Your choices as an American consumer have consequences. Money spent is voting in support of not only products and services, but also the market system they exist in. As we strive to purchase in ways that support our values, so should we also consider the for-profit system as a whole. All over the US entrepreneurs are starting businesses, from breweries to online services, which operate and exist entirely not for profit. These businesses compete, grow, and thrive alongside for-profit companies, and continually prove the possibility of a free-market system no longer reliant on profit as a motivating force. As corporate philanthropy grows and conscious consumption is built into our daily lives, the amount the average American donates directly to charities is decreasing. We feel vindicated through our purchases, free of some of our responsibility thanks to the aligned goals of the stores we patron or the online retailers we order from. Swapping one insufficient source of charity funding for another does little to tackle the greater challenges we are faced with in today’s economic environment, including inequality, environmental stewardship, and social justice. In order to evolve as capitalists, we must take advantages of those traits which our economic system excels at, competition, creativity, and risk-taking. Profit motive is not one of those strengths; rather, it’s historically been a type of fuel for them. Today more than ever business owners report reasons other than profit for doing what they do. These include personal goals, such as being one’s own boss, building a legacy for themselves and their family, and providing for others. These motivations also include dreams of a more just future, brought about through the very act of owning a business. This is why some are choosing to run their company as a non-profit. A non-profit accomplishes all of the goals these entrepreneurs strive for, while allowing consumers themselves to support its aims through the simple act of choosing them over a for-profit option.

1. NON-PROFIT COMPETITION IN TRADITIONALLY
FOR-PROFIT MARKETS
BENJAMIN LOPEZ

2. THEORY
 A business established and run as a non-profit in a traditionally for-profit sector, such as the
Restaurant/Bar/Hospitality industry, will not only successfully compete, but thrive in that environment.
 Fiona Wilson and James Post researched the idea of a “Social Business” in their 2011 publication:
Business models for people, planet (& profits)
 “This new form of hybrid venture melds the social purpose traditionally associated with non-profit
organizations with the economic purpose and market-based methods traditionally associated with for-
profit firms.”

3. BENEFITS TO SOCIETY
 “If the firm’s behavior enhances economic growth and therefore there is higher employment and more
goods and services produced and consumed, there would be higher welfare in society.” This is the
traditional view of welfare through economic competitiveness from the paper, Non-profit organizations,
entrepreneurship, social capital and economic growth, by Sahar Bahmani, Miguel-Angel Galindo, and
Maria Mendez.
 They research the potential for “social capital” to create positive economic impacts particularly in areas
where traditional competition fails, such as in inequality, equal employment, and in reducing barriers to
entry.
 A viable model for non-profit competitiveness in traditionally for-profit industries opens up the
possibility that normal market competition will lead to a gradual shift in the percentage of such
businesses in those areas, creating social capital where there was previously just profit-taking.

4. SELECTING A RESEARCH GROUP
 In order to study the incentives and motivations of those taking part in non-profit competition I need to look at
one of three groups:
 Employees of the non-profit business
 Customers of the business/industry
 Entrepreneurs/Investors
 Which group is chosen determines much about the research methodology required and the data available.
 Ultimately I intend to thoroughly study all three groups, in a variety of ways.
 Initial selection for this project requires weighing the pros and cons of each and considering what variables will
be studied

5. THE EMPLOYEES
 Initially, this seems to be one of the simpler groups to study.
 As our non-profit is operating in a traditionally for-profit field, it’s employees can be compared relative
to those in that industry, in this case the restaurant/bar/hospitality industry.
 A model measuring percentage annual turnover as the outcome variable would allow us to measure the
impact that working for a non-profit business (the explanatory/tested variable) has on that number.
 Note: Consider average wage difference between for-profit and non-profit businesses within the same
industry

6. THE ENTREPRENEUR
 ‘‘We are not in this to get rich’’ states Rink Dickinson, the founder of one of the social businesses studied
in Post and Wilson’s paper.
 The goal would be to study whether or not a potential entrepreneur decides to start a business given it’s
non-profit status.
 Trickier to develop a model for, since it requires the use of many subjective motivating variables, such as
risk tolerance, desire for autonomy, and social consciousness.
 This would likely be accomplished through the use of a binary regression model, such as probit model.

