“I want to make the world a better place.” “I only buy Fair Trade products.” “I want to contribute X amount of my profits to XYZ charity.” I am a newbie to these kinds of businesses. As a misanthropic curmudgeon, I try to maintain an open, however skeptical, mind to these business models.
If you’re interested in this business model, check out lifeoutofthebox. This is a young couple in Nicaragua selling handmade goods and suing some of their profits to supports schools in the country. They are very passionate about their mission and I wish them the best. I’m hoping that they start selling belts soon.
Listen, businesses run on capital (which can be synonymous with cash). No capital means out of business. I like to believe that every business, in its own way, is trying to make the world a better place. But you MUST make a profit to stay in business (or you’re just a private foundation giving all your money away). Profit is just an addition to capital measured over time – like a space time continuum. Profits are not bad or evil. They are only a measure of success for your business.
Businesses must be run in perpetuity and you must plan for that perpetuity. Just because you had a profit in March doesn’t mean you’ll have a profit in April or ever again. That’s why profits are important. They guarantee the continuity of your enterprise.
At some point, I’ll do a post on not-for-profits and how they are generally a bad idea. I believe it is far better to generate a profit through hard work and then freely give that profit, or a portion of it, to a charity. I’ll call this the Carnegie method. So, by all means create your social entrepreneurship but run it like a business and plan on making a profit. Add a line for charity in your budget and hold yourself to it. Or, amass as much wealth as possible and give it all away like Andrew Carnegie did.