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Nonprofit Margins



Richmond's give-away-all-the-profits business model appears to be catching on -- or imploding, depending on whom you ask.

Less than a year after Michael Pirron and Steve Wilson launched their socially conscious consulting firm, Impact Makers, the two founders have parted ways.

Wilson decided to branch out on his own in mid-July. He started a new company, Vision Consulting, based on the same principle: a for-profit business venture that hands over all of its profits to charity.

Both ventures have roots in social entrepreneurship, a trend wherein the business lures customers with goodwill rather than the typical capitalistic motives, i.e., profits.

Wilson and Pirron say the split was amicable and having two firms cut from the same cloth will help "propagate" the business model. Although the concept isn't new in the retail world — think Ben & Jerry's and The Body Shop International — it's relatively unheard-of in business services and consulting. It's worth watching closely, academics say, because such a business platform can invite fraud and abuse.

The Body Shop is often cited as a classic case study: As the company got larger, so did its claims of employing workers in impoverished countries and its advertisements of charitable donations. It did very little of either. Reports surfaced that the company made no charitable donations in its first 11 years in business.

It's easy to become skeptical, says Richard Coughlan, associate dean and business ethics professor at the Robins School of Business at the University of Richmond. For starters, there's plenty of wiggle room in how one defines "profit." The seemingly socialistic business model also flies in the face of long-held capitalistic truisms, such as smart entrepreneurs pump profits back into the company.

"The fact that a top management team can't stay together in the first year of their existence means there are more fundamental flaws than expected," Coughlan says. "You don't need to be a business school professor to see that."

Impact Makers appears to be off to a good start. Pirron says the firm has given its chosen nonprofit, Safe Harbor, a local battered-women's shelter, about $15,000 in cash donations and donated at least 250 hours in pro bono consulting and volunteer work. Shannon Heady, executive director of the shelter, says Pirron has been a godsend.

"Michael Pirron has kept his promises and then some," Heady says. "He has donated hours of volunteer work for us. He has not only himself provided technical services, Mike has also personally donated his time … helping us evaluate programs and services for process improvements."

How good has it been for Pirron's business?

"We've been more successful than I would have expected," he says, adding that the firm is becoming more specialized, focusing on the health care industry. And he says the plan all along was for Wilson to start a second firm:"We're very pleased that there is another competitive social venture model out there in the marketplace."

Wilson's Vision has partnered with another local nonprofit, the Neighborhood Resource Center of Greater Fulton Hill, for which the firm plans to donate the company profits and do volunteer and pro bono consulting work. Vision offers IT and management consulting in addition to doing Web design work.

"These not-for-profit business models work," Wilson says, adding that he and business partner, Ed Park — also formerly with Impact Makers — decided there was so much potential that they simply had to branch out on their own. "We're calling it 'coopertition,'" he says. "We're stealing that from the NASCAR guys."

Others aren't so sure.

Professor Coughlan, who met with Wilson and Pirron a year ago and has followed Impact Makers as an academic exercise, says the split raises more questions than answers about the viability of the social business model.

"It is really hard to see in this action how the model they have established is somehow justified. What would the compelling reason be to abandon the original plan and in essence leave [Pirron] on his own to fend for himself?" Coughlan says. "I expressed some skepticism [when Impact Makers launched in October]. I think that some of that skepticism is heightened." S

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