Why profit is important for the nonprofits?

By Leonardo Letelier

Imagine the following conversation:

– Hello, what’s your name?
– My name is non-Marcelo. Pleased to meet you.

Clearly, there is something wrong with this conversation: people introduce themselves by who they are (Maria Clara, for example); not by who they “are not” (Marcelo, in the previous example). The same thing happens for companies: Vale is a mining corporation and not a non-bank. If that is the case, then, why do we think it normal to talk about “non-profit organizations” rather than “organizations with social impact” or, simply, “social organizations”?

Legally speaking, not even this negative definition is correct: a social organization is “without allocation of profits”, not “without profit”. The problem is that this language has an important effect on how we see the social sector; we expect it not to turn a “profit”, to spend all the resources it can get and not to save or invest for the future.

But, as with any business, a surplus of revenues over expenses for the period (the “profit” of a traditional business) is important to finance activities in the next, to allow investment in new tools to generate resources or to experiment with new social programs. By not accepting this surplus, or rather by not incentivizing it, we are implicitly admitting that we want social organizations to live in a constant state of financial distress.

At the end of the day, if we implicitly or explicitly demand that these organizations don’t make a profit, but at the same time expect them to be stable, innovative and well run, we are asking for the impossible. We should not blame them for not meeting this expectation.

* Leonardo Letelier is a graduate in Production Engineering from the USP (University of São Paulo) in Production Engineering and has an MBA from Harvard Business School, USA. As well as founder, he is managing director of sitawi – capital, discipline and advice for social impact. With more than ten years of experience in strategic and social consultancy, he worked as a consultant for McKinsey & Company prior to founding sitawi.