Social · Founders

What are the fundamental differences between a social and for-profit founders?

Naman Sharma UI/UX Developer at Osvin Web Solutions

November 18th, 2016

I always admired people who are giving, who devote themselves to some higher cause without expecting something in return. Those people are mostly the ones who start social startups. They are usually hard to run because there are no big bucks in it, salaries are not high etc. I am not saying that people looking for profit are bad people, but somehow they are different. They care about different causes and have different mindsets. Could you please help me figure out the main differences between social and for-profit founders?

Rob G

November 18th, 2016

to start with, don't confuse 'social' with nonprofit.  Social purpose corps and B corps combine social purpose with profit. Also, don't confuse nonprofit with 'no big bucks'.  The CEO of the Boy Scouts of America makes very close to $1M/yr the last time i checked.  A state-level boy scout exec can make $200k+.  The CEO of the Girls Scouts of America makes north of $500k/yr. with benefits like housing allowance, etc.  The CEO of the Wounded Warrior Project made around $500k - the top 10 employees made about $260k each on average.   Goodwill regional CEOs (there are several) make in the range of $300k-$500k/yr.  The top 15 executives at the Red Cross each make between $316k and $600k/yr.  

I get that these are extreme examples, but these large nonprofits are run like for profit enterprises, it seems, with highly compensated management and large payrolls.  They do a lot of good work and employ a lot of people and that requires big payrolls.  It also seems that we tend to think of nonprofits as volunteer organizations (i know i used to - just never gave it much thought).  speaking of payrolls, a few years ago i ran some calculations for the Girl scouts based on their public tax return.  They are well known for their annual girl scout cookie sales and they raise a lot of money (about $776 million in 2015).  Most of us think that the human resources behind this are all volunteer.  apparently not so much.  If they took 100% of the gross margin (i think i used the GM figure - 75%) they make each year on the sale of cookies and used it to pay down their current pension obligations it would take them 5 years just to break even - just to adequately fund their current pension obligations. That's just to break even on the pension obligation for their retired employees... zero for current staff.  I don't say this to bash the girl scouts.  My point is that when we hear the term 'nonprofit' we tend to think 'volunteer' and that is not always the case. So to answer your question, it appears that at least for these large nonprofits they are run by professional management who are compensated at market rates for their skills.  This doesn't mean they do not also care deeply for the causes they represent, but at least judging by the compensation numbers, it is not as altruistic as one might think. 

Tom DiClemente Management Consulting | Interim CEO/COO | Coach

December 2nd, 2016

Hi Naman,

I am assuming you are asking strictly about startups and not other established non-profit companies or organizations. 

Rob makes a very good point in that there social-mission startups that also have a profit motive.

So, for now, let's agree to simply call these two types you are trying to distinguish social versus economic startups. The social-mission startup is not typical of most startups and only now becoming more prevalent. The economic-mission startup is the one we still consider the more typical and its mission, instead of being social, usually is centered on pure free cash flow and growth, economic success, along with other aspects concerning stakeholders and community.

In both types of startups, there are many types of founders but let's break the founders into two broad types:

1. The mom-and-pop company type founder who is aiming to keep him/herself and perhaps a small group occupied and earning enough for a nice life. Sometimes these are the more locally focused companies, but not always.

2. The founder who is more typically thought of as the entrepreneur, who has some greater and glorious view of growing something of outstanding significance, something that will be disruptive in accomplishing its mission, in the extreme, establishing a new order. 

So, again, both of these broad stereotypes exist in both social-mission and economic mission startups. No matter which stereotype they exist within, they are the same.

The only difference between the two is their mission - that's it.

Thanks, Tom