A friend of mine recently told me about a conversation she had with a business leader about Impact City, my vision for transforming Dallas into the center of the world for solving the world’s greatest problems.
She told him about Impact City like this:
“You have to meet my friend Salah. He wants to make Dallas the nonprofit capital of the world!”
My heart sank. That is the last thing I want to do to our great city! I want to transform Dallas into the impact capital of the world. There’s nothing nonprofit about impact.
I encourage you to think about organizations in three dimensions:
(1) For-profit vs. nonprofit.
The only thing that makes an organization a for-profit is that it is designed to make money for its owners. Pepsi, Soap Hope, Google, Radio Shack, and Whole Foods are all for-profit. They may have a mission, or not. They may be making money right now, or not. In the end, if there is money made, it will go to its owners (shareholders). The government collects taxes on the profits. For-profits are not inherently good or bad, sustainable or not sustainable, purposeful or not purposeful. They just have owners.
The only thing that makes an organization a nonprofit is that it has no owners. The American Heart Association, the NFL, and the Republican National Committee are all nonprofits. They may have an important social mission (ending hunger), or not (the clown museum). They may serve the poor, or they may serve wealthy business members. Their leaders may be volunteers, or they may earn $40 million a year. Nonprofits are not inherently good or bad, sustainable or not sustainable, purposeful or not purposeful. They just don’t have owners.
One key problem for nonprofits is that, since they don’t have owners, they generally struggle to scale. When Pepsi wants to build a new distribution facility in Africa, they can quickly and easily raise capital from investors (owners) because the investors will earn double digit returns. When Feed My Starving Children wants to build a new distribution facility in Africa, there is no source of capital other than donations, which may take years to raise, or may be impossible to raise.
(2) Sustainable vs. non-sustainable.
An organization is sustainable if its normal operations generate enough money to cover its expenses.
Sustainability is not related to for-profit or nonprofit status. For example, the PGA (a nonprofit) is highly sustainable, as is Google (a for-profit).
It’s important to note that for-profit does not automatically mean sustainable. Most startup companies are not sustainable. Blockbuster was not sustainable. Even Amazon is currently not sustainable.
If a for-profit is not sustainable and doesn’t reform itself, it goes out of business when investors stop investing new capital. If a nonprofit is not sustainable, it goes out of business when donors stop giving it new donations.
It’s also important to understand that while many nonprofit organizations are currently not sustainable, there are more and more that are partially or fully sustainable. When Esperanza International first started, for every dollar it took in, it used up the entire dollar. Now for every dollar it takes in, it can return over 70 cents after one year. In a few years, it will be fully sustainable.
(3) Important purpose vs. non-important purpose.
This one is easier to understand but harder to quantify. Pepsi’s core reason for being does not serve an important human purpose: it is made to sell chips and soda. Feed My Starving Children’s core reason for being does serve an important purpose: it is made to feed starving children.
There is a large spectrum in between. People will argue over the relative merits of the ballet, spaying cats, beautifying parks, and the Clown Museum.
The way I think about it, an organization’s purpose rises to the very top when its primary reason for being is to solve a key challenge of humanity. At Good Returns, we focus on these eight: poverty, slavery, water, conflict, health, energy, environment, and education. The United Nations’ Sustainable Development Goals offer a different take on top-purpose initiatives.
With these three dimensions in mind, we can now identify what an Impact Organization is – and we can see how Impact City will approach solving the world’s greatest challenges.
When an organization is scalable, sustainable, and very high on the purpose scale, we call it an Impact Organization (or IO for short). An IO can provide solutions to the world’s biggest problems (purpose), without relying on donations (sustainable), and access capital to expand everywhere the problem exists (scalable).
Traditionally, sustainable for-profit companies focusing on top human problems have been rare, but they are growing in number every day. And traditionally, sustainable nonprofits have been challenged to access scaling capital, but Impact City will be promoting innovative business models such as the Good Returns model that enable such nonprofits to scale, turning them into Impact Organizations as well. For-profit and nonprofit Impact Organizations are on the way in greater numbers than most people imagine.
Stay tuned to learn more about Impact City – I will be updating you soon on how and why we are creating the “Silicon Valley of Impact” right here in Dallas, Texas.