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Nonprofit or For-Profit? Jane Chen Thinks Social Businesses Should Be Both
Business Strategy | February 01, 2013

Nonprofit or For-Profit? Jane Chen Thinks Social Businesses Should Be Both

As every social entrepreneur knows, it can be tough to decide whether your new company should follow a for-profit or not-for-profit business model. Jane Chen, Co-founder and CEO of Embrace, was faced with a similar situation when she first started her company. In The Harvard Business Review, she explains how she came to her decision and shares advice on determining which avenue will work for your unique business.

The Embrace Infant Warmer, Chen's core product, was conceptualized in 2007 at Stanford. Once Chen and her colleagues had drafted a plan for how to construct the product, they then needed to agree on how to run the company. It eventually came down to a difference of how each model could be used to source capital, she says.
"A for-profit can raise money from private investors, for which it must give equity or dividends to shareholders; ultimately, a return on investment is expected," Chen clarifies in the article. "A nonprofit, on the other hand, can seek donations from individuals, foundations and corporations. Such stakeholders generally expect a "social return" on capital." Based on the product she had, and the inherent risk involved with bringing an unconventional kind of medical device to a new market, she decided it made the most sense for Embrace to operate as a non-profit.

However, she also notes that she underestimated the time and capital required to get her product from concept to completion, and decided to add a for-profit branch of the company into the equation. "Effectively tackling problems in this environment may require leveraging both capital and expertise from grant makers and private investors alike," the TED Fellow advises. "The most important part of choosing the right structure is starting with your mission, and then adopting a structure that allows you to best achieve it." Considering the success that Chen's company has had in helping save newborn babies around the world, it certainly is advice well worth listening to.
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