Letters from Lauren: Why For-Profit over Non-Profit
Let’s talk about the differences between a nonprofit and a for-profit business, and why I chose a for-profit business model when I was setting up my social impact company.
A nonprofit business is a company or organization that supports a social cause or provides a specific benefit to the community, and where profits are reinvested back into the organization and not distributed to any owners or stakeholders. (Contrary to some beliefs, nonprofits actually DO make profit.) Nonprofits are also granted tax-exempt status by the Internal Revenue Service (IRS). They can generate money through fundraising and donations, and don’t have to pay taxes on income they receive from individual’s donations. While they do pay their employees, it’s important to note that salaries for nonprofits are not taken from fundraised or donated funds. Charities, museums, churches, and hospitals are all great examples of nonprofit businesses.
A for-profit business is typically a company whose sole purpose is to make money. They serve their customers by selling a product or service. For-profit businesses also pay taxes on any income they earn, and are able to distribute their profits between owners or stakeholders.
If you want more detailed info about the difference between nonprofits and for-profits, check out this article from the U.S. Chamber of Commerce.
The definition of a for-profit business can seem pretty shallow on the surface, but when combined with a mission to drive positive social impact, it can be both successful and purposeful. These for-profit businesses build powerful initiatives to help drive social change right into the core of how they do business. A for-profit business with a social impact mission at its core is called a “for-profit social enterprise”.
Both business models have their strengths and weaknesses, and both are equally necessary for different purposes.
When I was at the beginning stages of starting my business, I took time to research the different entity types. At the time, my only experience with businesses in the nonprofit sector were specifically with organizations that provided charitable aid. There is a great need for aid in the world, especially in areas that have experienced devastation such as natural disasters, war, or food and water shortages. But the people that I felt connected to work with were not currently in need of charitable aid; they had a specific skill or craft that they were already selling, and wanted the opportunity to continue to work as a dignified means to support themselves and their families.
Ultimately, that is one of the main reasons I set my company up as a for-profit LLC. I believe in the power of partnership and working together. Since the beginning of time, people have been exchanging goods and services - commerce is a universal language that is incredibly empowering when it’s approached with mutual respect and the desire to work hard to create something beautiful together.
At the start of Travel Patterns, I was not pursuing fundraising, donations, or investors. I started with some good old bootstrapping, saving and self-funding. I work harder when I’m personally invested in something. It feels good (and is also challenging) to put my own skin on the line in this business. On the same hand, when our team is making decisions for the good of the business and our partners, it becomes personal for all parties involved.
Nonprofits and for-profit businesses are equally important, and both can make incredible impacts when structured correctly. Here are a few ways that Travel Patterns is structured to make the most positive impact we can:
We choose our artisan partners wisely by looking for organizations that have transparent structures in place. This is especially important when working with marginalized groups who have historically been taken advantage of. We work with a variety of social impact for-profits, NGOs and non-profits. Regardless of how their business is structured, all of our potential partnerships are vetted for the same transparent practices and business model.
We pay fair wages for the goods we design and order. We work closely with our partners to ensure that the prices they set, cover not only appropriate wages for the time it takes the artisans to create the products, but also covers all of the material costs.
When financially possible, we visit potential partners in-person. This way we can see first hand how they operate on the ground, inspect the working conditions ourselves, and have one-on-one conversations with the artisans to ensure ethical business practices.
We pay at least 50% of our cost up front. This ensures that our partners have the capital to purchase all necessary materials to begin production for our orders. We also pay all shipping and import fees. These practices relieve financial pressure, encourage continuous growth, and also communicate a mutual investment and commitment in our partnerships.
As a CEO and entrepreneur myself, it is important to me that we provide our customers with some of the same transparency that we require from our artisan partners. I hope that this post instills more confidence in you as you continue to shop with Travel Patterns. We are so thankful for every purchase you make because not only is it making a difference in the lives of our team, but also in so many lives around the globe!
Take Heart. Take Flight.
-Lauren