7. THE CUSTOMER
 I’ll choose this subject group to primarily focus on going forward. In doing so I want to come up with a
model measuring the number of dollars spent at the target business
 All of the normal vectors of competition within the industry will be variables in the model, with the
addition of a variable representing the impact of the business’s non-profit status
 The key assumption that is required is “all else equal”, which necessitates a minimization of complex
competitive factors such as quality of product. This can be achieved by reducing our target industry from
restaurant/bar/hospitality to bars in particular
 Bars are uniquely well-suited to an all else equal competitive analysis because all competitors in the space provide
almost identical products, driven by deals with distributors and local tastes.

8. COMPETITIVE FACTORS
 Price – will have a negative coefficient value due to its largely inverse relationship with competitive
consumption
 Service – while an assumption of all else equal will attempt to standardize this factor’s effect on the outcome
variable, data suggests that when a business operates as a non-profit the quality of service can be positively
affected
 An interaction variable such as βikxixk might be required to account for the effects a business’s non-profit status has on
service
 Environment – for bars in particular the physical space/environment, as well as the prior two factors, are
paramount in competitive decision making.
 Other independent factors can be added as needed

9. METHODOLOGY
 Estimating dollars spent at a business is but one way to structure this model. Doing so will require a form
of multiple linear regression, accounting for the various factors of competition a consumer takes into
consideration.
 yi=β0+β1x1+β2x2+···βkxk+ ei , from i = 1,2,…, n
 x variables will include competitive factors such as price, service, and environment, as well as our tested
variable, non-profit status of the business. This will be a dummy variable representing a binary option of
non-profit (1) or not (0).
 The error term will therefore contain any omitted variable bias from other factors of competition not included in the
model.
 Other models such as a mixed logit could be used if we changed the dependent variable to a choice
between alternatives, allowing for increased variability in an individual’s tastes, skewing away from normal
distributions.

10. METHODOLOGY - CONTINUED
 An ideal Instrumental variable would be a factor measuring one’s “social consciousness” for not just this
particular case, but for the employee turnover and the entrepreneurial likelihood regressions as well. An
individual with a high social consciousness rating would be more attracted to opening such a business,
working for such a business, and spending at those businesses.
 The reason it would make a good IV is that there is no correlation between social consciousness and
money spent at restaurants, while there is a direct connection between it and the appeal of non-profit
businesses.
 Other factors may also be related to social consciousness, such as whether the customer prefers
businesses to have locally sources ingredients or pay their employees a living wage. Lastly, where in
particular the business’s earned profits go will also have an impact that can be measured.

11. DATA AND POTENTIAL ISSUES
 Complicating factors such as endogeneity could arise within the model, if proper instrumental variables
or interaction variables are not established to correct for them.
 Survey data used could initially be used in this model, though there is a likelihood that participants will
overestimate the value they place on non-profit status in a simple survey. Experimental or Real-world
data will ultimately be needed to verify the effects.
 Since there are multiple instances in which a non-profit business opens and begins competing with for-
profit businesses in the same area, there are many possible sources of financial performance data to
cross-reference with our survey/experiments.

12. CITATIONS AND RESEARCH SOURCES
Business models for people, planet (& profits): exploring the phenomena of social business, a market-based approach to social value creation
Fiona Wilson, James E. Post
Wilson, Fiona, and James Post. “Business Models for People, Planet (& Profits): Exploring the Phenomena of Social Business, a Market-Based Approach to
Social Value Creation.” Small Business Econ, 11 Dec. 2011, pp. 715–737. EBSCO,
https://www.researchgate.net/publication/257661654_Business_models_for_people_planet_profits_Exploring_the_phenomena_of_social_business_a_marke
t-based_approach_to_social_value_creation.
Non-profit organizations, entrepreneurship, social capital and economic growth
Sahar Bahmani, Miguel-Angel Galindo, Maria Teresa Mendez
Bahmani, Sahar, et al. “Non-Profit Organizations, Entrepreneurship, Social Capital and Economic Growth.” Small Business Economics, vol. 38, no. 3, 23
Mar. 2010, pp. 271–281. Business Source Complete, http://proxy.library.tamu.edu.srv-
proxy2.library.tamu.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=70934746&site=bsi-live.
Drivers of Non-Profit Activity: a Cross-Country Analysis
Nissan, Edward
Castaño, Maria-Soledad
Nissan, Edward, et al. “Drivers of Non-Profit Activity: a Cross-Country Analysis.” Small Business Economics, vol. 38, no. 3, 26 Mar. 2010, pp. 303–320.
EBSCO, http://proxy.library.tamu.edu.srv-
proxy2.library.tamu.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=70934744&site=bsi-live.