Social entrepreneurship and nonprofit organizations are two distinct concepts that are often compared and contrasted. Though both can be instrumental in helping others and engaging in meaningful work, there are key differences to note. In this article, we’ll explore the major characteristics that set these two apart, such as the sources of revenue, the goals of the organization, and more.
Definition of Social Entrepreneurship
Social entrepreneurship combines the mission-driven approach of a nonprofit organization with the principles of business. Social entrepreneurs are people who combine entrepreneurial skills to create solutions to social problems. They do this by creating or supporting organizations that apply commercial strategies to maximize improvements in human and environmental wellbeing, rather than generates profits for external investors. Unlike traditional non-profit charities, social entrepreneurs focus not just on addressing a problem but also on finding ways to become sustainable by generating revenues or through other means of self-financing. This is done through the invention or implementation of an innovative solution to a social issue, leveraging the power of markets and their scale, thereby creating both financial capital and social capital simultaneously. The primary driving force behind a social entrepreneur is a passion for improving society through market-driven solutions. Just like any other entrepreneur, successful social entrepreneurs strive after ambition, discipline, creativity and good judgement; however their motivation comes from making an impact and responding to real world problems with creative solutions rather than achieving financial success.
Social entrepreneurship requires working in often uncharted territories which require vision, passion and persistence to ever come close to finding products which will positively change society for the betterment of humanity.
Definition of Nonprofit Organizations
Nonprofit organizations are structured for the purpose of providing goods and services for the common good, with earnings typically reinvested back into their operations as opposed to distributed to shareholders or owners. As a legal entity, nonprofits can be public charities, private foundations, or a combination of both. Nonprofits provide direct assistance to individuals in need; they disseminate information; they lobby governments and interest groups on behalf of their cause; they serve as advocates that promote the development of new policies at local, state, and national levels; they provide economic development opportunities within communities; and they conduct research related to social issues. Generally speaking, nonprofits attract donations based on what work they do – the causes they associate their organizations with – rather than through charges to consumers. Donations usually come from individual donors or charitable foundations that give money for particular purposes. Nonprofits must be organized for some public interest or social benefit and most are exempt from federal income tax under Internal Revenue Code (IRC) section 501(c)(3).
How is Social Entrepreneurship Different From Nonprofit Organizations
The main difference between social entrepreneurship and nonprofit organizations lies in the goals of each type of entity. Nonprofit organizations are typically focused on providing a particular service to their community, while social entrepreneurs are focused on using their business model to create sustainable solutions to social problems. While nonprofits have a philanthropic mission, social entrepreneurs have a business-like approach to achieving their goals.
In this section, we will explore the key differences between the two in terms of their respective goals:
Social Entrepreneurship Goals
When considering the key characteristics of social entrepreneurship compared with those of nonprofit organizations, it is important to consider the goals of each sector. Social entrepreneurship shares some similarities with traditional businesses, focusing on creating a successful and profitable organization – with the ultimate goal of making a positive social or environmental impact. The focus is typically not on charitable donations but instead on innovative solutions that can be developed and grown into business models that solve global challenges.
The goals of social entrepreneurs are usually similar to those who are traditionally business-driven in that their main goal is for financial gain and value creation. However, their primary mission goes far beyond that aim, encompassing a vision of creating long-term systemic change in communities, societies and nations so as to improve human lives, build capacity and ultimately create sustainable economic development around the world. In some respects this can be seen as a more broad-based and holistic approach than often experienced in traditional business structures. In contrast, the main objective of nonprofit organizations is to serve a public purpose; for example charity services or causes like health care or disaster relief. The focus is on philanthropy rather than profit generation and there isn’t always an expectation that solutions need to have long-term sustainability or have potential for scale up. The scope of influence within nonprofits may be much narrower than it would be within social entrepreneurship due to the nature of resources available within a given region or country.
Nonprofit Organizations Goals
Nonprofit organizations (NPOs) typically strive to achieve a charitable, educational, religious, or other purpose recognized by their stakeholders. These organizations focus on serving others by helping to benefit members of the public or specific causes such as protecting and preserving the environment, providing health care services for those in need, or identifying new methods to solve social problems. A key characteristic of these NPOs is that they don’t distribute profits – any funds remaining after expenses are put back into the organizations for future use. They are run either by volunteers or paid staff who are either elected by a board of directors or appointed by another governing body.
Nonprofit organizations strive to improve lives on local, regional and global levels, but must ensure adherence to specific regulations regarding tax deductions and exempt status. Raising funds through public solicitation is limited; however some support can be gained through grants from government agencies and private foundations. NPOs often require active participation from its supporters in the form of:
- volunteers
- donations
in order to continue accomplishing their missions and objectives.