For-profit vs. nonprofit: A few words about organizational choice

Filed Under: Costs

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We’ve been asked several times recently why we’re a for-profit and not a nonprofit. Here’s why: We are a for-profit because we were founded out of the entrepreneurial journalism class at the City University of New York Graduate School of Journalism in New York City, run by Jeff Jarvis and Jeremy Caplan, which has grown into the Tow-Knight Center for Entrepreneurial Journalism at the CUNY J-School.

One of the missions of that class (now a full master’s degree and a certificate program) is to develop sustainable business models for journalism. Jarvis would not let any of us be nonprofits: he said that’s not a business model. So, we are a journalism for-profit, as are The New York Times, Gannett and many other news organizations.

Frankly, as we look at the changing journalism landscape, it seems that big nonprofits like ProPublica, The Texas Tribune and The Marshall Project are more flush than the for-profits like The New York Times and The Tribune Company, which are still supporting legacy structures like pensions and printing presses.

We agree with Emily Bell, Clay Shirky and C.W. Anderson, who wrote in their paper on “PostIndustrial Journalism” about this issue at length, including this statement: “To reiterate our position: Most of the for-profit vs. nonprofit discussion is useless. Any way of keeping expenses below revenue is a good way.”

Also, on the nonprofit for-profit distinction: in the health care marketplace, the distinction is hard to parse. Nonprofit hospitals can be every bit as saintly or as greedy as for-profits; nonprofits do not pay taxes, but that doesn’t mean that they’re not looking for a strong business model, examining their books to maximize revenue, and sometimes engaging in questionable business practices. (Update: Here’s a nice piece from ProPublica about a nonprofit hospital in Missouri and its for-profit collections agency, for example. Here’s another nice piece from ProPublica about “public hospitals” –“A public hospital in the mostly rural southeast corner of the state has found a way around the law. Before patients can receive treatment at Southeast Alabama Medical Center, they must sign a form waiving that legal protection, clearing the way for the facility to seize funds from their pay or bank accounts to cover medical debts.”)

It can be a topsy-turvy world. Look, for example, at this story that came through our PriceCheck reporting: For-profit Anthem Blue Cross is criticizing nonprofit Stanford Health for charging so much for health care, citing PriceCheck as a responsible third-party source of neutral information. That’s what we want to be as journalists: responsible sources. For-profit or nonprofit is an organizational choice, not a religion.

One of my friends, a venture person, has also applauded this choice, saying “There’s something very pure about making something that people will pay money for.”

Furthermore, our for-profit status excludes us from certain opportunities — a whole series of grants, for example. This status, then, leaves us with the opportunity to pay taxes if we ever make money, to help carry the tax burden of nonprofit journalists, yet we cannot raise foundation money from the same sources that will keep them healthy.

Also: One big, well-funded nonprofit told us they’d like to use our data, but they didn’t want to pay for it. “We’re a nonprofit, and we’re not used to paying for data,” was their message.

Another big, well-funded nonprofit said they’d like to use our interactive PriceCheck widget, but they would need to claim all the intellectual property associated with it. In both of these cases, we politely declined.

We want to be very clear here: We don’t oppose nonprofits, but we don’t think that nonprofit status confers automatic sainthood or intrinsic value. Also, if given an even-up choice right now, it’s possible that the big for-profits –- The New York Times, The Washington Post, Gannett -– would choose a nonprofit model to escape the tax burden and also avail themselves of foundation money. Or maybe they would choose to preserve their for-profit model.

Also, within the for-profit world: Is The New York Times the same kind of for-profit that Bloomberg News is? Conversely, nonprofits: is Inside Climate News or MinnPost the same kind of nonprofit that The Texas Tribune is?

In addition to writing this as a post, I’m adding it to our FAQ page.

Update: I posted this on my personal Facebook page, and got a series of interesting responses, which I’m adding here with permission of the authors, as part of the piece, not appended as comments.

“Now that I have run both for-profit and non-profit organizations, I think I have a clearer idea about the difference, which is in some ways less significant than some might think, ” said my friend Robert Gehorsam, currently Executive Director of the not-for-profit Institute of Play, and previously CEO and President of venture-backed tech start-ups Image Metrics and Forterra Systems.

