Matt Overton: Should your social enterprise be for-profit, nonprofit or a hybrid?
Illustration by Claire Doyle Ragin
A pastor who runs two social enterprises shares his experience on the pros and cons of different models and the tensions inherent in this form of ministry.
I was recently cutting some branches with the students who work in my landscaping business. We were in the back of my truck when a larger truck with a wood chipper drove by. One student said, “Man, this would go a lot faster if we could just chip the wood with one of those. Why don’t we buy one?”
It was a great question. For the next hour, we discussed the nature of business and profit, the basics of charging customers ethically, and the value of building all things in life slowly. I even had the students doing fairly complicated math in their heads to figure out how long it would take us to recover the cash investment for a commercial-grade chipper.
But eventually, I heard that nagging voice in my head reminding me that we didn’t have time for this much conversation on a job. If we don’t work hard and fast, my social enterprise goes belly up.
It’s this difficult tension of mission and profit that I live in every day.
Social enterprise is essentially using a business model to pursue (and often fund) a mission.
In my case, I’m trying to help the church see that it can use the power of business to fuel its efforts to live out the kingdom of God, transform its communities, and mobilize the gifts and talents of its people more effectively. I think that social enterprise in all possible forms has the ability to help the church experiment with new ways of being the church.
What unites all social enterprises that engage the marketplace is the idea that regardless of structure, the mission comes first. But as I have discovered, that tension between mission and profit is not always easy to manage.
One of the most difficult leadership decisions I have faced since beginning a social enterprise-based ministry out of my church has been trying to resolve whether it will function as a for-profit, a nonprofit or a hybrid entity.
The for-profit model
When I began my landscaping business three years ago, I started it as a for-profit, because it was faster to set up. I didn’t need a board or bylaws, and the revenue provided a cash flow to build the mentoring program.
At the time, my church was in the middle of a capital campaign, and I knew my business needed to generate its own revenue, because the church didn’t have the funds to support it.
In addition, part of my idea was to test the concept. I began with the question, Could a 20-hour-a-week youth worker own a small business that would help pay his bills and at the same time facilitate better relational ministry?
It’s important to remember that both for-profits and nonprofits can generate net revenue. All that separates them is what is done with the money.
A for-profit entity passes it on to its owners and shareholders.
In my case, we began as a for-profit social enterprise with what is known as a “double bottom line.” We balance our profit making with our mission’s social impact.
There are advantages to the for-profit model. First, decisions can be made much more quickly without the regulations and laws that govern a nonprofit.
Second, a for-profit social enterprise can capitalize mission and scale more quickly, because investors get a return.
Third, a for-profit is driven to work faster and solve problems more quickly, because it has no safety net. Without donors, there’s no margin for error.
Finally, without donors, a for-profit is unencumbered by the time-heavy demands of fundraising -- hosting events, tending to numerous individual contributors, publishing newsletters, managing complex grant requirements and the like.
The nonprofit model
But our enterprise has also bumped up against the limitations of the for-profit model, and we’ve discovered that being a nonprofit has advantages, too.
For instance, when we started, people were so inspired by our concept that they kept donating equipment to us. While this seemed great at first, I quickly realized that we couldn’t receive the equipment without taking a tax hit.
I also recognized that in order to accomplish our mission of mentoring teens, it would be great to have an extra crew boss on each job to increase relational opportunities. But our for-profit business couldn’t use unpaid workers.
Most of the advantages of a nonprofit lie in its tax status and liability. Nonprofits can receive donations and can give tax credit for them. A nonprofit pays no federal income tax, is exempt from property tax and can apply for some pretty large grants. The nonprofit board structure also heavily reduces personal liability.
Finally, over the past three years, the IRS has made it much easier for nonprofits to receive 501(c)(3) status with its new 1023-EZ form, which can often get your organization its status in just a few months or even weeks.
We don’t have it all figured out yet
Can I tell you which model is best? No, because my own organization hasn’t even resolved this yet.
Every time I’m on the job site with my teens, shoveling dirt or trimming bushes, I’m figuring out how to maximize my organization’s efficiency. We want our time and resources to be focused on our mission -- getting our students ready for life and work.
So we’ve developed a hybrid model. We still have our for-profit landscaping company called Mowtown Teen Lawn Care. But we also created a 501(c)(3) called The Columbia Future Forge, which manages the mentors and student training.
In the past several months, we’ve been thinking about our nonprofit buying out and owning our landscaping company. This could simplify things and open up some possibilities, but it will have its costs, too.
I have about $20,000 of my own money invested in this company, as well as sweat equity. For a number of reasons, if our nonprofit buys out our landscaping business, I may not get that investment of time and money back.
If I’m honest, I have to admit that I sometimes question whether the mission is worth the personal sacrifice.
There is a lot of blood, sweat and tears, no matter how you structure this kind of kingdom work. Every day I pray and wrestle spiritually with whether this is a calling worth engaging for the sake of God’s church.
Yet I continue to believe that some form of social enterprise is the future of the church. I think it represents a more sustainable engine for fueling our kingdom work out in our communities and in the rest of the world.
Each option -- for-profit, nonprofit or the accidental hybrid structure my team and I seem to occupy at the moment -- has its own ministry tensions.
But in the midst of these tensions, I’m excited to see what creative models the church will foster as it engages social enterprise.