More than 1.5 million nonprofits operate in the United States, but they’re not the only organizations doing good! Social enterprises use a market-driven approach to solve social and environmental problems as well. Oftentimes, these socially responsible companies are doing just as much good as their nonprofit brethren.
Rahama Wright, founder and CEO of Shea Yeleen, is quite familiar with how nonprofits and social enterprises function to bring about change as she has run both in order to improve the lives of female workers in the African shea industry.
While both nonprofits and social enterprises yield measurable impact for their causes, there are some key differences that separate the two. Rahama spoke about her experiences and transitions with Shea Yeleen, her business that produces ethical shea butter skin care products, on the Social Entrepreneurship and Innovation Podcast.
Social Enterprise Vs Nonprofit: How Are They Different? How Are They Similar?
Although both social enterprises and nonprofits seek to remedy social and environmental issues, they go about it differently within their organizational models and funding sources.
What Is a Social Enterprise?
A social enterprise is a mission-driven company, startup, or co-operative founded by a social entrepreneur that exists to help alleviate a social issue while making a profit and functioning as a business. These responsible businesses may be Certified B Corporations, which demonstrate a high commitment to environmental and social good. However, many social enterprises don’t hold any certifications and still yield incredible results for their mission.
Examples of Social Enterprises
The structures and practices of social enterprises are ever-evolving but generally fall into one of three main categories, according to the Social Enterprise Alliance.
We love Nisolo, a Nashville-based sustainable shoe company and Certified B Corporation. Nisolo owns its own factory in Trujillo, Peru where 70% of its production takes place. As an employer, Nisolo provides stable well-paying jobs and a financial literacy program for its employees. After three years of working for Nisolo, employees have experienced a 152% increase in earnings.
When Nisolo does partner with factories in Mexico or Kenya, those partners must agree to their Code of Conduct, which includes living wages, healthcare benefits, and healthy workplace conditions. As a for-profit business, Nisolo uses its profits from selling goods to enhance the wellbeing of its factory workers, offset its carbon emissions, and fuel its mission of pushing the fashion industry in a more sustainable direction, alleviating many of the most common social problems that stem from shoe production.
Transformative Products or Services
Little Sun is a Berlin-based social venture and B-Corporation that makes solar lamps and chargers in order to expand access to clean, renewable light. These thoughtfully designed products by the Icelandic-Danish artist, Olafur Eliasson, expand entrepreneurial opportunities in rural African communities. For each Little Sun sold retail, another is sold at a very low price in Sub-Saharan Africa. On the ground, Little Sun trains local entrepreneurs and helps them set up their own businesses to sell Little Sun products to the populations most in need of a sustainable light source.
Little Sun is a social enterprise that falls into both the opportunity employment and transformative product categories. Accessibility to clean light has proven to be absolutely essential for health, climate change prevention, and gender equality, and the added bonus of training new business owners on the ground ensures the sustainability of the program and local economic health.
Grounds & Hounds is an ethical coffee company with a big heart for animal welfare. After the founder rescued his own pup, he realized how broken the system can be for shelter animals. He started Grounds & Hounds to make organic, eco-friendly coffee more available and to support animal rescue organizations. Grounds & Hounds donates a whopping 20% of their profits to rescue organizations!
Because of this unique business model, more than 2,750 dogs have been saved from kill shelters and 2.1 million meals have been provided for rescue dogs. This is a social enterprise that fuels the work of nonprofit organizations while creating great products for consumers.
What Is a Nonprofit?
A nonprofit organization or non-governmental organization (NGO) allocates funds on behalf of donors to achieve a specific vision. They’re typically run by an executive director who executes their mission for the common good. The nonprofit sector is wide-reaching–many religious and political organizations are nonprofits, as are many colleges and museums.
To be a nonprofit, the org must be registered as such with the IRS and follow a certain legal structure. To learn more about the parameters of a nonprofit, be sure to check out our post on how to start a nonprofit
Examples of Nonprofits
You’ll likely recognize some of Forbes’ highly ranked charities, like Planned Parenthood, Feeding America, and the United Way. But many small nonprofits are taking action and making long-lasting changes in their local communities as well.
What School Could Be
Led by author, producer, and public speaker Ted Dintersmith, What School Could Be is a platform for educators to learn how to innovate within their classrooms. They believe that the future of schools is dependent on students learning how to apply their skills to real-life challenges. That’s why What School Could Be supports teachers interested in transforming their classrooms into innovative and collaborative learning hubs through digital resources and training.
As a nonprofit organization, B Lab assesses and certifies B-Corporations. They accept donations to help fuel this process and to date, they’ve certified 3,500 benefit corporations in 70 countries and 150 industries. This nonprofit is kind of a double whammy, since their work as a nonprofit benefits social enterprises. In practice though, they’re a 501(c)(3) dedicated to social impact and conscious capitalism
Corporate Accountability Lab
Founded by Charity Ryerson, an expert in corporate accountability, CAL uses donor dollars to unearth the most creative interpretations of the law in an effort to protect people and the planet from corporate abuse. They have done work to address injustices such as child labor and unfair working conditions and compensation. CAL doesn’t accept any corporate donations for obvious reasons but does operate as a 501(c)(3) to advance ethical corporate practices.
