A Parrot With A Purpose: Why Most Companies Should Consider Becoming Nonprofits
In earlier posts, I’ve argued why companies need to play the long game and leave their short-term focus behind. Why they need to be system builders. And why they even need to be boring.
But do companies need to be companies?
As odd as this question might sound, there’s actually a great deal of thought behind it. And the answer is… No.
For some reason, we take for granted that businesses are driving economic progress and innovation in our societies. But it’s not the case. It’s not that simple.
The state matters
First of all, it’s clear that the state matters. Both 9/11 and later The Financial Crisis (2007–08) reminded us that the state has a meaningful role to play. Regulation, oversight and security remain important.
Furthermore, the jury still out on whether or not the private sector is in fact more innovative than the public sector.
Some argue that state bureaucracy is a myth. Others are reminding us how bureaucratic and ineffective large companies are.
Nonprofits are growing
That we need to lessen our focus on business is even clearer when we consider the nonprofits.
Today, the nonprofit sector is where much of the growth in people is happening. And nonprofits are powerful.
Let’s consider U.S. education and hospitals for a moment. One idea that you hear fairly often is that they are inefficient and that we should bring for-profit business models to bear on them. That would hardly be a good idea.
“What’s really powerful in nonprofits is that they don’t and do not try to create profits,” said Chris McKenna of Oxford University’s Saïd Business School in a recent interview with me. “Instead, they can invest for long periods of time. They can motivate highly intellectual, interesting people to work for them at reduced rates. And they can motivate people to invest in them, to literally to give them money.”
What if Goldman Sachs could ask people to give it billions for free? It sounds absurd. But if you consider the likes of Harvard and Stanford, it is actually what is happening. People donate billions to them each year.
A parrot with a purpose
One of the ironies at play is the idea of “the social enterprise” and having a higher “purpose” for businesses. From a helicopter’s perspective it’s puzzling. It’s a mixed system in which you’re running a for-profit company with a higher mission.
In essence, businesses are parroting nonprofits.
If the higher mission is really so important for your business, why would you want to gain a profit for shareholders and owners?
Why not become a nonprofit, reinvest in your business and your mission, get highly skilled people to work at reduced rates, avoid income taxes, and receive donations?
(Ok, maybe the mission doesn’t matter that much, I get it.)
Nonprofit as a competitive advantage
A good example of how a nonprofit can be highly competitive is German global engineering and electronics company Bosch. The company is running for a foundation, the Robert Bosch Stiftung.
Nevertheless, their competitors in the automotive industry will say that Bosch is absolutely brutal to go up against in the market.
Bosch is not an isolated example. People in industries who go up against nonprofits say it’s not fair. That it would be much easier to go up against a for-profit company as it’s impossible for to compete against a nonprofit. They even want regulators to intercede and force the companies to need profits.
Yes, yet another irony at play.
Who’s innovative now?
A nonprofit can be more than a brutal competitor in the market. If we focus on the innovation aspect of things, nonprofits are in many ways more innovative, doing more ground-breaking things than for-profits.
And they seem destined to continue to do so.
The 2nd Industrial Revolution created vast pools of money around large corporations. Sooner or later, these pools of money were given over to nonprofits, creating e.g. the Ford Foundation and the Carnegie Foundation.
The same has happened after the 3rd Industrial Revolution.
Today, all the fuss about Microsoft and Bill Gates is long gone. You might even say that Microsoft is irrelevant these days. Still, the largest foundation in the world is the Bill & Melinda Gates Foundation with a yearly endowment of more than $40 billion.
In other words: History has taught us that sooner or later the money will go into nonprofits. Here, that money is going to fuel growth in all kinds of areas.
Let’s take the Gates Foundation as an example. In their strive to end extreme poverty and poor health in developing countries, they are creating compostable toilets, finding new photovoltaic uses, discovering new ways to distribute pharmaceuticals and much more.
When you deal with the really tough issues, innovation becomes more crucial than ever.
And The Four Horsemen?
We need to remember this. Business isn’t everything. The nonprofit sector is growing, and in many ways the nonprofit model is a better and more competitive model than the for-profit.
Also, sooner or later much of the profit generated in a business will go into nonprofits anyway, and in those some of the most innovative things are happening in order to solve real problems.
There are plenty of precedent for all of this, and the future for nonprofits looks promising.
Next in line, after Microsoft, are the likes of Apple, Amazon, Google and Facebook.
The question is: Do these four companies — also knows as The Four Horsemen — have it in their DNA to give back to the societies that have served them so well?
