Instructions to the Cook has been my social entrepreneurship handbook since it was published. One of the chapter titles, “To Profit or Not to Profit,” grabbed me, transported me back to our college production of Hamlet. I think it was my first real speaking part. Rosencrantz. I sprayed my hair red. I had trouble remembering my lines. Billy Wingate, who became a very close, lifelong friend, was Hamlet.
For Hamlet, “To be or not to be?” was a profound moral question. For many years, “to profit or not to profit” was just such a moral choice for me. I was proud of the fact that I had worked my entire career in public sector and not-for-profit jobs. I thought it gave me a moral purity. When, as a Zen student, I confronted Buddha’s Eightfold Path, when we came to Right Livelihood, I could breathe a sigh of relief. I had chosen the not-for-profit side. I had chosen Right Livelihood. So many of my Zen friends were struggling. “Should I quit my job in advertising and devote my life to Zen?” Bernie had done just that, quit his job in the aerospace industry — he had been working on the Mars Project — to become a full-time Zen student and teacher. I was lucky. I was grateful. I was righteous.
When we were struggling to get our first charter — it took three years — it was suggested that it would be easier for us to get our first school open as a for-profit private school. I didn’t even consider it. I was looking to do good. Not-for-profit was my moral choice.
I wasn’t the only one who saw things this way. Many people see the dilemma of choosing between for-profit and not-for-profit as a moral choice. As is the case in most moral dilemmas, whichever side we are on, we are the good people. The others are morally inferior.
The do-gooders look at the for-profit people as greed incarnate. The purpose of business, after all, has so often been proclaimed, “To make a profit.” Peter Drucker, dean of American business gurus, offered a different take. The purpose of a for-profit business is to provide a good or service and to continue to provide it. Making a profit is a necessary condition of remaining in business. The for-profit like the not-for-profit must satisfy a need. And for a not-for-profit to thrive and grow, generating surplus revenue (different words but something very like profit) annually which can be invested in continued growth may be crucial.
For the for-profiters, the not-for-profit do-gooders are degenerate wastrels. Without the discipline of a “bottom line”, there is no accountability. “Those do-gooders just spend, spend, spend.” And “whose money is being spent?” the righteous for-profiters ask. “My money,” say the righteous who live with bottom-line discipline. “The taxpayers money.”
The question of bottom-line discipline is important.
At the time Bernie was writing, the notion of a “social bottom line” was still a fresh idea. Bernie was intrigued with the idea of measuring things, if not dollars. He was, after all, an engineer. We could measure the number of meals served or jobs created.
Measuring outcomes is, of course, good discipline but the social bottom line lacks the objectivity of the fiscal bottom line. By the time, we were opening our schools, I was already cynical about the social bottom line. As a manager in the New York State mental health system, I lived through a “managerial revolution” in which the “discipline” of a social bottom line was introduced. Every manager had to set goals for the year, and these goals had to be approved by higher management. When the new system was introduced, I was excited. I thought it could add some rigor to what we were doing and how we were being evaluated.
But it soon became a game. The trick to winning that management game was to avoid setting high goals for myself and my team, goals which would stretch and inspire us. We soon learned that aspirational goals would be used at the end of the year as weapons to beat on us. The trick was to negotiate the lowest goals possible and then to meet them. Once I learned the trick, I became a successful manager.
I brought this learning with me to the charter writing process. For instance, we had to write an approved student attendance goal. The City charter school office wanted us to meet or surpass the attendance of Staten Island district schools. I argued that since we would be serving a higher percentage of students with significant emotional challenges, students whose difficulties often manifested as school refusal, our attendance goal should be substantially lower. The City ultimately agreed. The lowered goals helped us “succeed.”
The “bottom line” is that the social bottom line is always subject to interpretation and negotiation. Although the profit/loss outcome is subject to financial shenanigans, it is clearer.
At the same time, I learned in building our school network that not-for-profits have to deal with the same bottom line as for-profit businesses. Friends in the City charter school office gave me a valuable heads-up as we moved toward our first opening. “Many more charter schools fail as businesses than fail as educational institutions.” We had to succeed as a business and as an educational institution. There is no arguing about the financial bottom line. Either you have enough money to continue to operate or you don’t. Not much can be done with mirrors. Our schools thrived and our network grew because we also succeeded as a business. We paid teachers enough so that we were able to compete in the job market. We paid for health insurance. We paid our rent. Our students all had computers. And we had enough surplus to fund the investment in additional schools.
Are for-profit and not-for-profit organizations really so different?
Managers of not-for-profits are compensated with salaries and fringe benefits, sometimes with bonuses, but not stock options. Social entrepreneurs don’t end up with equity in the business. Sometimes that feels like a big deal. As our school network grew beyond my wildest expectations, the thought did cross my mind that my daughter would inherit a lot more if we had done this as a for-profit.
Well, if for-profit and not-for-profit are not so different, why shouldn’t every social enterprise be done as a for profit?
Roshi Chris Panos helped me see the answer. The big challenge that social entrepreneurs face in raising for-profit money is that we are often unable to figure out how we are going to make a profit doing what we want to do. At Greyston, Bernie was able to develop a business plan for a construction company which would make a profit building low-income housing. The Greyston construction business was conceived as a for-profit. He couldn’t see a way to make a profit on caring for people living with AIDS. He designed the AIDS Hospice as a not-for-profit.
Through his work at Greyston, Bernie taught an amazingly important lesson. The choice between For-Profit and Not-For-Profit is not a moral choice, a choice between being a good person and a bad person. At Greyston, Bernie created both for-profit and not-for-profit businesses. As I studied his practice, my moralistic biases began to loosen. What I saw then was a technical problem.
Although there are sometimes other obstacles as well, often regulatory obstacles — for instance in New York State for-profit charter schools are taboo — for both for-profits and not-for-profits, raising start-up money when there are no successes to point to, is the biggest challenge. To start our first charter school, we looked first for a foundation grant. When that failed, we did it with sweat equity. When it came to opening additional schools, we funded start-up costs from our surplus.
“To profit or not to profit?” is now more of a technical question than a moral question. Where do we find the capital to do what we want to do? Not quite Hamlet, this technical challenge probably wouldn’t have interested Shakespeare. Bernie saw this.