Gehorsam has worked in executive roles at Sony, Viacom and Scholastic. Disclosure: He and I went to Grinnell College in Grinnell, Iowa, and have kept in touch over the years.

He added: “Moral virtue is irrelevant in the analysis, because there can be blatantly commercial non-profits (e.g. major sports leagues are non-profits), and mission-driven for-profits. Also, for other folks here, there are many different kinds of non-profits, but I think the one that would apply here is the 501(c)3 form of a non-profit, a public charity.

“If CHC were a non-profit, it would basically be a corporation without equity ownership structures, with a tax-exempt status and, while having no obligation to return profit/surplus to investors, would have the right to generate surpluses so long as it returned those surpluses into the business in ways consistent with its social tax-exempt mission.

“Without equity, there’s less upside for individuals associated with the organization, so the motivation for working in, or being a board member for a non-profit, is ‘pure’ from the perspective of focusing on the work itself. For-profits can generally raise money from a range of sources that non-profits can’t, and vice versa. For start-ups that need significant capital, or unrestricted funds (since many grants come with strict restrictions on use), a for-profit entity might well be the only way to go, even with a strong social mission driving the organization. In my experience, equity funding decisions can also be made much more quickly than grant funding.

“Non-profits are perfectly entitled to sell goods and services at a margin (we do!), and the trend in the world of non-profits is to have business models which support those activities. In the end, the decision to be for/non-profit is a business decision.”

ePatient Dave deBronkart, an internationally recognized keynote speaker and patient advocate, wrote: “As perhaps a parallel, when I myself set out 5 years ago, I chose to be a for-profit though lots of people encouraged me to explore not-for-profit.

“I myself chose for-profit because, like Jeff Jarvis, I want to find and build sustainable *models* for patient participation… as *funded* speakers, *funded* policy advisors, etc. So I’ve not just talked about how great I think my own work is — most of my blogging has been about how important the voice of patients *plural* is.

“For me, it is not just the work itself, but blazing a trail, clearing a path, exploring new territory, whatever metaphor you want. It comes down to this: “What I’m doing here is not just about me. It’s also to spotlight that THERE’S VALUE IN WHAT PEOPLE LIKE US WANT TO DO. THINK ABOUT THAT.”

“And I bet a student of other social movements could point to parallels in feminism, race relations, what have you.”

Cyndy Nayer, CEO of the Center of Health Engagement, a for-profit identifying gap in consumer health and economic engagement and prviously the founder of the Center for Health Value Innovation, a nonprofit that build a catalog of value-based designs, both benefit design and system reimbursement, wrote:

“As a woman who has founded both non-profits and for-profits, I affirm your mission and rationale. The reason it works for you is that your data is open-source for change: people can look up the info and get it. How you create a biz model is in reports that you may provide to interested parties. Nothing wrong here. It’s a very-fine model for sustainability. Carry on.”

Others have engaged in this issue as well; it’s a well-trodden path. In addition to the Post-Industrial Journalism paper by Emily Bell, Clay Shirky and C.W. Anderson that I reference above, which focuses on journalism, I recommend this wise article Jim Fruchterman, a MacArthur Fellow and social entrepreneur, wrote for the Stanford Social Innovation Review in 2011.

Here’s the conclusion.

“The world is facing big problems. More and more people are turning their attention to solving those problems. The old models of traditional for-profits and charities no longer are sufficient tools for meeting these challenges. The future is far more likely to be dominated by businesses that are tracking more than their financial bottom line, and nonprofits that see enterprise as a fundamental part of large-scale social change.

“Policymakers are responding to the changing times by embracing new forms of social action that fall between the two poles of traditional business and traditional charity. Expect to see new organizational forms exhibiting these increasingly hybrid characteristics. I believe that the new generations of business and social leaders will fundamentally reject what they see as a false dichotomy of the past, and adopt new structures that can transparently deliver more social benefits. Both business and the social sector are going to change in these directions, and society will be the better for the change.”