For Profit or Nonprofit? That Is the Question

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NPQ Editors’ note: NPQ noticed a comment from Stephanie on one of our articles, and thought that her question about starting up a new organization to serve the health needs of low-income women was worth a larger audience. We would love to hear your thoughts.

Penda Health is starting up as a for-profit social enterprise that provides sexual and reproductive health services for hard to reach populations in Kenya. Our company grew out of the realization that one in four women in Kenya have an unmet need for family planning services. Penda Health aims to aid in meeting that need by opening a chain of Women’s Health Centres and reaching out to customers via partnerships with community groups and places of employment.

Through focus groups held all over Kenya, we quickly learned that although women were reluctant to pay for family planning services alone, they would pay relatively high prices for comprehensive women’s health care (or as close we could get to achieving that goal). Our desire to be a for-profit organization thus required that we rapidly expand our offerings to include what women were demanding: things like cervical and breast cancer screening, STI testing/treatment, and treatment for such basic ailments as yeast infections and urinary tract infections.

Many people hearing about Penda Health are surprised that we have chosen the for-profit model. We are providing health care to low-income women in Kenya, which sounds like the perfect project for a nonprofit. And yet, I feel confident that our decision to be a for-profit social enterprise rather than a nonprofit one will not only make us more sustainable and able to scale quickly, it will also ultimately result in higher quality services for the women of Kenya.

Imagine, for a moment, that we were a nonprofit. Our donors would provide the majority of our funding, and, as a result, they would have an extremely strong voice in shaping our business. What projects we did or did not do, and what order we did them in, would largely depend on our fundraising ability. In the field of sexual and reproductive health, where donors often promote particular health strategies based on religious or ethical perspectives rather than the latest medical research, this could lead to an inconsistent quality of care for women.

As it stands now, although investors will likely provide seed funding to get us up and running, Kenyan women—our customers—will ultimately bring in the majority of our funding. Our ability to be sensitive to the needs and desires of our customers will therefore be the number one factor in the success of our business. If women do not see the value in our products and services, they won’t buy them, and our revenue stream will dry up.

What we believe women in Kenya want is high-quality women’s health services. So in order to retain our revenue stream, we will continuously need to ensure we are providing high-quality care at a cost that is affordable to low-income Kenyan women.

I’d like to clarify that I do not mean to either vilify the nonprofit model or glorify the for-profit model broadly. Rather, I offer Penda Health as a case study of a for-profit model bringing real value to a cause more often championed by nonprofits. Penda Health’s success would indicate that in the space of sexual and reproductive health, where many donors will have an agenda that may change abruptly depending on the politics of the moment, one might consider the for-profit model to allow the customers of women’s health centres (low-income women)—rather than donors—to shape the direction of the organization.

Stephanie Koczela leads Penda Health’s management team. She previously managed Kiva’s global field staff operations and led the effort to create the plan for, fundraise, and execute the construction of a four-story school in Mathare, Nairobi’s worst slum, where she has spent extensive time. She also created—and continues to work for in a support and advisory capacity—Witethye, a women’s bag collective based in Mathare, which sells globally.

For more on this topic, you can consult: “In but Not Of the Market: The Special Challenge of Nonprofit-ness.

  • Mat Despard

    Stephanie does a really nice job of identifying the triangulated (and often dysfunctional) relationship among nonprofit, customer, and funder with the traditional subsidy model. More and more nonprofits should answer a simple question, “Do the participants in our program(s) value what they receive or do they merely accept it because it is free or reduced cost?”. I’d love it if groups like Penda Health told us more about their demand assessment methods – what data convinced them that the women would (and could) pay for services and how these data were collected and analyzed.

  • Don Currie

    A more compelling argument would be helpful.

    Most would agree that the mission must drive the organization.

    If a for-profit is unable to find initial funders easily for its mission, it has two choices. One is to change the mission to be something that attracts investors. The other is to look harder for investors. If at some time in the future the investors begin to sell their stock because they have lost interest in the mission, the organization has two choices. One is to change the mission to keep the current investors. The other is to change the profitability of the organization to make it more attractive to the investors regardless of the mission.

    If a nonprofit is unable to find donors easily for its mission, it has two choices. One is to change the mission to be something that attracts donors. The other is to look harder for donors. If at some time in the future the donors drift away for whatever reason the nonprofit has two choices. One is to change the mission and follow the donors. The other is to work hard and recruit new donors.

    Both organizations can charge for their services, scale their fee for services based upon the ability to pay, or provide free services. Both must be responsive to the clients

  • Nicholas Sowden

    Great article Stephanie.

    You briefly touch on being “able to scale quickly” as a for-profit. So true! A great organization that is forced to spend time and resources fundraising will grow much slower. Conversely, if your organization is making money, than you can reinvest those resources and scale very fast. And you are much more sustainable.

    Not mention – if you are making money, others will start to copy you. That means competition (and pressure to improve) and more of your mission’s work getting delivered to those that need it. That’s real scale.
    And if a for-profit stops making money from its customers, it goes out of business. This is adds a very healthy pressure to listen to your customer, innovate and improve. Non-profits’ success depends on fundraising, regardless of whether their customers like it or not.
    Don, nice comment. Your premise that for-profits need outside investors to run the business isn’t always true. For-profits earn their money from their customers, which means investment is often a prerequisite, but it

  • StephaniePH

    Thank you for your comment here. We took a pretty straightforward approach to demand assessment.

    We met with over 900 women of the women we were aiming to serve, and we talked to them about our idea and asked for their advice.

    Then we created a few possible “products” and started testing to see if people would pay for them.

    One of my co-founders wrote a really nice blog about the idea of letting the customers define whether you have a good product. I’d suggest taking a look at it.

  • Don Currie

    Nicholas, I found your thoughts interesting. Perhaps you can expend on them. In particular, I would like your thoughts on the following:

    Every well-run organization (for-profit, nonprofit, or government agency) is obligated to be sensitive and responsive to all of its stakeholders. How does

  • Lucy in Atlanta


    I love your question: “More and more nonprofits should answer a simple question, “Do the participants in our program(s) value what they receive or do they merely accept it because it is free or reduced cost?”