Why you should support big companies instead of nonprofits if you want to help the most people
If you want to help people on a large scale, the best thing you can do is start a nonprofit right? Well, at least that’s what we’ve been told.
The reality is that the nonprofit model has major limitations in terms of its potential for overall positive social impact and growth.
Specifically, there is an outdated social stigma around nonprofits having big overhead costs. We don't have anything against nonprofits–we see the incredible work they do in the world–we're simply saying that the model itself is not optimal.
Because nonprofits rely on donations, people tend to demand that a high percentage of their dollars go toward the cause. However, this mindset does not take into account other factors which contribute to an organization's overall impact such as raising awareness about the cause, growing the organization's reach and incentivizing people to take up the torch, so to speak.
In the last 40 years there have only been 144 nonprofits which have crossed the 50 million dollar annual revenue mark. Compare that to over 46,000 corporations who have reached 50 million dollars in revenue in that same timeframe.
Additionally, donations to nonprofits account for only 2% of annual GDP in the United States. This percentage has remained completely stagnant since 1970, meaning nonprofits have been unable to take any market share away from for-profit businesses.
In the realm of social impact, more money means more potential to create programs getting people the help and services that they need.
Let’s explore this idea with a hypothetical scenario:
Let’s say we want to host a bake sale to support a worthy cause. We decide that we’re going to give as much of the proceeds to the cause as possible. We buy the ingredients and get some of our friends to volunteer their time. They help us to bake everything and make sure the sale runs smoothly.
We end up spending $10 on the ingredients and sell 25 brownies for $4 each. $100 in sales! Now we have $90 to donate to the cause after the $10 in overhead costs from the ingredients.
A 10% overhead would be considered a very lean nonprofit by traditional standards. In other words we can be pretty sure the CEO of our bake sale isn’t driving around in a car that costs more than a house.
What if we decided to do some marketing for the sale though? Would that be unethical?
We decide to take out some ads in the local paper, get some cool flyers printed up, and create a short video that we post to social media to promote the sale. We even decide to run some Facebook ads for the video so more people in the community know about the sale.
We also decide to spend $100 on ingredients expecting a big turnout for the sale. Our marketing efforts pay off and we sell 250 brownies for $4 each. $1000 in sales!
Between the extra ingredients, the Facebook ads we ran and printing off all the flyers, we spent an extra $250.
This much marketing would be unheard of in the nonprofit sector because nonprofits are handcuffed in a big way in terms of the marketing they can do largely due to social stigma.
Imagine a nonprofit planning a $1,000,000 marketing campaign which was projected to generate $2,000,000 in donations. But what if it failed? What if the campaign only netted $500,000 in donations?
Most people would villainize such an organization who lost $500,000 that could have gone to the cause. This forces nonprofits to usually air on the side of caution when it comes to marketing, which means they don’t usually take big risks, and consequently don’t usually get big rewards in terms of donations.
Businesses don’t have to play by these rules because business don’t run on donations, they run on sales.
When people donate, they expect as much of their money as possible to go to the cause they’re supporting. It would be an infuriating experience to find out you gave $100 to a cause and only $35 actually went to it. You would be left thinking, “What the heck? Where did my other $65 go?"
With sales dollars, there is an exchange on another level because the customer gets a product.
Consumers expect companies to have overhead and spend money on marketing. They also expect companies to make a profit. In the bake sale example, we decide to put $150 in our pocket because we took time away from work to organize and run the sale.
Profitable companies will also attract investors which can maximize an organization's growth potential.
Not many people want to invest in things that aren’t making money.
We also recognize the efforts our friends put into helping us with the sale, so we allocate an additional $250 to divide between them as a thank you.
It would be normal to say something like, “Well my friends would be happy to volunteer their time for a worthy cause, they wouldn’t need to be paid.”
That’s true, but what if we wanted to run the bake sale every day? Now people might not be so eager to volunteer their time.
The people are the most important part of any organization.
The reality is that nonprofits just don’t pay very well because they try really hard to minimize overhead. It might be fair to say, “Well, it shouldn’t be about the money, right?” We need money to live in this world and more importantly no one likes to feel undervalued.
In very general terms, the best and the brightest tend to gravitate toward the highest paying jobs, which are typically found in the corporate world.
The average corporation is not concerned about having a positive social impact and in fact the result of their actions have negative effects in many cases. At any rate, positive social change does not seem to be one of the pillars of most organizations. In this respect the most creative, innovative and talented people tend to be working at jobs which are not on a mission to create positive social change.
That’s not always true of course. There are amazing people working in the nonprofit world and we know some of them personally. We’re making the point that there are not many options for individuals who want to make enough money to live an abundant life and help a lot of people at the same time in an ethical way.
In total the bake sale had 65% in overhead costs, but does it really matter? $350 dollars went to the cause as opposed to only $90 when there was 10% in overhead costs.
A bake sale like this could continue to run indefinitely and wouldn’t have to rely on people's generosity, because built into the structure of the organization is an equal exchange between the people running the bake sale and the customers.
At Brownie we’ve created a business model which sets a completely different set of standards for ourselves than most companies.
Our core mission is to have a positive social impact. It’s not something we’re doing on the side, it’s extremely important to us, which is why $50 from every pair of sunglasses we sell goes toward healing a person’s blindness in a third world country.
We wouldn’t consider ourselves successful if we weren’t having a positive social impact.
Presently we are working closely with nonprofits. We see the great work they are doing in the world and we want to assist them in achieving their goals.
Our vision for the future is to do exactly what nonprofits are doing—connecting people’s dollars with worthy causes—without the limitations they are subject to and while still providing value in the form of a useful product to our customers.
It’s not that we think there’s something wrong with nonprofits. We actually considered starting one ourselves and decided against it when we recognized the many challenges that the nonprofit model presents.
We believe we have the highest potential for helping the most amount of people by creating a product and allocating a portion of the sales to a worthy cause.
Share this post if you want to encourage more corporations to do good in the world.
This TED Talk brilliantly explains why nonprofits struggle and we would highly recommend watching it for further information.