This article was posted on July 24th, 2013 and may reflect a different time in our business cycle at The Milton Schoolhouse.
There isn’t anything wrong with being for-profit.
Many visitors at Milton have been shocked to discover we are not a government sanctioned non-profit organization- and we don’t have any intentions on becoming one. Have Joel and I invested every penny and ounce of energy we’ve come across in the last four years to save the school? Yes. Is making Milton beautiful and turning it into a bad-ass business incubator our goal for this building? Yes. Then, since our main purpose is doing good stuff, the standard reasoning goes, doesn’t it make sense for us to become a non-profit? Well, no.
I’ve defended this position to those who believe that a corporation created to do good things is a complete contradiction. I have received email and messages from people who insist that because we are an LLC we are really living a big lie about our true intentions. We make money from selling things on eBay and Etsy. We make money renting space. How on earth could we possibly be doing the good things we claim when making money is so….so…greedy.
Back in 2009 when we bought the schoolhouse, we considered filing for non-profit status. I believe the whole “non profit” way of business was formed with the best intentions. For some forms of entities- like religious organizations- it works. But we don’t feel the Milton spirit of self-sufficiency, financial responsibility, and personal freedom to support yourself doing what you love fits well into an IRS approved non-profit model. There are many noble non-profits who walk the fine line of being financially responsible and they truly do meet non-financially motivated goals in an efficient way. Far more are met with intrinsic problems in the way non-profits are set up that prevent them from doing what they set out to originally do.
Setting up a business is a lot like preparing for a new child. To some extent, you can choose the environment in which to raise that child. We wanted Milton to have the best possible chance of growing into exactly what Alton needed. The nonprofit model ultimately seemed counterproductive to the foundational social goal for which we purchased the building.
One of the biggest challenges non-profits face is answering to too many “bosses”; the first of which is the government itself. You get the perks of federal, state, and local grants- and yes, money is good. But grants come with strings attached, and it is tempting to adjust your original intentions to bring in a source of revenue. The trade offs of “free” government money are confinements on how it is used- and the immense amount of time it often takes to qualify for such funds.
The same goes in business when you rely on donor funds- that also often come with implied, if not explicitly stated, ways that money can be used. How is this a problem? Well, let’s say Mr. Jackson has donated $200,000 towards building out a new floor in your building for artist studios. He has always envisioned that sunny second floor bursting with creatively, and now has decided to give money to your organization because he loves your building so much. Other than using the space for artists, his only other requirement is to see it completed within the next five years. While his donation is generous, you find it will actually take $300,000 to build out the studios. In your research you also discover most artists typically don’t make a lot of money. To fill the studios with traditional artists alone, as Mr. Jackson wishes, you find the rental rate you’ll have to charge is significantly less than if you opened the studios for general commercial purposes- where artists and other folks could work side by side. Not only will you end up needing to raise or borrow an extra $100,000 to not loose Mr. Jackson’s donation, but also his donation ties you into a situation in which you don’t see a timely return on investment. The donation has also required you to designate the space in your building to something the community might not need 100%. By letting Mr. Jackson be the boss, you haven’t used your space to the best of its capabilities.
Mr. Jackson isn’t the end of it. Management in non-profits also includes the dreaded subspecies: the committee. If you’ve ever tried to order a pizza among friends, you can imagine the difficulty of succeeding in making good decisions on more important, long term commitments in a larger, less amiable group. Mr. Jackson may feel very happy having given his money to a non-profit- an organization that by its very namesake implies that it isn’t out for greed, but for good things. He might even feel financially smug himself because he was able to take advantage of a significant tax write off. But is Mr. Jackson’s money really being used wisely? Now that the funds are acquired for building out the artist’s studios, a committee could be in charge of the details; how many studios to build, who to hire for the drywall, what type of coffee machine should be bought for the artist’s shared lounge. I have a hard time imagining in such a situation- when a group of people decide how to spend someone else’s money- there isn’t room for nepotism or convenient overspending. Will a strong voice on the committee push to hire a higher priced contractor because they are a friend of a friend? Will a committee member make a decision on lighting without research because it’s easier, even if the thing takes expensive specialty bulbs and will cost more money in the end? This last situation happened to a local non-profit in Alton not many years back. Committee decisions are often compromises and are seldom what is best, because of the differing tastes of the members involved.
Opportunities for disagreement make for rough sailing for non-profits when it comes to reconciling the motives of government, donors, and committees. That rough sailing often costs a non-profit the most critical thing of all: time.
