Low/no profit is not a virtue

By Rolfe Larson on April 29, 2011

The way you hear some social enterprisers talk, you’d think it’s an inherently good thing to lose money, or if you have to make a profit, keep it small.  For example, the new Low-Profit Limited Liability (L3C) corporate structure, which allows an SE to have social objectives and attract investors, has that low profit mentality built into its name.

Certainly, SEs tend to incur costs to pursue their mission, such as training chronically unemployed people, which reduces their profit potential. And so it may be unrealistic to expect every SE to achieve profitability.

That said, social enterprises should aspire to reach their profitability potential, consistent with pursuit of its social purpose.  They should have short and long term profitability targets, developed from thorough business planning, and constantly be working to reach them.

Now, it may be that for one SE, that potential is to generate revenue to cover 80% of its costs, and seek the remainder from grants based on its social impact.  That’s fine as long as you get the grants.  Another SE might be covering all costs (break-even), which is a good thing but should not be confused with sustainability from sales — only through profitability can a business grow and invest in its own future.  And finally, the business planning for some SEs might indicate that there is profit potential of a certain level, and that then should be the target.

The core of social enterprise is pursuit of both social and financial goals.  Often revenues will not cover all costs to run an important SE.  But just as you never lose sight of your social objectives, keep your eye on the bottom line as well, and do everything you can to improve it. Low/no profit might be realistic, but it is not a virtue by itself.

Good luck!