Thursday, June 9, 2011

The Fine Line of For-profit/ Non-profit Competition for Social Enterprise

A recent segment on CPR's Colorado Matters highlights Colorado Correction Industries, the organization that runs several enterprises that employ offenders in the state prison system. The various ventures include farm-raised fish, forest fire fighting, office furniture assembly, and buffalo milk.

I was particularly interested in the radio host's line of questions pertaining to perceptions in the community that the prison projects were hurting existing businesses. This is a complaint that on occasion surfaces whenever community organization start operating businesses. Numerous examples exist of nonprofit ventures receiving such criticism from for-profit competitors, especially college bookstores and hospitals.

To lessen such criticism, social enterprise leaders need to focus, focus, focus on their mission. They must actively sell what benefit they provide to the community as a whole and carefully work to avoid the perception of unfair advantage by not taking unfair advantage.

A faith venture employing individuals rebuilding lives from addiction, homelessness or prison needs to carefully maintain focus on its mission to employ and job train individuals with very challenging life situations. Such employees are often too costly for other for-profit companies to hire. The challenges an organization faces by employing such individuals adds a significant labor premium to the cost of doing business. The organization must continually market the importance of its mission while explaining that any tax benefit that the nonprofit organization receives is offset by the higher costs of staying true to its mission.

At all times the organization must resist the urge to lower costs by straying from its mission less it does start unfairly competing against for-profit businesses. And sometimes, community organizations benefit society more when they choose to start a for-profit venture instead of a non-profit entity because the cost-benefits of accomplishing their social mission are not as clear in a particular competitive market. In such situations, the organization might run up against the IRS's commerciality doctrine.

In the end, competition is competition whether it comes from a for-profit entity or a non-profit entity. If a social enterprise comes into the community with a better product-- in the instance of the Colorado Matter's interview, a fish product that is bigger, cheaper and higher quality-- consumers benefit when other competitors must improve to successfully compete. If the social enterprise is able to thrive in the market, society as whole benefits by better use of resources while reducing costs related to some social good. In the case of CCI, employed prisoners are less likely to re-offend when they leave prison saving Colorado significant costs related to future incarceration.

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