Are social enterprises more effective than non-profits in solving the world's problems?
I was sitting down with a friend who is a seasoned sales executive and conversation turned to high-and-mighty topics of solving the world's problems. He began talking about how the water problems in some third-world countries are 100% solvable but have not been because of a lack of execution on the part of the organizations on the ground there--despite a steady stream of funding and numerous NGO's, non-profits, and government initiatives trying to solve the problems for decades.
He went on to maintain that for-profit "social enterprises" are better positioned to solve the world's problems because they have built-in, rigid accountability through stakeholders and must drive innovation to stay competitive.
Non-profits, on the other hand (he maintained) are usually behind the curve in seeking innovative solutions and have accountability that inhibits growth rather than spurs it.
I'm not so sure... What do you think?
Good Answers (7)
I would agree with your friend in saying "that for-profits are better positioned to solve the world's problems", however, I believe external factors have been recently altering those decades of history. For instance, the current financial meltdown gives us a chance to create a better story, one that is not just about accumulating wealth, but about community and public service; taking advantage of this are industry non-profits, adopting for-profit management models in hopes of sharing these advantages to include innovation for improvements in products and services. In the midst of this are threats to nonprofits such as losing out on government contracts to for-profits based on their strength over non-profits in business efficiencies. At the end of the day, aligning financial issues (typically prioritized by for-profits) together with mission issues (typically prioritized by non-profits) would be the ideal solution to "solving the world's problems".
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Dave M
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I lean toward your friends perspective. It is the same perspective I have toward government programs.
I do take issue, the growth comment, though. The accountability doens't inhibit growth. There is, in both non-profits and goverment, a drive for increased spending. This results in the spending sprees we see toward the end of fiscal years to spend up to their budgets. What the money is spent on is less important than it being spent because if it is not, the organization will be faced with lower budgets for the following year.
To be balanced, that is the cost side of the equation only. I think non-profits tend to handle the human side better than for-profit organizations.
And, lastly, there are efforts needed for objectives where profit can't be made and only a goverment or non-profit would get involved.
Richard M
Advisor to funders, philanthropists, and foundations; lecturer about and professor of philanthropy
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As hybrid models and values based investment strategies expand, we are beginning to see how complex this question is. Even with something like mircro-lending, which has become one of the hottest trends around, it is clear that it works well in certain circumstances and not so in others [see articles in such places as the Stanford S I Review].
I would say, though, that the largest difference is access to capital to scale up. True start-ups which are primarily social benefit oriented can often get started with little capital and test out ideas. There isn't an automatic advantage to the for- or non-profit side. But for-profit organizations have historically had easier access to capital to scale up such innovative efforts when the time comes for mezzanine growth. Whether that historic advantage still applies in this economic environment is less clear.
I am less persuaded that there is consistently greater accountability among either of the sectors, especially in the current economic environment and the greater transparency of non profit governance.
Nelson D
Social entrepreneur and organizational engineer helping companies get organized by leveraging technology.
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As someone who is doing something in this space I do think that social entrepreneurship as the potential to be much more effective then non-profits.
To me the real difference is that social entrepreneurship involves using business principles to deliver change. I'm not sure if access to capital is really an advantage.
I think one of the advantages is that a social business can scale much more effectively than a non-profit.
If a non-profit wants to increase its impact it probably has to find more money. If a social business, depending on how its set up, wants to increase its impact it can find more customers.
That is only one reason why I think social entrepreneurship is a better way of deliver social change.
Judy B. M
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Social enterprises are living laboratories for social innovation. Where political will and the impetus for change or experimentation are lacking, a well- and privately funded not-for-profit is in a position to provoke public debate around issues long thought intractable and relegated to the back-burner. Fostering social innovation and its corollary, positive social change, by finding new ways to marry sophisticated business principles with socially responsible ventures has the potential to reshape longstanding institutions and is deserving of all the support it can muster.
Linda F
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T. J.
I think your friend has a good point. I've worked with both non profits and for profits. The 'for profits' I perceive as being most worth my while to pursue tend to be of the 'social enterprise' type, but probably don't think of themselves as such. I believe your friend hit the nail on the head when he pointed out the lack of innovation and narrow parameters non profits have to operate under.
I'm drawn to and continue working with the for profits when they have a clear idea of their boundaries and yet have a keen desire to make an impact. This should be the pursuit of non profits, yet as your friend pointed out, they don't tend to show the same flexibility or ability to move the way a for profit does.
I'm working on a new partnership with a company that is very much a 'social enterprise'. Previously I accomplished certain activities through non profits and we were very pleased with their results yet could have used more flexibility in their service. Alas these agencies no longer exist due to budget cuts.
I am mindful that the bottom line is a consideration for our new partner, that I must be willing to make some changes to maximize what this company can offer. I'm probably somewhat unique as a non profit provider in that my company does support flexibility in my delivery.
It's a concern that profit is a motive for this partner, yet I feel fairly confident we can both acheive our goals without sacrificing the end results. I wouldn't be pursuing it if I thought otherwise!
Cheers,
Linda
I'm going to flat out say,"Yes, I 100% agree with your friend." When philanthropic objectives are carried out by profit driven motives you end up with things actually getting done.
To support this I'll cite an example from a Non-profit that a close relative of mine is the director of. Said Non-profit was awarded $5,000 to implement a CRM solution to replace their outdated contact database. Low and behold a local contractor quoted them $5,000 to "custom build" a CRM solution. I pointed out to this relative that given the size of their organization (very small) it would be more cost effective to subscribe to Salesforce or another subscription based service for a fraction of that cost. My relative made the argument that if they "don't spend the money, they lose it." Awesome. Justification to spend MORE money on a LESS effective solution.
Is this really what Non-profit enterprises have come to? Spending $5,000 on a database when a better one can be had for ~$21/month (about what it would have cost my relative's Non-profit). Any for-profit enterprise would have been more cost conscious. The bureaucratic nuances that govern Non-profits are the very thing that make them inefficient/ineffective. An area where for-profit enterprises excel (most of the time).
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Kelly S
Registered Architect, Chief Creative Officer, Seminoff Architectural Ltd.
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I'm not sure that "for-profit" and "social enterprise" can coexist in one entity to solve the world's problems. Where profit is involved, it will always be the motivating force; and the world's poor, as a market, cannot supply adequate profits.
However, a social business (for example, as proposed by Muhammad Yunus) integrates the best of the business model (competition, innovation, efficiency, shareholders, access to capital) and the best of the NGO (desire to help) to solve problems. In this scenario, any profits realized go back into the business in order to help more people. The measure of success is not return on investment for the shareholders, but rather how many people are helped.
If this idea catches on the results could be really amazing.
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DAVE M
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Social enterprises tend to have more communication reach as far as folks are concerned... Combined with non-profits, you have the perfect situation to create positive change...
Keisha J
Owner, Keisha Jones
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The type of enterprise is not as important as the people at the top. To be accountable is to surround yourself with people of like mind that can not only help you get the job done, but can also do the job in your absence (better than you). True leaders are not worried about being one-upped, they are concerned about the enterprise being better than it was when it first started. It's all about the leadership.
Maarten R
For teaching (primary to third-stage education), training and consulting on citizenship, identity and diversity
I think most people here forget that businesses that are profit-based do not invest and target on many non-profit areas. One example, think about R&D on rare deceases. Pharmaceutics also want to profit and and therefore mostly invest on illnesses, infections and allergies, that are high on quantity. So maybe the profit-based firms can be very effective, but how about the areas that are not interesting when it comes to profit? I also can think off many instances where high effectiveness on profit doesn't have to mean effectiveness on philanthropist issues.
