When Kohl Crecelius first started crocheting beanies with his two best friends, Travis and Stewart, in high school, he could do little to predict the eventual impact and outcome of his newfound hobby. Now, eight years after the three childhood friends collectively founded Krochet Kids Intl. (KKi), Kohl and his posse have continued to synthesize their appreciation for yarn with their desire to promote social entrepreneurship. Originated as a dream to empower women in Northern Uganda, KKi strives to improve the welfare of local communities and households through their model of sustainable assistance and self-reliance. By providing jobs to over 150 women in Uganda and Peru, KKi enables social change while producing and selling carefully hand-crafted beanies, hats, and apparel to eager consumers worldwide.
Interestingly, although KKi maintains and prides itself on its non-profit status, it functions and operates much like any other for-profit commercial entity; manufacturing, selling, and distributing products within the international arena. With a sizeable revenue stream – KKi garnered over $2 million in sales in 2014 – the California-based non-profit closely resembles other socially-conscious businesses ventures, who although are largely dedicated to broader environmental or societal goals, also internally structure themselves as committed businesses. The best example of this dichotomy is illustrated when examining Warby Parker, a for-profit company. Indeed, while founded on principles strikingly similar to those of KKi (Warby Parker manufactures inexpensive glasses, and donates a pair of glasses to someone in need of eyewear for every pair sold, hence its “Buy a pair, get a pair” model), Warby Parker is strictly regulated and controlled in the prescribed manner of for-profit corporations, while KKi enjoys the governmental benefits ascribed for non-governmental organizations (NGOs), such as tax exemptions and limited liabilities.
Of course, the obvious question to be asked is a simple one: What distinguishes Krochet Kids from for-profit companies, and how is it that a business can resemble for-profit corporations yet retain non-profit status? Consequently, this article will seek to address the blurred line that is increasingly categorizing today’s commercial landscape, given contemporary emphasis on corporate social responsibility (or CSR). Although there may be no answers, this article will seek to address some of the fundamental questions that are arising today regarding the role of a company’s social responsibilities, the potential impact of consumerism, and the commercialization of philanthropy.
As mentioned earlier, although there exist scores of businesses dedicated to social change, only a select number are classified as NGOs. There are some underlying differences: Ultimately, what differentiates a for-profit business from a non-profit ‘enterprise’ is the relevant company’s business structure. Indeed, a for-profit company, particularly a public corporation, is heavily financed by investors, who purchase shareholder equity. The purchase of this stock entitles the shareholders to a portion of the company’s retained earnings, and serves as a partnership tool establishing the investors as part-owners of the company itself. As such, for-profit companies have a corporate responsibility to maximize profits in order to maximize the returns and dividends distributable to shareholders. Additionally, on the executive side, for-profit companies are permitted (and perhaps encouraged) to further disseminate profits amongst corporate executives, either in the form of lavish bonuses or high salaries.
Alternatively, non-profit organizations are managed and financed in a significantly different way. Perhaps the greatest difference between an NGO and a for-profit business is the underlying reason behind the company’s founding. Although a for-profit company, such as Warby Parker or Toms (another “one-for-one” company), may be modeled on CSR and social activism, the company’s foremost concerns are profit-centric. Conversely, NGOs are founded specifically to address broader social concerns. Goals such as education, healthcare, medicine, research, charity, science, and religion typify non-profit agendas, and – ideally – supersede monetary concerns. Furthermore, whereas for-profit companies are in essence owned by equity investors, non-profits are ostensibly owned by the public. Indeed, without corporate stock or equity financing – non-profits rely primarily on private donations – NGOs are free to make decisions synchronized more with their overarching mission statement than with the objective of profit maximization. None of this is to suggest that non-profits operate recklessly and entirely disregard their financial assets and liabilities. NGOs are simply more focused on funneling all excess income, after the payments of overhead and operations, into the furtherance of their stated mission.
What makes KKi so unique though, is their model of de-emphasizing private donations, and replacing this go-to income source with revenues generated by the sale of their products. It is precisely this factor which also gives KKi their initial appearance as a for-profit company, given their extensive dealings in commercial production and distribution. According to KKi’s financial statements, sales in 2014 accounted for 76% of their total income, amounting to $2.1 million. Compared to the private donations received in that same year, which amounted to only $0.5 million and represented a mere 18% of KKi’s income, it is clear that KKi has struck a breakthrough non-profit model rooted in self-sustainability and renewable growth. Additionally, while for-profit companies often allocate large sums towards administrative costs, KKi’s administration expenses equaled only 9% of their total costs. Moreover, in line with their mission of empowering women and lifting them out of poverty through employment opportunities, KKi soundly measured a full 37% of their expenses – amounting to over $1 million – to providing the capital necessary to compensate for wages and production, the backbone of KKi’s impact.
This distinct non-profit model has enabled KKi to influence and precipitate high degrees of social impact in poor areas of Uganda and Peru. According to self-reported statistics, the personal income of KKi employed women increases by 10-fold, with household savings increasing by 25-fold. Additionally, employed women are five times more likely to have access to family healthcare; are 40% less likely to be abused; and the children of employed women are eight times more likely to attend school. These facts illustrate how the power of consumerism can be channeled to bring about change, and how socially-oriented entrepreneurs exercise their free-market ideals in support of important social issues.
When all is said and done, KKi remains a manufacturer of consumer products – committed to producing goods that people want to buy. Within this context, they are very similar to a for-profit business. However, KKi is also part of a growing, niche economic ecosystem of small businesses whose formation and existence is predicated on their ability to orchestrate positive change. With the millennial generation fixated by social entrepreneurship, and with ventures like KKi trailblazing the way for future endeavors, it will certainly be interesting to watch how the non-profit sector develops and adapts over the coming years.