One appeal of social enterprises is the idea that they are or can become self-sustaining compared to traditional nonprofits, which rely on ongoing donations for operations. I have heard it explained this way: you can give a man (or nonprofit) a fish, but they are only filled for a day and tomorrow may still be hungry. Is it not better to “invest” in a social enterprise, which is like teaching a man to fish for himself?
Please understand- SVG is a strong advocate of philanthropic effectiveness. At a basic level this means that philanthropic funds must be spent with accountability and transparency, towards the purpose it was intended. However, we as an organization have far higher standards for ourselves, our sponsors and our nonprofit partners. We want limited resources to achieve maximized effect toward addressing social problems and furthering human prosperity.
So for our clients, are social enterprises a superior way, a better investment for their hard-earned funds than traditional nonprofits? I argue, not necessarily!
For-profit entities are not “self-sustained;” they are sustained by their customers. Why do customers pay them? Because they offer products and services that they find valuable.
Conversely, nonprofits are not beggars. They also provide products and services to society that donors and sponsors want. These may be causes that donors and members of the community at large care very much about, but they lack the time, resources, abilities and/or experience to make impact themselves.
Nonprofits can actually become more sustainable as time goes on– that is, they are able to attract sufficient and even increasing amounts of funding and resources for their work. Similar to their for-profit counterparts, they do this through the continual development of quality products and services that donors and community stakeholders value, operational excellence, and effective marketing. It takes strong (and humble) leadership, talented staff with a common vision and culture, the right systems and processes, and not a little bit of luck (this latter item is also key at many for-profits as well).
Are all for-profits sustainable? Definitely not. The majority of for-profit start-ups fail. Also, the fact that a business generates revenue today does not automatically mean it will grow or maintain itself in the future.
Conversely, are nonprofits unsustainable? Sure, they will certainly die without sponsors, just as for-profits will die without customers. But can they also survive, grow, innovate and thrive for years and even decades? Absolutely!
Here’s my recommendation to donors who view nonprofits as somehow less deserving than social enterprises: Don’t just give small one-time donations to a nonprofit, while demanding that the funds all be used on the direct beneficiaries with minimal overhead costs. Help nonprofits to grow by investing in general operating support- unrestricted funding that is tied to building the capacity of the organization. If you can, mentor them. Volunteer for them. Introduce outside resources. Invest in their training and human capital. With improved governance, program design, management and operations, marketing and stakeholder relationships… nonprofits CAN and will become more sustainable. And in the process, they will effectively tackle and move the needle on society’s most pressing issues.
Contributed by Karen Liu