In a community-oriented business, such as the Milton School, time is crucial. Being for-profit streamlines the entire business process- each dollar that comes in must be invested in a way that directly makes more dollars to help us renovate Milton. A non-profit might be side tracked by Mr. Jackson’s donation- or a committees’ idea that tiny artist studios are the only thing Alton needs. The months spent discussing, deciding, and taking votes are circumvented by setting up Milton as a for-profit business. The only question we have to ask is, “Will this action (money spent) be the best way to make more money so that we can continue to renovate Milton and help others?” We ultimately answer only to our renters, our customers, and ourselves. Without multiple “bosses” with differing goals, we have the flexibility to adapt quickly to any economic changes or local needs.
By owning a for-profit business, we have a greater control over our financial efficiency and the cost of renovating Milton. Joel and I have ideas, for sure. We have ideas to fill every inch of this 85,000 sq ft building. But if there isn’t a demand for our ideas- they don’t happen. We don’t start building something until someone who fits into the whole of Milton approaches us with a need for space. That’s why Milton is filled with so many different types of people- because we build Milton in response to Alton’s needs. To succeed, we are forced to listen to the community directly or the money we have personally sweated for will be wasted.
Our rental income from Milton covers the basic utilities the businesses here use and the property taxes we pay to the city, meaning our endeavors are debt free and self-sustaining. We are usually left with between $300-700 a month over that to reinvest. That’s not very much. But we make sure every dollar of it makes a return of triple its investment by reusing and recycling materials, being wise with our purchases, and building out what is in demand at this very moment. We are in a constant state of reaction to trends and needs in Alton, jumping from project to project to accommodate artists and entrepreneurs who are ready to see their dream grow in a dedicated space.
I recently received an outraged comment on Facebook regarding our Etsy and eBay sales:
You aren’t even a nonprofit. How can you claim this is fundraising? You bought that building for practically nothing and you make bank off of renting it out and selling this stuff.
It’s true. We bought the building for “practically nothing”. Then we invested four times the purchase price in start-up capital, on top of the enormous amount of sweat Joel and I have put in the last few years. $20,000 in dumpster removal fees alone in the first year? This building took quite a bit to get on its feet! I’ve already discussed the rental income of the building- enough to sustain Milton’s current state but not enough to significantly move progress forward. The sales from Etsy and eBay have brought in, on average, about $1,500 per month for the last three years. It is a blessing that has allowed us to build so much so fast.
Have you ever done any improvements in your home? Maybe remodeled your bathroom- or refinished a basement? How far does $2,000 go in the remodeling process? Not very far, I’ve noticed. Not when you’re paying for labor. That is where the miracle of Milton comes in. Joel, myself, and Milton’s core of skilled volunteers generously give labor to the schoolhouse so that $2,000 per month can be invested completely in materials. That means we take the $2,000 we earn from sales, and that extra rental income I mentioned, and turn it into about $8,000 worth of progress every month. Month after month. Four years in a row. The $150,000 worth of actual dollar bills that have been independently invested- or made and reinvested from Milton- have turned into approximately $625,000 worth of improvements. There’s quite a bit you can’t even see: roofing, electrical work, mowers and gas, hundreds of rolls of insulation, and a work truck named Dorothy that has always threatened to die at the least convenient moment.
Any “bank” we have comes from wise investing, good decision-making, and a whole lot of nights working late eating leftover Chinese take out. If we were a non-profit, we wouldn’t be able to work as fast, spend money as efficiently, or help as many people.
That’s right- “help as many people” is our reason for making money, but people don’t see that because we aren’t handing out money, we are giving a hand up to people who want to work hard to earn a chance at their dreams. If Milton is 100% for-profit but does good things- what are we? We are part of a new breed of entrepreneurs, a new breed of businesses- who believe that the more money you make, the more people you can help. We are a true “teach a man to fish” business, and the money we make goes directly towards the creation of new space for other artists and entrepreneurs to start their own self-sustaining venture.
The best part is, our desire to help others support themselves through their talents not only has a circular affect in growing the schoolhouse as a building- but has a huge multiplying affect on the community. Our small business owners have a way to support themselves and their families. People in the area have access to a business that fulfills a need- and then spend their money in our city instead of online or in St. Louis. The city of Alton receives more revenue to make Alton a desirable place, which will in time attract more business to Alton citywide. Businesses grow- creating jobs, reducing unemployment, and reducing crime. Alton becomes a more attractive place to raise children and- ultimately, our entrepreneurs and artists model to their children a lifestyle of independence, self reliance, and a broader view of “what you can be when you grow up”.
We truly do believe that creating small businesses now will impact the generation after us. That by setting an example of how, through hard work, you can be successful at most any crazy idea, we’ll be giving the next generation a world of possibility.
Such high-minded and pretentious sounding goals aren’t meant to be weighed down in committee meetings, slow internal processes, and old-fashioned business models. Those goals take money and heart. Those changes are for us, and every other unashamedly for-profit entrepreneur, to bring to Alton.