[DDN] I make no profit, therefore I suck

[K Wong]

I have worked with two models of NPO funding: a government dependent
model and a social entrepreneurship model. Both are valid models and
the better model will largely be determined by your business/operating
environment.

In Canada, I worked with several non-profit organizations that were
totally dependent on government funding. We always knew exactly how
much we were getting, although government was slow to pay (sometimes
6-8 months AR), we always got what they promised eventually. The down
side was the fact that we were subject to political winds. A change of
government could wipe out our funding, so to for a change in policy.
It also helped to have an office in Ottawa to make the connections and
learn about new funding.

I am now working with a social entrepreneurship start-up in San
Francisco. We are totally self-funded and we plan to have a sufficient
margin to cover our expenses plus a nice bit of reserve for future
projects (which may not be profitable). At this point we are not
profitable though - we're burning through cash...so we'll see how that
goes.

I think that these are both valid models with pros and cons for each.
It depends largely if your service or product alleviates someone's
pain to the extent that they will fork over some cash for it. Your
operating environment will determine the success of your model.

As for the original opinion from the VC dude, I'm with Taran on that. Cheers!

K

On 7/10/07, Joe Beckmann <joe.beckmann at gmail.com> wrote:
> Poverty is quite real, but it is not poverty that drives compassion or
> philanthropy as much as the philanthropist. Too many pretend it is the state
> of poverty - which is lots more universal than philanthropy. So also,
> services are never really free - somebody does something for a reason,
> whether it be financial or other, and that reason is the engine behind
> everything, regardless of whether it is profit or non-profit. Raising funds
> subsidizes the service, but does not render it free, even if "fully funded."
> It means merely that somebody else is paying in cash, others are paying in
> other forms.
>
> Finally, pricing has to do with the market, not with the profit. Profit
> drives SOME kinds of pricing; cash profit drives a subset of THOSE kinds of
> pricing; yet profit is a byproduct of the transaction, not the transaction
> itself. It is a real pretense that nonprofit ignores pricing, since - as
> that range of nonprofits implies - tuition can range from "in-kind" to
> $60,000/year; medical services from barter to almost infinitely expensive
> per incident. That variation is not dependent at all on whether the vendor
> is profit or non-profit, but, rather, on how the price reflects the mission
> of the organization and where the resources are or were or might come to
> cover none, some, or all of the expenses incurred.
>
> There is a lot of sloppy thinking regarding profit vs. nonprofit. In fact,
> in the West, the difference is only a matter of taxes and, to a lesser
> extent, the way the organization is regulated by public agencies, and,
> finally, in whether an investor gets a cash return, a capital return, or a
> philanthropic good feeling from a "successful" transaction. Many nonprofits
> pay quite handsomely; many for-profits go broke.
>
> Joe
>
> On 7/10/07, Taran Rampersad <cnd at knowprose.com> wrote:
> >
> > Joe Beckmann wrote:
> > > In a world where NFP's range from Mass General and Harvard to Mabel's
> > > home-based day care there is an amazing amount of generalization in this
> > > discussion.
> > The list is a pretty diverse group. Is there a specific context you're
> > interested in?
> > >  The pretense of poverty and "free" services is patently absurd
> > > for by far the largest part of the non-profit sector, since profit has
> > > nothing whatsoever to do with pricing.
> > >
> > Maybe I'm tired, but I don't understand the last sentence. 'Pretense of
> > poverty' is patently absurd? "Free services" is patently absurd? Profit
> > has nothing to do with pricing? Could you help me understand what you
> > mean better?
> >
> > --
> > Taran Rampersad
> > Presently in: San Fernando, Trinidad and Tobago
> > cnd at knowprose.com
> > http://www.knowprose.com
> >
> >
> > Pictures: http://www.flickr.com/photos/knowprose/
> >
> > "Criticize by creating." — Michelangelo
> > "The present is theirs; the future, for which I really worked, is mine." -
> > Nikola Tesla
> >
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>
>
> --
> Joe Beckmann
> 22 Stone Avenue
> Somerville, MA 02143
> 617-625-9369
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