Martyn Drake: Don't view 'profit' as a dirty word

Charities need to set out with the mindset that they should generate more than a surplus, writes our guest columnist

One of the charts I’ll often put up on the wall during a workshop on income diversification is the profit/impact matrix.

The purpose of the matrix is to help teams to prioritise commercial ideas within a charitable organisation. It’s very simple – just compare a set of ideas and opportunities and position them on the chart relative to each other. You don’t even need to put values on the axes, but you do need to label one of them "profit".

I’ve been challenged many times on this in charity boards and executive sessions because, as we all know, "charities don’t make profit". The word itself can be enough to make some of us feel uncomfortable. But it’s not a word I’m going to shy away from, or soften to "surplus", and here’s why.

When you’re developing a new idea, hopefully one from the top right of the chart that has the potential to deliver a big impact and a big income, it will take time. And, if you follow a good business development model, you’ll generally go through three phases – develop, prove and scale.

In the develop phase, you’ll be researching, listening, partnering, co-creating with customers and clients, and iterating things over and over until you’ve got something that works. But one thing you won’t be doing is making money – you’ll be spending it. If the approach is smart, you’ll be spending as little as possible to learn what you need, but however frugal you are, you’ll be out of pocket by the end of phase one.

In the prove phase, you’ll be taking what works to a wider audience. The people who helped you develop it are biased because they’re emotionally invested in making it work. To prove its value, you’ll need to show you can successfully market and sell it to a handful of new customers; that you can deliver it and get good feedback; and moreover, that it should, once it is at scale, make you money. But again, for the prove phase, you’re likely to be spending cash. At best you might break even.

Which is why, when you scale the idea up in the third phase, it needs to make a profit. And I use that word deliberately. Surplus implies you’ve made more money than you needed – you’ve covered your cost and you’ve got a bit left over. Profit implies you’ve actually set out to make good money on top – money that doesn’t just cover what you’ve spent in phases one and two, but money you can invest in capacity to accelerate phase three. It is money you can allocate to taking more new ideas through phases one and two, and money you can divert into charitable activity or even – speak it in hushed tones – use to reward the performance and the impact that your team have now delivered through their expertise and dogged hard work.

Yes, you’re a charity, and nobody is taking out dividends, nor should you need to build a mountain of reserves. But you do need to set out with the mindset that any initiatives that can generate income and impact should aim to do much more than cover their costs and more than generate a surplus. They should aim to make a profit – on purpose and for a purpose – fuelling your ability to make a bigger, faster impact in the world.

Hopefully that’s worth a bit of discomfort over my choice of words.

Martyn Drake is the founder of the management consultancy firm Binley Drake Consulting

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