Differences Between a Social Enterprise and a Nonprofit
Although both social enterprises and nonprofits are tasked with pursuing a social cause, the way they go about it is different.
Where capital comes from is a key difference in the social enterprise vs nonprofit comparison. In for profit entities, profit is the fuel to accelerate social impact. In a nonprofit, the fuel to achieve a social mission is procured through fundraising and donor engagement. Nonprofits have tax-exempt status as defined by the IRS as well, whereas social enterprises and social businesses pay income tax on their financial returns.
Nonprofits are held to a high standard of transparency due to their tax-exempt status and public accountability. They’re required to publish their 990s and many choose to publish Annual Reports that convey to the public exactly how their money was raised and spent to achieve their goals. As businesses, social enterprises aren’t legally bound to that level of transparency, but more often than not, they use it as a framework to create and share impact reports that show their progress as a business and an agent of change.
Shea Yeleen: Empowering Women Through Shea Butter
Shea Yeleen is a Washington DC-based social enterprise formerly registered as 501(c)(3) nonprofit. Originally started as a nonprofit in 2005, Shea Yeleen has evolved to become a prolific social enterprise that uses their profits to uplift the communities making their products.
More than 16 million women are involved in the shea industry in Sub-Saharan Africa, the only region in which the shea fruit is grown. Originally, Shea Yeleen sought to connect these women with ethical companies in the market.
However, this was met with a challenge. Most shea was sent overseas for chemical processing, so the women-producers never saw the fruit of the final products and ended up being paid very little. Shea Yeleen changed that by creating value added personal-care products right in the community in conjunction with the women-producers. Shea Yeleen products are all natural, ethically sourced, and better for your body. They are shipped straight from Ghana to the United States, without a middleman, so that the profits go directly back into the community.
As a result, women in Ghana have been able to increase their income to five times the country’s minimum wage. Some women have been able to start their own businesses or support their entire family on their earnings.
Rahama Wright, Founder and CEO of Shea Yeleen
Rahama is a first-generation Ghanian American whose extensive time in West Africa as a Peace Corps volunteer shed light on the broken supply chains of the shea industry. During her volunteering in a health clinic, she saw women who were working all day processing shea but were still unable to pay for health services. Rahama reimagined and reshaped the supply chains of shea to empower these women through Shea Yeleen’s fair trade practices.
Rahama has spent more than 15 years perfecting the Shea Yeleen model to ensure that it has the maximum impact. She strongly believes that social enterprises should be the focus of businesses moving into the future. She wants companies to center themselves in authentic impact, rather than emptily marketing their philanthropy while their practices harm the planet and weaken communities. Rahama’s efforts have created a business that puts people first and proves that you can earn a profit while still being a socially conscious business.
“You can make money and empower people. You can make money and change the world.”
How To Support Social Enterprises and Nonprofits
With social enterprises on the rise, voting with your dollar isn’t limited to making donations anymore. Use these tips to engage with businesses and NGOs that are doing valuable work for the planet and the people on it.
- Check Out GuideStar: Not sure if a nonprofit is legit? Do some research before clicking ‘donate’. GuideStar allows you to preview revenue and assets for organizations that interest you.
- Peruse Buy Ensemble: Need a new mattress, a phone case, or beauty products? Check out the growing Buy Ensemble platform to find the social enterprise equivalent for your everyday purchases. From ethical footwear companies to companies fighting climate change, we’ve got you covered.
- Shop With Co-Ops: Cooperatives are a form of social enterprise that democratically share profit amongst employees. Some of your favorite companies might be co-ops! REI, Tillamook, and King Arthur Flour are a few of ours! REI members even receive a dividend each year that reflects their purchases. Not only does this keep customers happy, it helps REI meet its bottom line and its mission to better equip people for outdoor adventures.
- Say No To Amazon: The convenience and cost of Amazon products makes it appealing to millions of customers. However, this all comes at the expense of others and the environment. Consider these alternatives to Amazon and shop with the planet in mind.
Closing: Businesses and Organizations For A Better World
No matter their tax designation or relationship to stakeholders, both social enterprises and nonprofits are critical components of our society. Not only do these models advocate for long-lasting social change, they show that the evolution of capitalism is favoring companies with a social focus.
As consumers, we can choose to support social enterprises that battle inequalities or donate our money, time, or services to nonprofits that support a safer, healthier planet for all.
Additional Resources & Links Mentioned from the Episode:
Content Manager & Writer, Grow Ensemble
Jacqueline is a mission-driven freelance writer living in Nashville, TN. She graduated from Dickinson College with a degree in Environmental Studies and a certificate in Social Innovation & Entrepreneurship. Prior to being a freelancer, she worked in the nonprofit world in Washington D.C. for Ashoka and the National Building Museum.
Jacqueline enjoys hiking with her rescue dog, finding craft breweries, and traveling the globe in search of plant-based eats.