Social Entrepreneurship: In Business for Good, Not Profit

A shrinking population has left Pittsburgh with miles of vacant land. “Brownfields” -- unused eyesores that devalue surrounding property -- make up 10 percent of the city today. In 2006, three Carnegie Mellon University public policy grad students decided to combat the problem by creating GTech Strategies, a company that brings community activists together to plant the land with sunflowers and other crops that are then used for biofuel.

GTech (Growth Through Energy & Community Health) has grown to seven full-time employees and about $500,000 in annual revenue, says cofounder Andrew Butcher, now 29. Butcher expects continued growth as GTech’s program expands to other rust-belt cities, such as Cleveland and Philadelphia.

“There’s something transformative about getting people involved, hands-on, in rebuilding their community,” says Butcher.

GTech’s founders have hit upon a potentially lucrative business model, except for one not-so-minor point. Instead of establishing a traditional for-profit corporation, they founded GTech as a nonprofit social enterprise.

By taking the nonprofit route, Butcher and his cofounders have joined the ranks of many other young entrepreneurs taking advantage of this growing business trend. Social enterprises aim to make money by selling a product or service and then use profits to help address a social problem. In some cases, as with GTech, the organization’s revenue-generating program itself helps accomplish its social mission.

Two factors have come together to catalyze interest in social enterprise among young entrepreneurs, says Jerr Boschee, executive director of The Institute for Social Entrepreneurs in Dallas, which provides education and mentoring for social enterprises. One is increased knowledge about global problems, fueled by the Internet. The other is the spread of social enterprise training programs, such as 8-year-old nonprofit SAGE (Students for the Advancement of Global Entrepreneurship), which helps high schoolers in 21 countries launch social businesses.

“The possibility of taking business skills and applying them directly to social needs -- as opposed to going into business to make a lot of money and then donating the money -- is so energizing and exciting to these students that they’re jumping out of their seats,” says Boschee, who has spoken at SAGE events.

Many young social entrepreneurs find themselves in business after starting a charity and seeing the need for reliable funding. That’s what happened with University of Pennsylvania freshman Brittany Young, 19, who founded nonprofit A Spring Of Hope in 2007.

After learning about water problems in South Africa on a family trip when she was 14, Young raised funds from private donors to build six wells for African schools. Wanting to expand the charity’s reach, she began researching ways to fund her venture. She learned how to source stainless steel water bottles in China, and located a water-filter maker in Utah. In May, the nonprofit started selling Spring of Hope water bottles online and on college campuses. The bottles generate revenue, which is then used to build additional wells in Africa.

“With the income from the bottles, this is going to take on a whole new life,” Young says.

Young isn’t the only college student who’s hooked on social entrepreneurship. At New York University’s Stern School of Business, director of social entrepreneurship Jill Kickul says the social entrepreneurs’ association is the school’s largest student organization, with more than 400 members. And social entrepreneurs aren’t all in business school: In Kickul’s “Foundations of Social Entrepreneurship” class, 10 of the 25 students are from NYU’s public-service schools.

Creating a nonprofit isn’t all about altruism, however. There are a number of advantages to the nonprofit model, starting with the fact that nonprofits pay no taxes on revenues.

“You get tremendous goodwill, tax benefits, and in some cases legitimacy that you are doing it for the community,” says Kickul.

In GTech’s case, Butcher says operating as a nonprofit helped bring together the array of local government agencies and conservancy nonprofits needed to do the organization’s work. A for-profit company might be seen as competition rather than a partner in urban land reclamation projects, he says.

Retaining nonprofit status has also allowed GTech to obtain grants and donations to fund its work, which accounts for 60 percent of its funding. The rest of its revenue comes from program fees and business sidelines, such as selling sunflower seeds. Going the for-profit route and trying to find investors would have been more difficult, he thinks, as reclaiming abandoned land isn’t highly profitable and pays off more in intangible benefits to the community.

“If improving vacant land were really a profitable endeavor,” he says, “market forces would have captured that opportunity already.”

Choosing for-profit status has its own advantages, Kickul notes, chief among them the ability to attract private investors and personally profit from the business’s success. A for-profit business can grow in value and be sold at a profit by the owners; by contrast, nonprofits essentially belong to the public and cannot be owned or sold. While for-profit owners can create wealth with their business idea, entrepreneurs don’t typically get rich creating a nonprofit business: Salaries are usually modest (though they can increase as your nonprofit grows), and there is no profit-sharing for managers, as the profits must fund the charity’s programs.

Still, many entrepreneurs find nonprofit status suits the type of business they want to create. Social entrepreneur Dana Curran, 32, says nonprofit status opened doors for her 8-year-old business, WorldSavvy, which provides global-citizenship education and training to middle school and high school students and their teachers. With a $1 million annual budget, WorldSavvy derives 7 percent of its income from selling its consulting and training services, a figure Curran wants to grow to 25 percent in the next few years. Plans to increase revenue from fees include an Internet-based version of WorldSavvy’s courses that will allow more schools to sign up for training.

“To me, it seemed like the nonprofit space was more nimble,” Curran says. “As a for-profit we could have looked for an investor, but this way we can engage hundreds of donors, who have stayed with us over time.”