funding, canada, non-profitI posted a question at the Personal finance StackExchange. It was pointed out to me that this site is a better place for it. The following text is the original question.
I am planning on registering a business in Canada in the near future. I am developing a tool, the longterm goal of which is to improve conditions in impoverished areas of the world. However, this tool is made in a way that it will be useful to people living in the first world countries.
I will need funding, and there can be no talk about profit before my business reaches a critical mass of users. Even after it does, I don’t yet see streams of revenue.
The plan is not to make money off this tool, but to have enough income to provide this tool to the public and be able to invest in it’s further development. That comes down to about less than $50,000 for the first year.
The choice I am gravitating towards is registering a not-for-profit organization. But I’m wondering:
PS. In a way, this question can be rephrased as “if I have a not-for-profit idea, is it always better to register a not-for-profit business vs a for-profit business?”
There is actually a third option which is often never explored. It’s called BAM, or business as mission. The concept is exactly what you have presented as your idea, creating a service or product with the intent of using it to help others in some way. BAM marrys not-for-profit with the for-profit realm to create a for-profit business that has a charitable act or service built into its business model. At it’s basic level, think of Toms, the shoe company that gives a pair of shoes for every pair it sells. They are clearly a for-profit business entity that still aims to impact impoverished communities. This is just one example of BAM. This approach allows you to view your tool as a viable business, and building it as such will give you greater autonomy over every detail involved including pitching it to investors and your target audience without having to jump through hoops set in place in the not-for-profit sector.
Marketing a BAM business is much easier because although your audience does want proof of legitimacy, there is a greater understanding that your tool will offer a value return for their investment(money) versus a nonprofit where you are basically appealing to the “goodwill” of your audience since a value return for their money is not as definable. Yes “tax-deductible” may be an incentive for some but what happens when economies don’t allow donors to give just for the tax benefits? I’d also like to point out that the same feel-good effect of donating is preserved within BAM business models and is even more of an incentive, since not only is a consumer purchasing a service/tool that gives them a tangible value, it now also gives them an added intangible value of knowing they are supporting a greater mission purpose with their investement.
If you’d like to read more about business as mission, C. Neal Johnson has a wonderful book that helped me in the infancy stages of my own business. It’s called, “ Business as Mission, a comprehensive guide to theory and practice.”
Hope this helps!
I don’t know about the registration rules for Canada as I am in the US. But a not-for-profit vs a for profit company question is easy.
Not-for-profits are harder.
To form a not-for-profit requires backing (support) and money. Unless you have recognized experience and are a good fund raiser a not-for-profit should be out. A for profit startup is not easy, but it is easier than a not-for-profit.
If you do not have enough money to get off the ground by yourself, its going to be very hard. First you are going to have to have skin, and a lot of it, in the game. In other words, bet the ranch. Unless you have a product that someone sees a lot of potential in, no investor, except maybe a family member, would be interested in your “company”. Thus, to get off the ground, you will have to “bootstrap” your start. That basically means you will have to have 2 jobs. One which will feed you and the other your “company”. You will have to skimp on everything and put that money into your company.
You will also need advice as you go along. Most cities have organizations which offer “good” FREE advice. Use it.
Become a buddy to someone who you like and who likes you. That way you may be able to contact your “buddy” when he/she is at his/her real job. In no way is a startup easy, unless you have bucks. I wish you well.
There are situations in which non-profits act as for-profit organizations (the most famous example is perhaps how the Mozilla Foundation runs Mozilla Corporation), but these situations are rare and require some very complex legal and tax work. You’re clearly building a non-profit and would benefit more from the laws and customs that pertain to non-profits than those that pertain to for-profit businesses.
Non-profits are harder to start and require you to maintain a lot of extra transparency. Please understand this is not meant to make your life difficult or to discourage you, but rather to promote trust and prevent fraud. Regulators and donors need to be confident you’re following your mission and putting their hard-earned money to good use. For the extra effort required to start and run a non-profit, you have an infinitely easier time raising money from donors who will recognize your charitable mission, who will get tax breaks for supporting you, and who will not expect anything in return for your good works.
There is absolutely nothing wrong with non-profits developing and selling products to support their missions. The Girl Scouts (which the Internet says are called “Girl Guides” in Canada) sell enormous amounts of cookies at a considerable profit. The Raspberry Pi foundation sells millions of Raspberry Pi computers and uses the money to further develop the product and to subsidize its use. These are just two of perhaps millions of example products developed, marketed, and sold by non-profits. There is no reason your can’t sell this tool in the same way.
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