Profit vs non-profit: Why this Ugandan enterprise is no longer an NGO
Hundreds of non-governmental organisations (NGOs) operate in Africa and while some of their efforts have been celebrated, the industry has also been criticised for the failure of some of its heavily-funded projects. Dutch entrepreneur Bas Hoefman, started Text To Change (TTC) in Uganda six years ago as an NGO using SMS technology to deliver health education. The NGO has now transitioned into a for-profit social enterprise that develops customised mobile phone-based solutions to enable its clients to interact with people in emerging countries.
Hoefman spoke to Dinfin Mulupi via email about the benefits and challenges of the NGO model and why TTC changed direction.
When you started TTC, why did you opt for the NGO model?
When we started TTC back in 2007 we were focusing on mobile health education. Our first project was a mobile HIV/AIDS quiz in Uganda that was funded by the Merck Foundation. One of the requirements was that we needed to register as an NGO in order to receive the funds. That was the main reason why we opted for the NGO model. If it would not have been necessary, we probably would have registered as a business, as we did not see ourselves as the typical NGO type. We always had a more business-like approach. However, after our first successful programme, the interest for mobile health (mHealth) and mobiles for development (M4D) grew among large NGOs, donors and UN agencies. Although we rarely received funding directly from the big donors, organisations that did receive funding from them went on to hire us.
What were the benefits and challenges of operating an NGO?
The NGO model had been very beneficial for TTC, especially in the first few years. The industry exploded and being one of the first organisations in this field resulted in numerous projects coming our way. We went from doing one mHealth project in Uganda to doing over 70 in health, agriculture, education and social and economic development in 17 countries in just over two years. We definitely enjoyed the first-mover advantage. All of a sudden every NGO wanted to incorporate a mobile component in their activities because donors were becoming very keen on it. Mobiles for development became hot.
The downside was there were too many small-scale initiatives with problems with sustainability and little impact. The non-profit industry can be extremely bureaucratic, slow in decision-making and is usually risk averse. This slows down innovation and change. You can imagine that this has been conflicting with the TTC culture. We have a “just do it” mentality. NGOs and businesses have a completely different approach. I think one of the biggest challenges for us has been that we were often perceived as too commercial by the non-profits, and too much as an NGO by the private sector. I think that there are NGOs that are doing a tremendous job but there are just too many. Donors are funding similar initiatives over and over again.
So what drove TTC’s transition into a for-profit social enterprise and how different is it today?
People in Africa are willing to pay for relevant services and information. From a practical point of view, organisations hired us for the quality of our work regardless of whether we were an NGO or a business. We have always had a sustainable business model. After realising that being an NGO was no longer a requirement, we changed our entity.
Because we never perceived ourselves as an NGO to start with, things are not far different now compared with our days as an NGO. We still serve many clients from the non-profit sector but also more private sector organisations that require a different approach. In that regard, things needed to change so we were all on the same page. In light of this, we decided to do a rebranding that gives TTC a more business look and feel which is more appealing to private sector clients. Our main driver remains social impact but now with a profit-making approach.
What are the benefits and challenges that came as part of this transition?
One of the benefits of being a social business is that we become interesting for investors that allow us to scale up our activities. The challenge is to find the right investor who is aligned with the company’s values. TTC is a social enterprise which means that we emphasise on social impact as much as on financial returns. It is sometimes challenging to find the right balance between the two.
As an NGO, you are not expected to make a profit whereas as a business you don’t survive without making profit; that’s a world of difference. It is challenging and a competitive market but in my view this is the way forward, and the advantage is that you become more alert as an organisation.
So after experiencing both worlds, which would you say is the best model?
If you want to bring about change in the world you must go for profit, no doubt about it. The best way to create a sustainable social impact is finding commercial solutions for social problems. African consumers get more choices, services are not taken for granted anymore and consumers become more vocal. The landscape has changed. The increasing spending power of consumers in Africa provides massive business opportunities. This requires a flexible approach and as an organisation you need to adapt to this fast changing environment. This is easier for businesses than for NGOs. Access to information and giving people a voice where they had none before is, in my opinion, key to solving problems in Africa. Not the billions of well-intended aid money.