frugality are really subjective.

Profit, simplistically is simply what is left over from your earnings AFTER you cover your costs and it is one of the parameters used by government for evaluating a component of your taxes. This focus on profit diverts our attention from the fact that how you define your costs makes all the difference!

How much you pay your employees, how much you invest in learning or research, how your set up your overheads and office bills, what you spend on technology etc as cost will determine what is leftover as profit. Employees or company stakeholders could be getting the same exact amount of earnings from an organisation X when it is declaring 30% profit or 10% profit - the only difference would be how and when that profit is distributed and to whom.

From a practical point of view - is this concept of profit serving us or is it just searing our communities into two groups and preventing smoother pooling of efforts? And are we indeed focusing on the wrong question?

My understanding is that the point of profit is that it helps us measure a specific component of value which is over and above what we deem was rightly linked to "work done" or "activities associated to the organisation's core focus". Profit is to do with a compounded extra and a return that is not necessarily perceived to be proportional to the "work done". A key difference is that whereas costs are distributed to immediate physical expenses and to people doing the work day to day, profit typically gets distributed to a broader group of people than those that have only been doing the work. This broader group includes other stakeholders that likely invested something other than just work (for example energy, money, influence, knowledge, time) into an enterprise and therefore also deserve to be rewarded.

At the end of the day profit, revenue (income) and cost are just parameters which society has decided to use (among others) to help us decide how to distribute income generated from an activity, service or product across different groups of stakeholders who have to a lesser or greater degree inputted into activities and claim a share of the credit of the results achieved.

Tax to some extent is the similar to costs and profit in that it is a mechanism for the government to claim back income for the work and the services it has provided which enable the enterprise, activities and new income to be generated.

So what if we got rid of the concept of profit all together? Gone. No longer in our vocabulary. What then?

How would we allocate value and earnings generated to the various groups of people that have vested interests and resources?

This is the space that social business, social entrepreneurship and the circular economy inhabit and drive innovation in. Impact investors are taking interest and calling for both impact, social change and "profit" or returns on investment.

There are different schools of thought on the definition of social business. To me this new opportunity does not always or necessarily mean that investors needs to get 0-returns nor that NGOs suddenly become all about maximising income. It is the middle way and everything in between these two extremes. If for example an impact investor lends capital, it might be appropriate for a return to be provided, on the basis that they have provided resources that have enabled a project to happen. But it really depends on where the different parties are in terms of the scale of needs, greed, appetite for sharing and also financial standing.

Social business offers us a unprecedented opportunity to redefine how we measure what different groups have vested into an organisation; quantify any credit owed due to disadvantaged circumstances and what right different groups have to new income and value created as a result of an enterprise.

This is a space that can provide immense value to NGOs hoping to scale their projects to reach even more beneficiaries and touch more lives independently of donors.

It is an extremely exciting time and we at The Confluencers are thrilled and honoured to have the opportunity to be a part of driving this expedition into new ways of mining, measuring, capturing, sharing and redistributing value and income in a more equitable way.

Stay tuned. As this is just the beginning. .

Anna Bruni Sabhaney.jpg

Hi, I Am Anna Bruni Sabhaney

Founder Of The Confluencers

I believe non-profit missions deserve to be funded through flexible trust based funding and that to do that we need to shift power dynamics in Philanthropy. Here you will see me share ideas and experiences I have developed so far to make this happen.