Philanthropists and for-profit professionals alike are beginning to realize that non-profits no longer have a monopoly on creating social impact.  The idea that non-profits can only create social value and for-profits can only create economic value is a dying paradigm.  In fact, I propose that the for-profit sector is much better equipped to handle the complexities of creating social change.  Here’s why:

Charity is limited
Charity, by nature, is designed to transfer value, while business is designed to create value.  If our goal is to create value for those in need, it seems to make more sense to create it using the power of business.  There’s just simply not enough aid money in the world to reach all of the needs.   Social businesses are specifically designed to earn the money they need to reach their primary beneficiaries without the limits of charity.

Charity is inefficient
Philanthropy is not only limited by its size, but also by its marginal efficacy. Non-profits rely heavily on government grants and programs run by bureaucrats who receive little or no feedback from the primary beneficiaries of the programs.  These bureaucracies create a lack of accountability to the non-profits and to those who donate to them and thus no way to create efficient and sustainable value.  Social businesses operate under for-profit models, making sure to include practical metrics to measure their social and economic impact.  The non-profit model is only efficient where cost recovery is not realistic.

Business scales
Charity relies on donations from individuals, organizations and foundations, or government agencies.  As we’ve seen recently in America, when these funds are in short supply, non-profits have an increasingly difficult task in reaching their primary beneficiaries.  Even when the economy is doing well, there is a limit to charitable giving.  Social businesses sidestep the need for charitable giving altogether.  As a social business achieves sustainability and then profitability, it also achieves the potential for unlimited growth and expansion.

I understand that many non-profits are also engaged in earned income strategies and that they meet very admirable social needs.  What I’m saying is that non-profits are not (and should not be) our only solution to social change.  When it comes to creating value, businesses are generally more efficient than non-profits.

How we impact our communities becomes our central priority and business solutions can be more valuable when attempting to maximize impact.  The idea is that philanthropists could then leverage their capital on social businesses with the potential to make sustainable change.  Then the economic and social impact returns become exponential instead of incremental.

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