5 Differences Between Nonprofits, Social Enterprises & Commercial Businesses

Compared to the conventional struggle and feet-dragging of work for work’s sake, social enterprises present a golden opportunity for both self-sustenance and fixing the world’s problems.

“Aren’t nonprofits and social enterprises kind of the same, then?” Some ask. “How are social enterprises different from the ‘normal’ businesses out there?”

Ah, here’s how.

5 Differences that Set Nonprofits, Social Enterprises and ‘Normal’ Businesses Apart

1. How money is earned/raised

Nonprofits (also known as charities or NGOs) receive funds through donations, grants and/or sponsorship.

Some partner with local businesses; profit made from the sales of an agreed item is donated to the nonprofit. Many generate additional income by selling a product or service (e.g. calendars, homemade cookies and customized accessories) as a sideline.

House Rabbit Society Singapore actively rescues rabbits who were abandoned in the streets. They also take in those who technically had owners, but were left severely neglected in corridors.

For its 2021 Calendar, HRSS featured Ambassador Bunny, Haru, a former corridor rabbit, on the cover.

On income generation, social enterprises operate on a business model, thus overlapping with commercial businesses. They sell products and services for revenue. It can be chocolate. A magazine. Or bags of fresh vegetables.

The fine distinction lies in their purpose in generating profit, which brings us to our next point.

Did you know? To be tax-exempted, fundraising activities have to be directly related to the nonprofit’s purpose.

Activities such as website or newsletter advertising are considered “unrelated business activities”. The nonprofit has to pay tax on this income.

2. Purpose of existence

Nonprofits and social enterprises share similar goals. They’re established to solve real-world problems. Pollution, food waste, animal welfare – just to name a few.

Commercial businesses identify what people want and they supply it. The system is straightforward: when people buy, the business makes money.

While social enterprises seek to gain profit, they do so to self-sustain and to maximize social good in the long-term.

They ask: “How can we sell products in a way that also make life better for the community and environment at large?”

For example, Feed Our Loved Ones (FOLO) is not the first organic farm in Malaysia. However, while its commercial competitors mass-produce and distribute to major supermarkets, FOLO operates on a farm-to-table membership system, encouraging families to learn about food and reconnect with nature.

Every day, FOLO collects nearly 3 tonnes of food waste from local restaurants and hotels. The farm’s composting process gives nutrients back to the land.

In 2016, I had the opportunity of interviewing one of its co-founders.

3. How profit is used

For nonprofits, earnings mostly go towards daily operations and maintenance. For instance, at least half of monthly expenses in animal rescues are on food and vet bills.

cat animal social enterprise non profit
Pumba, one of the rescue cats at Purrth.

Before their venture, most social entrepreneurs are already exposed to the financial needs of these charitable organizations.

Therefore, profit in social enterprises has two important functions.

One, reinvestment to sustain and grow (like usual businesses). Two, regular donations to lighten the financial burden of non-profits.

Here are how these animal-minded social enterprises are helping their nonprofit counterparts:

“For Animal Welfare, and Human Happiness” is the vision of The Cat Cafe Purrth, where 13 rescue cats call the cozy place home. The cafe serves light food and drinks in front and allows customers (who bought tickets prior their visit) to interact with the felines, who are housed within the shop.

Besides showcasing adoptables and assisting in cat rehoming, Purrth also raised more than $10,000 for its partner charity, Cat Haven, in 2019.

FLOAT (For Love of All Things) designs limited-edition apparel based on a charity’s cause. Every week, a portion of sales is donated to their partner charity. FLOAT’s latest charity partnership involves House Rabbit Society and Raptors Are The Solution.

animal social enterprise
FLOAT’s official website, showcasing the weekly donation goal and charity.

4. Volunteers or Employees?

Most work at nonprofits (grassroots, in particular) is carried out by volunteers. The few permanent staff may include the founders themselves and general caretakers who are hired to maintain the necessary day-to-day chores of the organization.

Unfortunately, many nonprofits, while doing worthwhile work, often face manpower shortages as there is no binding commitment for volunteers to contribute labor regularly. The organization solely relies on the goodwill, sense of responsibility and loyalty of the individual to the cause.

In this aspect, social enterprises face less of this issue as they operate on a business model. They hire employees and pay salaries. Staff are bound by traditional employment contracts.

5. Community Impact

One of my all-time favorite quotes summarize the impact of nonprofits (with regard to animal rescues) as follows:

Saving one animal won’t change the world, but it will change the world for that one animal.

Indeed, if there were no non-profits, social enterprises would not have evolved to what they are today.

On commercial businesses, the press-covered donations and awareness campaigns do gain some merit, but organizational revenue is often gained at the expense of ecological and social good.

The ugly irony: a corporate might run a successful CSR campaign for self-empowerment and safety in first world countries. Yet uses child labor and manufactures from sweatshops in third world countries.

In a social enterprise, employees are part of a mechanism that contributes to social good. Consumers are the source of sustenance. It is the ideal balance where profit meets purpose.

For instance, as a solution to eliminate plastic waste in consumer buying, zero waste stores are now a growing social business concept.

From handmade soap bars, feminine care products to fabric face masks, Minus Zero Waste sells a range of natural, reusable products. The shop recently started a mobile refill station; bringing zero waste buying to different regions of the city.

social enterprise zero waste
Bring your own container: Minus Zero Waste’s refill station for cleaning detergents and dish-washing liquid.

Which organization are you involved in? Is there a social enterprise in your city?