What are some of the main differences when founding a nonprofit vs for-profit startup? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
Answer by Jessica Jackley, Co-Founder of Kiva and Entrepreneur, on Quora.
If choosing a mission is like deciding on a destination, then choosing the right organizational structure -- whether a non-profit, a for-profit, a social business, or any other structure -- is akin to picking the best vehicle to move forward.
Many entrepreneurs can get bogged down in the assumptions they have about how a particular type of organizational structure should operate, what its culture must be like, what its goals have to be, etc. They jump to conclusions that are not necessarily true about those structures. For example, just because you want to create positive change in the world does not mean you need a non-profit to do so. Similarly, I believe that making a healthy profit from a great idea that helps improve people's lives does not necessarily make you a greedy robber baron.
I admit that I have gotten sucked into this kind of limited thinking in the past. For years I believed for-profit businesses were just vehicles for selfishness: that a business was an every-man-for-himself, greed-driven, money-focused beast. I believed the business world was an exclusive club for people who cared solely about hoarding cash and who had somehow convinced the world to give it to them. If businesses were for-profits focused exclusively on making money, and the organizations that were focused on helping people were non-profits...well, that was all I needed to know. I concluded, business was bad, nonprofits were good. And I wanted to be on the side of the good guys.
Of course, the majority of social sector organizations do great work - work that serves, fixes, helps. But businesses can do a lot of good in the world, too. And unfortunately, and much harder to admit, I've also seen non-profit organizations that, in my opinion, hurt more than they help in the long run. So, incorporating as a particular structure doesn't guarantee that your work will live up to the ideals of that structure -- or that you have to live down to any of the negative stereotypes either.
This goes for all of the other new structures cropping up as well. I couldn't be more excited about the recent progress made toward the creation of yet another structure for, in the words of Delaware Governor Jack Markell, "...a new type of corporation that is hard wired to compete to be the best in America at being the best for America." The Governor was referencing the July 17, 2013 passage of public benefit corporation legislation in his state, which enables businesses not only to pursue high returns for their investors, but to design their decisions and strategy around prioritizing social impact as well. Delaware is the most popular state for incorporation for U.S. businesses, so benefit corporation (b-corp) legislation was a monumental addition to their laws. B-corps must "operate in a responsible and sustainable manner," they must identify what kind of public benefit they want to pursue, and they must maximize stockholder value as well as balancing the interests of anyone "materially affected by the corporation's conduct." It's a tall order, and one that I believe will blend the best of all worlds.
When Kiva was in its early planning stages, we were initially agnostic on whether we should organize as a nonprofit or a for-profit entity, or some sort of hybrid organization. We saw advantages to both ends of the spectrum, but ultimately decided to organize as a non-profit 501(c)3 because, among other things, this seemed to be a vitally important factor for our target audiences: lenders, microfinance institutions, borrowers, and funders. When we really couldn't move along any further without getting outside funding, our most promising and significant funders only wanted to donate money to our vision if they could do so under the umbrella of a non-profit organization. We heard from would-be lenders, too, that their desire to contribute to our network of budding entrepreneurs in developing countries would hinge on the knowledge that they knew no one was getting rich off of their 0% loan. We couldn't move forward without the support of these people, so their opinions mattered. As Kiva has progressed, the goodwill and level of trust gained as a nonprofit have made a real difference in cost savings as well, as the organization has benefited greatly from donated services and corporate partnerships that wouldn't have been as easy to garner as a for-profit.
So what structure is best? It depends. It depends on what you want to get done. And how you want to go about doing it. And whether or not ownership is important to you. And how much control you want to have. And where you want to get your funding, and from whom, and in what form. And who you want on your team, and what you'll need to attract and retain them. And dozens of other factors.
An organization's structure is simply a vehicle to get you to where you need to go. Where you take that vehicle and how you use it is primarily up to you. What matters most is starting with a clearly defined mission, then finding an organizational structure that will best facilitate that mission.
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