[chimeracoder]

> I seriously wonder if non-profit versions of the business will expand into other cities and challenge Uber and Lyfts margins.

Why would non-profits inherently be able to beat Lyft or Uber's margins?

Non-profits, despite the name, are not prohibited from making a profit. Conversely, the "profit" referred to in "for-profit companies" doesn't come out of their margins.

And even if you're talking about their bottom line rather than their margins, it's not like venture-backed companies are required to run at an operating profit anyway. To my knowledge, Uber has never actually issued GAAP accounting demonstrating that they're turning a profit[0]. Which makes sense - the whole point of raising outside capital is to spend money faster than you'd otherwise have access to it. Both non-profits and for-profit companies do this.

Non-profits are functionally equivalent to for-profit companies. The only distinction in this case is that a non-profit would have a harder time raising money, because they can't provide equity in exchange for the outside funding they obtain, whereas a for-profit company can.

[0] They've made plenty of non-GAAP claims, but that doesn't mean anything.

[kbenson]

> Non-profits, despite the name, are not prohibited from making a profit.

Sure, but I would argue non-profit is still a useful term because while technically not accurate, it's not accurate in the same way people aren't being technically accurate in what they mean when they refer to an organization as non-profit. A non-profit cannot distribute its funds to owners or shareholders, it can only retain them to further its goal or ensure it's future survival. At the same time, I would argue more people mean "there isn't one or more people at the top profiting from ownership" when they say non-profit. This is an important distinction because it may lead to different incentives for the organization beyond survival (maximizing shareholder/owner profits vs maximizing customers served or some other metric).

> Why would non-profits inherently be able to beat Lyft or Uber's margins?

Presumably by doing everything Lyft or Uber do but without the need to ever pay out to investors. Whether that's likely is another story, but I don't think it's impossible, it just takes longer to self bootstrap and can be very hard (for example you might have to fight loss-leading tactics from a for-profit that's willing to defer profits until you are gone).

[chimeracoder]

> At the same time, I would argue more people mean "there isn't one or more people at the top profiting from ownership" when they say non-profit.

Yes, and this is a bad usage of the term, because whether or not there are people "at the top" profiting from ownership has nothing to do with whether the company is structured as a non-profit or a for-profit company. People "at the top" can profit from a non-profit, and you can run a for-profit company without "people at the top profiting".

It's unfortunate that the term we use to refer to companies which cannot distribute dividends is "non-profit", but it's really bad to project conceptions of what those companies should act like onto them simply based on how the term sounds in common vernacular.

And again, whether you are using the term with its precise meaning or with its colloquial one, non-profit status has no impact on a company's margins:

> Presumably by doing everything Lyft or Uber do but without the need to ever pay out to investors.

"Paying out investors" does not impact their margins. They can pay out investors from their profit margins (if they have any), but the fact that non-profits don't have any investors to pay out doesn't mean that their margins magically go up.

And, yes, it's true that you never need to pay out investors if you never have any. Of course, if you never have any investors and your competitors all do, you're starting off at a huge disadvantage.

[kbenson]

> And again, either way you use the term, non-profit status has no impact on a company's margins

I think your interpretation of the original comment and statement may be different than some of those you are in discussion with. I interpreted "challenge Uber and Lyfts margins" as "compete at a similar level" (with the margins of competitors being affected by the competition), and it appears you might be interpreting it as "getting better margins than the competitors". It's also possible to read the original statement as raising the question of whether it's even possible, and so fully in line with your position.

It is poor wording though. Margins have a complex relationship with, and are only one of the variables that goes into, profit.

> "Paying out investors" does not impact their margins.

Insofar as investors are willing (or forced) to defer payment it doesn't, but pressure can change strategy, and strategy can change margins. But as I outlined above, I'm not really making any argument for better/worse margins from a non-profit. Actually, I'm not making an argument that non-profits are any better at providing a service or surviving either. I was just adding a bit of information to the discussion.

[legulere]

Where does the profit come from if not the margins? The advantage of non-profits is that they don't have to make a profit in the long run and might have to pay less taxes.

Not having to make profits might be true in the beginning for startups, but at some points investors want to see returns. If I remember correctly, Uber is already making profits in some markets and using it to subsidize expansion in other markets.

[chimeracoder]

> Where does the profit come from if not the margins?

At a high level:

"Margins" typically refers to what is left over after you take all of the revenue from selling a product and subtract all of the per-unit costs (ie, ignoring fixed costs).

"Profit" is then whatever is left over after you take all of your revenue, subtract your per-unit costs, and then subtract all of your overhead (salaries, office space, etc.)

So, whether you are a non-profit or a for-profit, the accounting there is the same. The difference is that for-profit companies can choose to use that profit to issue dividends to people who hold shares. If they don't, that money stays within the company (ie, it's "reinvested"). Non-profits don't have a choice: they cannot distribute dividends.

Many notable for-profit companies don't distribute dividends. From an accounting perspective, if they also reinvest all of their money back into the company before year's end, they are essentially equivalent to a non-profit company.

There are some caveats to this, but that's the general idea.

> The advantage of non-profits is that they don't have to make a profit in the long run

No company "has" to make a profit in the long run, as long as they break even. But again, whether or not they are able to break even is determined the same way, whether they're a non-profit or a for-profit company.

> and might have to pay less taxes.

This is jurisdiction-dependent and is a relatively minor effect, because taxation on profits just encourages the for-profit company to reinvest its capital anyway. Most of the other taxes that a company pays are paid by both for-profit and non-profit companies.

In any case, the difficulty that non-profits would have in raising comparable amounts of money to venture-backed competitors is much larger, by several orders of magnitude.

[kbenson]

> Many notable for-profit companies don't distribute dividends. From an accounting perspective, if they also reinvest all of their money back into the company before year's end, they are essentially equivalent to a non-profit company.

Only if you discount the pressure to raise stock prices for public companies. There are plenty of cases where the pressure to do this in the short term, or even just to mitigate an expected drop in prices, has produced a strategy that is not optimal for the business itself.

[chimeracoder]

> There are plenty of cases where the pressure to do this in the short term, or even just to mitigate an expected drop in prices, has produced a strategy that is not optimal for the business itself.

Non-profits are by no means immune to this. They still have a board, and that board still operates in the exact same way as the board of a for-profit company does, subject to virtually all of the same incentives.

There are countless cases in which non-profits act in ways that are sub-optimal for both the operation of the company and for the long-term mission outlined in the company's charter, because either the board or the executive leadership (or both) were responding to short-term incentives.

Again: focusing on the "non-profit" vs. "for-profit" distinction is essentially meaningless when figuring out how a company is incentivized to run its business. They are both subject to the same underlying economic forces and the same incentives.

[kbenson]

> focusing on the "non-profit" vs. "for-profit" distinction is essentially meaningless when figuring out how a company is incentivized to run its business. They are both subject to the same underlying economic forces and the same incentives.

I think many of the incentives are the same, but not all. Or, better put, all the same incentives exist, but importance is attributed to them differently. I've known desire for recognition and ego to cause problems in an obvious way in a non-profit that while not impossible in a for-pofit organization, would appear to be far less common. I think the converse could be said with regard to monetary incentives. That is, it's not that when I say the incentives are different I mean some exist in one instance and don't in others, but that the relative importance applied to each is apportioned differently, and I view those as "different".