Learning from hurdles do-good companies face

Years ago, just about every organization intent on doing good was a nonprofit. Today, hybrid outfits blend the traditional profit-seeking goals of companies with a social purpose intended to benefit society. Also known as for-profit social enterprises and public-benefit corporations, they can be hard to spot.

As consumer psychologists, we wanted to know what people think of this type of company.

For-profit social ventures vary widely in terms of how they make money and their business practices.

Books4Cause, for example, solicits book, CD and DVD donations, as well as financial donations, and then uses that money to support the African Library Project, a nonprofit that helps start and supply libraries across Africa. Another is Alter Eco, an organic food vendor that works with small-scale farmers to help the farmers institute Fair Trade and organic practices.

Just like nonprofits, they focus on issues that benefit society. Unlike nonprofits, which can’t let their founders or funders derive any profits from their activities, these enterprises are free to do what they want with their financial gains.

There are at least 5,500 today in the United States, including 1,500 legally structured as L3Cs, low-profit limited-liability companies that combine the financial advantages of a for-profit business with the social benefits of a nonprofit.

To see how consumers are reacting to these hybrid entities, we conducted a series of studies. As we explained when publishing our findings in the Journal of Consumer Research, we looked at how willingly people support for-profit social ventures compared with nonprofits or for-profit companies.

In one study, we asked people to donate money to an organization supporting literacy and education. The only difference was that some people were told the company was a for-profit social venture – it had a social mission and also made a profit. Other participants were told it was a nonprofit. People gave 40 percent less money when they believed the organization was a for-profit social venture.

In another study, we gave people money and asked them to purchase a decorative notepad from one of two organizations. When given a choice to buy it from a nonprofit or a for-profit social venture, nearly two out of three people went with the nonprofit.

It seems people don’t think companies can make a profit and support a social cause at the same time.

We believe our findings indicate that consumers think being charitable is incompatible with making a profit. In other words, they think greed will overcome the desire to do good.

Emphasizing a social cause makes people think the company is altruistic. When the company also makes money, this flies in the face of a belief that it’s generous or altruistic. When companies have a social mission, people tend to think that all money should go to the social cause. If the company makes profits, people view the company doing less than it could for the social issue.

(The full article was originally published on The Conversation, theconversation.com, and made available via the Associated Press.)