We recently chatted on Facebook about the different types of cause models. I wanted to take this opportunity to recap on the subject, because I know it’s of huge interest to our community!
So, what IS the difference between a not-for-profit, a charity, a social enterprise and a profit-for-purpose? Are they the same thing?
The short answer is no! Not at all!
You’re probably most familiar with not-for-profits and charities, which are terms that tend to be used interchangeably. But, here’s the thing: not all NFPs are charities, and not all charities are NFPs.
A not-for-profit organisation is one that doesn’t operate for the profit, personal gain or benefit of particular people, such as the members, the people who run it, or their friends or relatives. Despite what the name suggests, NFPs CAN make a profit – so long as the profit goes back into the programs and research associated with the organisation. To call yourself an NFP you need to be registered and have a legal structure around your organisation, just as if you were a Pty Ltd or a sole trader.
Charitable organisations have the same legal structure, but they differ from NFPs in that they totally rely on donations and grants, while an NFP doesn’t have to. Not-for-profits can be associations or foundations that are funded by companies or government bodies.
For instance, we work with the Bankwest Foundation, which is an NFP, but NOT a charity – for the simple reason that it’s run by Bankwest! On the other hand, traditional charities such as Cancer Council and Red Cross rely on donations and grants for their survival. Make sense?
Phew! Moving on …
Let’s talk social enterprises. According to Pro Bono, social enterprises are led by an economic, social, cultural, or environmental mission consistent with public or community benefit.
Typically, a social enterprise is an organisation that donates at least 25% of its profits to a good cause. Although I personally believe that social enterprises are the future of worthy causes here in Australia, there is a slight issue in that there is no specific legal structure around social enterprises. Quite simply, you’re a social enterprise when you choose to be one!
Because of this, it’s important that social enterprises offer a certain level of transparency. Because there’s no legal requirement for a social enterprise to show their inner workings, the more honest and open you can be about where your money is coming from and where it’s going, the more people are going to trust and support you.
Why do I love social enterprises? I love them because they’re a lot more sustainable. They don’t rely on grants and government funding, and have scalable, workable business models. In my experience, social enterprises can have much more of an impact than traditional, registered charities. Just look at Thankyou and Who Gives a Crap – they’re making a huge impact on a global scale.
Thankyou defines themselves as a social enterprise to end global poverty; 100% of their profits go to people in need. Thankyou are interesting because they fund their OWN charitable trust; rather than relying on donations and grants, every cent that they earn gets pumped into their own charitable trust. And it works: they’re having huge impact because they have a sustainable, growth-based business model.
Who Gives a Crap are similar, in that 50% of their profits go to charities who build toilets in the developing world. Because of their business model, they’ve been able to donate $1.2 million to sanitation products. That’s incredible!
Interestingly, just this week, Australia’s leading social enterprise development organisation, Social Traders, launched a certification mark for Australian social enterprises.
According to Pro Bono, this certification is designed to provide social enterprises with brand credibility, and enhance their prospects of winning commercial procurement contracts with business and government buyers.
Finally, I want to introduce you to the profit-for-purpose business model. That’s us! While a social enterprise gives a percentage of its profits to charity, a profit-for purpose ploughs all its profits back into the business in order to increase its impact. All the money goes back into funding projects and providing grants and offering free education to help more people.
As with social enterprises, there is no legal structure around the profit-for-purpose model, so transparency is all important. Zambrero is a great example of a profit-for-purpose: through their Plate to Plate initiative, their purpose is to provide opportunities for people in the developing world. The business is the means to achieving that income, rather than asking for money and donations.
Hancock Creative is also a profit-for-purpose. Although we don’t physically donate our profits to charities, we believe that our purpose is to build sustainability across the cause sector in Australia. All our revenue goes back into having a bigger impact!