Why Some People Prefer the Social Enterprise Model over the NGO/Nonprofit Model

“Scratch any cynic and you will find a disappointed idealist.”

― George Carlin

“White cat or black cat, as long as it catches the rat.”

– Deng Xiaoping

“The triumph of anything is a matter of organization.”

– Kurt Vonnegut

There is a very strong appeal for people to say that they founded or work at a nonprofit. It is the sense of pride and joy in feeling like you are doing something greater than yourself or a personal profit motive. 

For many, it is a goal to make a big impact and live modestly while making a difference, and for others, especially concerned parents or contrarian types, they see idealists as fools. The latter group believes that money makes the world go round–and they aren’t wrong! The problem with this is that they also don’t realize that revolutions happen because of dreamers and idealists. 

When some people who are skeptical of the nonprofit model think of idealists working in middle management or lower positions, they see them as oppressed laborers who are being led by silly idealism and daydreams, having failed to see that they are being overworked and taken advantage of while at the top of an organization, a CEO or chairman could be earning six figures, all while laughing about the tax deductions their firm makes. 

Obviously, the nonprofit and NGO model has its benefits and disadvantages, but this is more of an issue of competing frameworks and a values test of the profit-minded individuals versus the idealists. However, being profit-minded and an idealist interested in serving others doesn’t have to be mutually exclusive. 

The good marriage of heaven and hell can be found in the practice of social enterprise: business with a conscience, and so much more. In spite of tax deductions and benefits for both those running a 501(c)3 and those donating to one, the limitations of strict bookkeeping, reporting, and filing to maintain 501(c)3 status are some of the structural obstacles that turn people off to this model and pursue the social enterprise framework instead. In addition, there’s also the common association of the nonprofit being a scam, which is a view held by jaded and experienced people who have seen people gain 501(c)3 status and then not only raise a lot of funding, but mysteriously disappear when they are scrutinized on the status of their proposed projects. 

Cambodia is one such country that has many of these skeptics due to many individuals (often the same group) starting a new project–often an orphanage–and then using the image of marginalized individuals to tug the right heartstrings that in turn loosen a generous and kind individual’s pursestrings. When an emotional appeal is made, one doesn’t even need to officially have 501(c)3 status, but by winning public support, they can quickly attempt to translate that to getting the right paperwork done for 501(c)3 status. Time and again, projects focused on the plight of those struggling creates an urgency and in turn, publicity and funding, regardless of integrity. As a result of these fraudulent individuals exploiting locals and the system to their advantage, even using it to launder money, skepticism is understandably high, which is why the social enterprise model becomes more appealing.

Walk around some places in Cambodia’s Siem Reap, Battambang, and Phnom Penh, and you will find some social enterprises proudly and openly stating on signs, menus, and paperwork that they are a social enterprise, not an NGO, and explaining how a social enterprise works.

In addition to avoiding the stigma of NGOs, the freedom and discipline of following the social enterprise framework is the ability to not only focus on stakeholders the way a nonprofit does, but on shareholders as well, which means you can make a difference in the world and make a killing at the bank at the same time, with your conscience completely clear.

By not having strict requirements for filing and maintaining 501(c)3 status, there is more control and the ability to adjust as potential profits begin to scale, and in turn, increase the scope of the social enterprise. For example: a small project dedicated to helping a small community of women with literacy, basic life skills such as accounting and basic computer literacy, restaurant hospitality, and management can grow beyond just a community and turn into a region and eventually nation-wide project, and even worldwide. This is the potential for scaling and growing the business while opening doors to potentially serve more simultaneously. 

The downside, of course, is that with more profit comes more taxes–a social enterprise maintains financial freedom without tax write-offs, which can mean that it may end up being more discipline and paperwork to make both shareholders and stakeholders happy while maintaining the integrity of their cause. In other words: you avoid the paperwork and scrutiny of the IRS by using a social enterprise model, losing the tax exemption benefits but gaining financial freedom and control, but you may potentially end up filing more paperwork to balance your budget and operating expenses anyway. In spite of this, many people prefer the price of freedom and think the cost of stigma or governmental scrutiny isn’t worth it. 

If you find that attaining 501(c)3 status is daunting, you can always try the social enterprise model and get help from other entrepreneurs, both social and conventional, while allowing your own project and organization to evolve, grow, and adapt as necessary.