But do companies need to be companies?
As odd as this question might sound, there’s actually a great deal of thought behind it. And the answer is… No.
According to Chris McKenna of Oxford University’s Saïd Business School, who I spoke to a few weeks back, we take for granted that businesses are driving economic progress and innovation in our societies.
But it’s not the case. It’s not that simple. We would be wise to broaden our perspective and not always focus on business.
The state matters
First of all, it’s clear that the state matters. Both 9/11 and later The Financial Crisis (2007-08) reminded us that the state has a meaningful role to play. Regulation, oversight and security remain important.
Furthermore, the jury still out on whether or not the private sector is in fact more innovative than the public sector.
Nonprofits are growing
That we need to lessen our focus on business is even clearer when we consider the nonprofits.
Today, the nonprofit sector is where much of the growth in people is happening. And nonprofits are powerful.
Let’s consider U.S. education and hospitals for a moment. One idea that you hear fairly often is that they are inefficient and that we should bring for-profit business models to bear on them. That would hardly be a good idea.
“What’s really powerful in nonprofits is that they don’t and do not try to create profits,” Mr. McKenna said. “Instead, they can invest for long periods of time. They can motivate highly intellectual, interesting people to work for them at reduced rates. And they can motivate people to invest in them, to literally to give them money.”
What if Goldman Sachs could ask people to give it billions for free? It sounds absurd. But if you consider the likes of Harvard and Stanford, it is actually what is happening. People donate billions to them each year.
A parrot with a purpose
One of the ironies at play is the idea of “the social enterprise” and having a higher “purpose” for businesses. From a helicopter’s perspective it’s puzzling. It’s a mixed system in which you’re running a for-profit company with a higher mission. In essence, businesses are parroting nonprofits.
If the higher mission is really so important for your business, why would you want to gain a profit for shareholders and owners? Why not become a nonprofit, reinvest in your business and your mission, get highly skilled people to work at reduced rates, avoid income taxes, and receive donations?
In essence, businesses are parroting nonprofits.
Nonprofit as a competitive advantage
A good example of how a nonprofit can be highly competitive is German global engineering and electronics company Bosch. The company is running for a foundation, the Robert Bosch Stiftung.
Nevertheless, their competitors in the automotive industry will say that Bosch is absolutely brutal to go up against in the market.
Bosch is not an isolated example. People in industries who go up against nonprofits say it’s not fair. That it would be much easier to go up against a for-profit company as it’s impossible for to compete against a nonprofit. They even want regulators to intercede and force the companies to need profits.
Yes, yet another irony at play.
Who’s innovative now?
A nonprofit can be more than a brutal competitor in the market. If we focus on the innovation aspect of things, nonprofits are in many ways more innovative, doing more ground-breaking things than for-profits.
And they seem destined to continue to do so.
The 2nd Industrial Revolution created vast pools of money around large corporations. Sooner or later, these pools of money were given over to nonprofits, creating e.g. the Ford Foundation and the Carnegie Foundation.
The same has happened after the 3rd Industrial Revolution. Today, all the fuss about Microsoft and Bill Gates is long gone. Still, the largest foundation in the world is the Bill & Melinda Gates Foundation with a yearly endowment of more than $40 billion.
In other words: History has taught us that sooner or later the money will go into nonprofits. Here, that money is going to fuel growth in all kinds of areas.
Let’s take the Gates Foundation as an example. In their strive to end extreme poverty and poor health in developing countries, they are creating compostable toilets (pictured above), finding new photovoltaic uses, discovering new ways to distribute pharmaceuticals and much more.
When you deal with the really tough issues, innovation becomes more crucial than ever.
Who’s next in line?
We need to remember this. Business isn’t everything. The nonprofit sector is growing, and in many ways the nonprofit model is a better and more competitive model than the for-profit.
Also, sooner or later much of profit generated in a business will go into nonprofits anyway, and here some of the most innovate things are happening in order to solve real problems.
There’s a historic precedent for all of this, and the future for nonprofits look promising.
Next in line after Microsoft are the likes of Apple, Amazon, Google and Facebook.
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As with my previous posts, I would like to thank business historian Chris McKenna of Oxford University’s Saïd Business School for inspiration and input.