How can you distinguish between social enterprise and nonprofit models?

1 What is a social enterprise?

A social enterprise is a business that has a social or environmental purpose as its primary objective, and generates revenue from selling goods or services. Social enterprises can be for-profit or nonprofit, depending on their legal structure and tax status. Some examples of social enterprises are fair trade companies, microfinance institutions, and social impact consulting firms.

2 What is a nonprofit organization?

A nonprofit organization is a legal entity that operates for a public or charitable benefit, and does not distribute profits to its owners or shareholders. Nonprofit organizations rely on donations, grants, or other sources of funding to support their activities. Some examples of nonprofit organizations are schools, hospitals, foundations, and advocacy groups.

3 How do they differ in mission and vision?

One of the main differences between social enterprise and nonprofit models is how they define and communicate their mission and vision. A social enterprise typically has a clear and specific social or environmental problem that it aims to solve through its products or services. A nonprofit organization usually has a broader and more general cause that it supports through its programs or projects. For example, a social enterprise might have a mission to provide clean water to rural communities in Africa, while a nonprofit organization might have a vision to end poverty and inequality worldwide.

4 How do they differ in revenue and expenses?

Another key difference between social enterprise and nonprofit models is how they generate and manage their revenue and expenses. A social enterprise relies on its customers or clients to pay for its goods or services, and strives to achieve financial sustainability and profitability. A nonprofit organization depends on its donors or funders to cover its costs, and often operates with a budget deficit or surplus. For example, a social enterprise might charge a fee for installing solar panels in remote areas, while a nonprofit organization might receive a grant to distribute mosquito nets for free.

5 How do they differ in governance and accountability?

A third important difference between social enterprise and nonprofit models is how they are governed and accountable to their stakeholders. A social enterprise usually has a board of directors or managers that oversees its strategy and performance, and reports to its investors or shareholders. A nonprofit organization often has a board of trustees or advisors that guides its direction and policies, and reports to its beneficiaries or members. For example, a social enterprise might have to meet certain financial and social metrics to satisfy its funders, while a nonprofit organization might have to comply with certain ethical and legal standards to maintain its reputation.

6 How to choose the best model for your organization?

When deciding on the best model for your organization, it is important to consider factors such as the nature and scope of the problem you want to address, the market demand and potential for your product or service, the availability and suitability of funding sources and partners, the legal and regulatory environment and requirements, and the values and culture of your team and stakeholders. Furthermore, research other organizations that have adopted similar or different models to understand which strategies are successful. Ultimately, the model that aligns with your vision, mission, and values while enabling you to create the most positive social impact possible is the best choice.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?