As an example, some years ago I had some friends who wanted to create curriculum material, I think aimed at homeschoolers. They were thinking of setting it up as a nonprofit. I counseled them to make it for-profit, because it would force them to find a market and have more impact. They did and told me recently that this made a big difference for them.
But an even bigger lesson here is that we should look for structural barriers to for-profits. This could mean legal changes (e.g., in patent protection); creative new business models that challenge the structure of entire industries; etc.
because it would force them to find a market and have more impact.
If you think nonprofits don’t have to find a market (two markets, actually—donors and beneficiaries, which may or may not overlap) and to measure their impact, I suspect you’ve never worked closely with a serious nonprofit.
When starting out, it’s definitely a good idea to be as independent as possible, and that’s usually a privately-owned management structure (for-profit, sure, but that designation is a red herring. Startups are profit-irrelevant for the first few releases, and premature outside funding would be as bad a mistake as premature decision to go nonprofit.
After the startup phase, where the founder is a significant part of the labor, the question gets trickier. It depends a lot on your target beneficiary and how much their market power diverges from your mission.
Other than tax implications, what structural barriers do you have in mind which are pushing organizations into non-profit rather than for-profit structures?
I have started nonprofits, and worked closely with others.
I have also seen nonprofits that produce a lot of material that no one reads and that has no impact, but that keep getting donations from donors who aren’t paying much attention to impact, or who rationalize away the lack of it.
Examples of structural barriers:
Lack of patent protection, e.g., ability to obtain and enforce patent on repurposed drugs (example I mentioned and linked to in the article)
Regulation: e.g., many health insurance products you might want to create are illegal
Free public alternatives: e.g., it’s hard to profit in K–12 education because of public schools, making private school a premium/luxury product for the rich; something like tax credits for private school could alleviate this
Lack of patent protection does not stop a nonprofit from sponsoring research to run a clinical trial for a repurposed drug
Regulation on insurance offerings doesn’t stop a nonprofit from paying for people’s health care as a charity
Free public schools don’t stop a charity from offering an alternative free school
In each case, if a nonprofit wants to offer a product/service, they can do so, but the corresponding opportunities to offer the same product/service on a for-profit basis are prevented by the structural barriers.
As an example, some years ago I had some friends who wanted to create curriculum material, I think aimed at homeschoolers. They were thinking of setting it up as a nonprofit. I counseled them to make it for-profit, because it would force them to find a market and have more impact. They did and told me recently that this made a big difference for them.
But an even bigger lesson here is that we should look for structural barriers to for-profits. This could mean legal changes (e.g., in patent protection); creative new business models that challenge the structure of entire industries; etc.
If you think nonprofits don’t have to find a market (two markets, actually—donors and beneficiaries, which may or may not overlap) and to measure their impact, I suspect you’ve never worked closely with a serious nonprofit.
When starting out, it’s definitely a good idea to be as independent as possible, and that’s usually a privately-owned management structure (for-profit, sure, but that designation is a red herring. Startups are profit-irrelevant for the first few releases, and premature outside funding would be as bad a mistake as premature decision to go nonprofit.
After the startup phase, where the founder is a significant part of the labor, the question gets trickier. It depends a lot on your target beneficiary and how much their market power diverges from your mission.
Other than tax implications, what structural barriers do you have in mind which are pushing organizations into non-profit rather than for-profit structures?
I have started nonprofits, and worked closely with others.
I have also seen nonprofits that produce a lot of material that no one reads and that has no impact, but that keep getting donations from donors who aren’t paying much attention to impact, or who rationalize away the lack of it.
Examples of structural barriers:
Lack of patent protection, e.g., ability to obtain and enforce patent on repurposed drugs (example I mentioned and linked to in the article)
Regulation: e.g., many health insurance products you might want to create are illegal
Free public alternatives: e.g., it’s hard to profit in K–12 education because of public schools, making private school a premium/luxury product for the rich; something like tax credits for private school could alleviate this
I’m confused. Which of those structural barriers apply to non-profits differently than for-profit organizations?
All of these examples apply differently:
Lack of patent protection does not stop a nonprofit from sponsoring research to run a clinical trial for a repurposed drug
Regulation on insurance offerings doesn’t stop a nonprofit from paying for people’s health care as a charity
Free public schools don’t stop a charity from offering an alternative free school
In each case, if a nonprofit wants to offer a product/service, they can do so, but the corresponding opportunities to offer the same product/service on a for-profit basis are prevented by the structural barriers.