Across the road from Lena's bakery: Second Helpings is a kitchen that cooks free evening meals for people with no home. At lunchtime the same kitchen runs a small café for office workers at $6 a plate.
The café money pays the rent. Lena sells them her day-old bread at cost.
Lena's bakery
- Bakes, sells and pays rent.
- Exists to earn Lena a living.
Second Helpings
- Bakes, sells and pays rent.
- Exists to feed people, and sells lunches so that it can.
A business whose first aim is to do some social or environmental good, and which trades to pay for it, is a social enterprise. Its goal (its mission) comes before profit. It is not a charity living on donations alone: it runs like a business, with customers, prices and costs, so that the mission does not depend on somebody else's generosity.
Lena's bakery
- Aim: a living for Lena, so profit comes first.
- Money comes from selling bread.
- The profit is Lena's to keep.
Second Helpings
- Aim: feed people who cannot pay. The mission comes first.
- Money comes from the lunchtime café, plus donations.
- Any surplus goes back into the kitchen: more meals, a second fridge.
A collecting tin
- Aim: the same good cause.
- Money comes only from what people choose to give.
- No trading, so when the giving stops, so does the work.
Four features of a social enterprise
- A clear public mission: it exists to do some social good.
- It trades like a business to raise the money that covers its costs.
- Mostly not for profit, or, if it is for profit, it keeps most of what it earns for the mission.
- It treats people fairly along the way, in who it hires and how it pays them (socially progressive).
Watch what happens to the money. Last year the café at Second Helpings took $4 000 more than it cost to run. In Lena's bakery that $4 000 would be Lena's. At Second Helpings it bought a second fridge and two hundred more evening meals. Surplus put back into the mission (reinvested) is the clearest sign you are looking at a social enterprise.
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Clearwater makes reusable water bottles. Every bottle sold pays for a week of clean water in a village that has none.
Where Clearwater's money goes
- Clearwater is a company with shareholders, and it makes a profit.
- A small part of that profit is paid to the shareholders.
- Most of it goes to the wells.
It is a for-profit social enterprise: the mission comes first, but the business earns a profit, and some of that profit may go to the owners.
Three kinds of for-profit social enterprise
A private sector company
Owned by private shareholders, like the companies in 1.2.3, but set up around a social aim. Clearwater sells bottles to fund wells. Most of the profit is reinvested in the mission; a share may go to the owners.
A public sector company
Owned by the government and run to provide a service people need: the city bus company, the post office, a state water company. It charges fares or bills to cover its costs. Any surplus goes back into the service or to the state, not to private owners.
A cooperative
Owned and run by its members, the customers or the workers, as in 1.2.4. The surplus is shared among the members or put back into the business. A cooperative counts as a social enterprise because it exists to serve its members, not outside investors.
The bus that loses money on purpose: The city bus company runs the 7 a.m. bus to the hospital even though only nine people ride it. A private company would cut the route. The bus company keeps it because getting nurses to work is the point, and the busy city-centre routes cover the loss.
A public sector company: That is a public sector company: a business, with fares and costs, run for a social reason.
Why choose the for-profit form rather than live on donations? Because a company has its own legal identity, so its owners have limited liability (1.2.3), and because sales are steadier than gifts. Clearwater knows roughly how many bottles it will sell next month. A kitchen that depends on donations does not know what next month's post will bring.
Advantages of the for-profit form: It is more sustainable than a non-profit that must rely on grants and donations alone: the money comes from customers, month after month.
It has its own legal identity, so the owners have limited liability. It has a strong community identity: people buy the bottle because of the well. And the community it serves benefits directly.
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Who owns Second Helpings?: Nobody, in the sense that matters. There are no shareholders and no member who takes a share of the surplus.
How Second Helpings is run and paid for
- A board of five unpaid trustees is responsible for it.
- It has a written charter saying what it is for.
- It is registered as a charity.
- The café covers the rent.
- Donations, a grant from a foundation and forty volunteers cover the rest.
An organisation like this, set up for a social, environmental or humanitarian purpose, not owned by the government and not run for anyone's profit, is a non-governmental organization (NGO). Some are local, like Second Helpings. Some work across the world, like an international aid agency. A charity is an NGO that has registered for that legal status, which usually means it pays less tax and can collect donations more easily.
What makes an NGO an NGO
- Not for profit. Any surplus goes back into the purpose; nobody takes a share.
- Independent of government. Not owned or run by the state, even if it sometimes receives a state grant.
- A clear purpose. To meet a need, raise awareness of an issue, or change what governments do.
- Funded by donations, grants and fundraising, often with some trading on top, like the café.
- A formal structure. A board of trustees or directors, and a constitution or charter.
- Often run with volunteers, which keeps costs down and ties it to its community.
| What it is for | Who owns it | Where the surplus goes | Main money | |
|---|---|---|---|---|
| Private sector company (Clearwater) | A social aim, run as a company | Private shareholders | Mostly back into the mission; some to the owners | Sales |
| Public sector company (the city buses) | A service people need | The government | Back into the service or to the state | Fares and bills, topped up by the state |
| Cooperative (1.2.4) | Serving its members | The members | Shared among members or reinvested | Sales to members and others |
| NGO or charity (Second Helpings) | A social, environmental or humanitarian purpose | Nobody; trustees are responsible | All of it back into the purpose | Donations, grants, fundraising, some trading |
What an NGO is not: It is not part of the government, even when the government gives it money. It is not a business run for its owners: there are no owners to pay. And it does not keep profit for anyone, because there is nobody to keep it for.
Nor is it a collecting tin: Second Helpings has a board, a charter, accounts and a café. A non-profit is still an organisation with money to manage.
The weak point is the money. If the foundation ends its grant, Second Helpings cooks fewer meals, however much the meals are needed. That is why many non-profits add a little trading, and why some social entrepreneurs choose the for-profit form from the start.
How this comes up: Short questions on a case whose business is a social enterprise, two marks each. Then a long question on the same case.
The short questions
- State two features of a social enterprise.
- State two features of a non-governmental organization.
- State two advantages of operating as a for-profit social enterprise.
The long question: It asks you to weigh the rewards of running the social enterprise against its challenges.
Rewards
- The good it does.
- The pride of growing it.
Challenges
- Thin margins.
- Money that depends on donors.
The two-mark pattern
- Name one feature. Not for profit.
- Name a second, different feature. Independent of government.
- Stop. Two features, a few words each. There is nothing to explain and no example to give.
The trap: an example instead of a feature: 'Greenpeace' is the name of an NGO, not a feature of one. 'They do good things for people' is a feeling, not a feature. Neither earns a mark.
Three answers that are simply wrong: 'Part of the private sector', 'they pay taxes', 'they keep all the profits': these score nothing because they are wrong. An NGO is not a business run for owners, and it has no profit to keep.
State two features of a non-governmental organization (NGO).
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