Why don’t you share with us your view of how the two organizational types differ?

If the business model is totally self-contained and operates like a normal business and produces a normal profit, then chances are somebody is already doing it. Grocery stores make the world a better place, and make a profit at it.

So I set that category aside as “normal businesses” and instead focus on non-profits and “for-profits”. Where “for-profits” have the same non-market goals as non-profits but must achieve them in ways that also provide a return for investors.

To me, the only distinction between the two is how you raise capital. You bring in other issues like employee pay, but that seems irrelevant because both non-profits and for-profits can pay both high and low wages. The decision about where to raise capital should be (theoretically) independent from other decisions like how much to pay your employees.

So what is the real difference between the two? I split this into two conceptual groups: donor motivation and mission efficacy. Donors to non-profits don’t get a return, but they might think that more of their investment is going to the mission. Donors to “for-profits” are also losing money to some degree (if the venture returns a profit high enough to compensate for its riskiness, then it’s just a normal business, see above). They get some return back, but not as much as if the venture was completely focused on returns. Their money also partly goes to furthering the mission.

So what does it come down to? The result is shocking: Non-profits and For-profits are the *same*! In the end, all that matters is how efficiently investor/donor money is translated into mission results.

Think of it this way: both types are machines that convert dollars to mission results. Except for-profits just have an additional loop that converts dollars into, well, dollars back to donors.

What do you call a non-profit that gives back half of all its donations? A “for-profit”!

What do you call a for-profit that makes profits at a rate above market returns? A “normal business”!

Does this resolve the issue? Not entirely. The biggest problem is that you have normal businesses (as defined above) that also take in donations (e.g. Better World Books). Many of their donors do not realize that part of their donation is generating profits for investors. To me that is profoundly dishonest, like a beggar who makes enough money from begging to own a mansion and a BMW.

I hope this provides some new perspectives. I am interested to hear what somebody who deals with “social entrepreneurship” on a regular basis thinks of this theory as I am still in the process of developing it.