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Keeping it Straight: Social Business vs. NGO

The blurred line between a social business and a non-governmental organization (NGO): How to establish your value

Social business is still very young as a phenomenon. That is a reason and a consequence for why such businesses encounter obstacles in profitability. In the environment of social entrepreneurship, it is commonly noticed that they are indeed little different from non-governmental organizations (NGO)– and that shall be the primary mistake. The division between an NGO and a social business should be defined very clearly, however, it is quite different from the current reality. How come?

The main confusion is established with the legal status. Sometimes, NGOs claim to be social businesses, and social businesses claim to be not-for-profits. "Sadly, the terms are often interchanged and misused depending on the situation– picking whichever one is more convenient in a certain setting," claims Simona Simulyte, an expert-advisor for many successful social businesses as a part of C’MON (ChangeMakers’ON). Such status confusion, for a social enterprise, immediately diminishes one as "not a business" and is unattractive for investors. Therefore, the income is bound to be a donation and grant-oriented.

"As of currently, more and more classic businesses are becoming bigger, often social mission-oriented," claims Simona. "The division between a social and traditional business is reducing–therefore it's getting increasingly important for social entrepreneurs to start considering themselves as businessmen and businesswomen that create additional value to the public and environment. A clear business model is what's appealing to the investors."

To set a clear division between NGOs and social businesses, social entrepreneurs should focus on selling their problem-solving product, rather than the term "social business" itself. That could clear up the current misuse of the terms. To set the record straight:

  • A non-governmental organization is a not-for-profit organization with a social mission in mind.

  • A social business generates revenue from commercial activities (sales), while the profit is oriented for public or community well-being, rather than shareholder-directed.

Let's take the cleaning of the ocean as an example: if one is directly taking action in that, it's an NGO. If, for instance, you create a product from the materials extracted from an ocean clean-up, then you're a social business. A business mindset is "what can I make from this material?" When a product is created, a business model follows.

"If one wants to solve a social problem, if there's a wish to take responsibility for a change in the community for the sake of common well-being in the future–then simply go ahead and do so. Create a sustainable, profitable business model and watch the queue of like-minded people about to join you." encourages the expert.


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Erasmus Plus KA2 Cooperation for innovation and the exchange of good practices

Project No: 2020-1-DE02-KA202-007564

Project title: Collaborate learning of alternative finances and funding for social entrepreneurs

The European Commission support for the production of this publication does not constitute an endorsement of the contents, which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

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