Should You Start a Nonprofit or a Social Enterprise?

There are important things to consider when deciding whether to start a nonprofit or a social enterprise.

There are important things to consider when deciding whether to start a nonprofit or a social enterprise. Photo: Shutterstock

The rise of social enterprises has helped to make the world a slightly better place, as companies that care try to do good by the world around them, through partnerships, direct donations, or any number of other plans. But while they have contributed to the good in the world, they’ve also complicated the charitable field, though that’s not a bad thing.

When you’re thinking of ways to do good in the world, it can be tempting to think that starting a nonprofit is the only way to go. It’s not, though, and there are three important factors you must consider before going down that road.

First, is it already being done? If it is, that doesn’t mean you shouldn’t do it at all, but it means you should think carefully about whether to consider a partnership with existing nonprofits rather than launching your own enterprise. There is a lot of competition for limited funds, and grantmaking agencies like to see partnerships and cooperation among nonprofits in a certain geographic area.

Second, what value will the organization bring? Just as with any for-profit company, you need to determine your value proposition—what is it about your organization that will attract donors and clients? Some businesses may work better as for-profit companies with a strong ethical foundation or as social enterprises (low-profit limited liability companies or B-corporations, for example). Let the “why” control the “how,” not the other way around.

Finally, how are you going to support your organization financially? If your only fundraising tools include grant money or donor support, a nonprofit may be the best option. But if you have a product or service people will pay for, consider starting a social enterprise instead. As we said in the previous point, let the “why” drive the “how.” Your value proposition will help you determine which way to go and will help you be prepared for the special strategizing that comes with being a social entrepreneur.

If it turns out that a social enterprise works better for your business model and value proposition than a nonprofit, Fast Company has some great questions to ask before you get started.

Understand that social enterprises are designed to use the power of the market to address social challenges—so the first question to ask yourself is “What is the problem you’re trying to solve?”

Then, develop your business model and find ways to measure your impact. Figure out how you’re going to acquire the capital you need to get started and to grow—impact investing is a fairly hot thing right now, so there may be “angel investors” willing to provide startup funding for your enterprise. Then, plan how you’re going to tell your story and what corporate form your company is going to take. There are several options for social enterprise businesses that are not available to standard for-profit companies.

Whether you choose to start a nonprofit organization or a social enterprise, there’s a lot of thought that goes into determining which form to take and how best to make a positive impact in your community.

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