For nonprofits and social entrepreneurs, finding a stable source of funding is always a challenge. Learn how social enterprises can create unique ways to generate income while staying true to an organization’s mission.
1. What is a social enterprise organization?
A social enterprise is an organization or initiative that mirrors the social mission of a nonprofit or government program with the market-driven approach of a business. Some of the most well-known social enterprises include organizations as diverse as Grameen Bank, a nonprofit that provides small loans to women to start their own enterprises, and Aravind Eye Hospitals, a hospital system that uses profits from paying patients to provide free or heavily subsidized vision services to the poor.
2. How do social enterprises work?
A social enterprise is not a legal structure like nonprofit or for-profit organizations, rather social enterprises are an ideology that both nonprofit or for-profit organizations can adhere to reach a common goal.
Now, you might be wondering how nonprofits and for-profit organizations can both be considered social enterprises. Let’s start with the legal differences between the two. First, nonprofit organizations don’t have owners, rather, they have a board of directors that guide the direction and high-level direction of the organization. Also, it is mandated that nonprofit organizations reinvest all income into the organization.
Conversely, for-profit organizations are usually owned by an individual or by shareholders and aren’t mandated to reinvest profits back into the operations of the organization. However, to be considered a social enterprise, the social mission of the organization takes priority over the generation and distribution of profits to owners.
3. What are the most common business models of social enterprise organizations?
There are three main business models social enterprise organizations use depending on their goals:
- Product organizations produce a tangible product that addresses a gap in the local market. The products can either be sold directly to members of the community or to other local businesses. An example of this model is d.light, which provides solar-powered energy solutions for individuals and businesses.
- Service organizations provide a service such as education, health care, or financial resources to their communities. Like the product business model, services can be sold directly to individuals or businesses in the community. Uplift Mutual is a nonprofit health insurance micro-provider based in India that focuses on delivering preventative care rather than reactive care.
- Marketplace organizations match producers of products or services with buyers of the product or service. Access to the marketplace is usually free for the buyer but the producer usually has to pay a fee for each product sold through the marketplace. GlobalGiving can be considered a marketplace social enterprise model because we connect nonprofits, donors, and companies in nearly every country around the world. We help local nonprofits access the funding, tools, training, and support they need to become more effective. In return, GlobalGiving collects a small percentage of each donation in order to maintain our operations and programs.
4. How do social enterprise organizations impact their communities in a positive way?
Successful social enterprises increase the financial health of a community by providing community members with sustainable sources of income. As the enterprise grows and its workforce increases, the overall financial health of the community increases.
A social enterprise that employs locally provides its employees with benefits beyond sustainable incomes. Many also offer stable schedules, employee benefits, and interest-free loans that employees can use to launch their own enterprises. Creating new enterprises locally allows the community to boost employment and economic power because they decrease their reliance on powerful international corporations and traditional intermediaries that provide basic services such as utilities, healthcare, and food.
Featured Photo: Health Education for Low-Income Women in Bali by Yayasan Rama Sesana