Entrepreneurship Explained: Nonprofits, For-Profits, and Social Ventures

Updated: Dec 2, 2021



There are many ways to use entrepreneurship to make the world a better place. Our organization Charity Entrepreneurship focuses on the founding of new charities. But why charities and not social ventures or for-profit ventures? In this post, we explain some of the differences between these areas, why we focus on charities, and what to consider when assessing your personal fit for each of the options.


Comparison chart

Title

Charity entrepreneurship

Social entrepreneurship

For-profit entrepreneurship

Definition

The founding of charitable and NGO organizations.

The founding of projects that both cause good in the world and financially sustain themselves

The founding of projects geared towards making an income

Bottom line

Impact

Double bottom line of profit and impact

Profit

Revenue structure

Donations

Sales or a mix of sales and donations

Sales and income

Examples

Against Malaria Foundation, The Humane League

Wave, Living Goods

Google, 23andMe

Unique strengths

- Can help beneficiaries with low or no income

- Can partner with governments

- More neglected

- Can focus model solely on impact

- Historically has created huge amounts of impact.

- Can offset the costs of soliciting donations allowing a donation to go further

- Some opportunities can be run much like a for-profit but with extraflow-through benefits(e.g. Wave)

- Gives a lot of flexibility in revenue structures

- Often easier to gain traction compared to nonprofits

- Can grow to truly extreme sizes

- Can cause massively increased spending and focus on key areas

- Does not take money from the charity sector

- Success is easier to measure

- Profits can be donated to make a direct impact

Unique weaknesses

- Has to fundraise to create impact

- More limited scale

- Disconnect between funders and beneficiaries

- More challenging monitoring and evaluation

- Can have a divided focus making it hard to compete on impact or profit metrics

- More limited pool of investors

- Mixed track record (e.g. microloans)

- Complex tax structures depending on the country

- Can typically only focus on creation of products that individuals with income want to buy

- Highly competitive space compared to others

- Higher risk of value drift

Unique personal fit elements

- Have to think about measuring impact far more

- Have to be motivated by helping others instead of personal benefit

- Ideally have a broader understanding of both nonprofit and for-profit norms

- Need to have a strong ability to make trade- offs

- Requires strong communications skills

- Have to be comfortable moving fast and lean

Our overall views on impact


Our goal is to have the biggest impact with our time so the most important difference between these areas is the possible and average impact for each area.


Charity entrepreneurship


Confidence: Our confidence for this area is much higher than the others. We have made explicit and detailed models as well as spoken to many people in the area about how to execute impactful projects in this space. We also know a number of impact-focused individuals aiming to make an impact in this space. Average: The average impact of a founded charity could be very low or even net negative. Unfortunately, money fundraised for one charity typically means funds are redirected away from another charitable organization so if a new project that is started is less impactful than what its donors would have given to otherwise, it could easily be net negative. Top founders: We have modeled the impact of charities founded via the CE program which is highly competitive and aims only to found highly impactful charities. Our best estimate suggests that the average founder creates as much value for the world as about ~$200k of donations to the most impactful charities in their space. However, this number has considerable range with our top founders creating 5x that value in impact. Overall: Overall, we think the bar set for impact by projects going through the CE program is very high relative to most other career paths, including others in the entrepreneurship path. However, we do think there are a few other careers both within and outside of the entrepreneurship space that can equal it in impact and thus could be a better choice depending on personal fit.


For-profit entrepreneurship


Confidence: Our team has far less experience in this area. However, the estimates for impact are comparatively easier to calculate as impact is primarily achieved through donations which can be broken down as earnings and donation percentages. 80,000 Hours and Founders Pledge have both considered the impact in this area and created some relevant resources. Overall, this is the area we are second most confident in speaking about. Average: The amount of earnings in this career is extremely power-lawed with the average US tech entrepreneur earning about 18% more than similar people who remain in salaried jobs. With this estimate in mind, going down this path while maintaining a donation pledge (such as 10%) is a solid way of having an impact. Our best guess is that starting an average for-profit and donating is more impactful than starting an average nonprofit. Top founders: 80,000 Hours found that people who have received venture capital funding or entered Y Combinator have on average earned millions of dollars per year. One complexity is that these earnings typically occur from increases in the value of the stake in the company which often has restrictions around how it can be sold/used as opposed to donatable cash in hand. Depending on donation percentage this could compete with being a top CE founder if the donation percentages are high such as 50% donations. Overall: We think this is a strong career path for those interested in entrepreneurship but either do not get into the CE program or have a better personal fit for for-profit entrepreneurship. We do have concerns about value drift in this career path so think it is vital to be an active member in communities focused on doing good while pursuing this path.


Social entrepreneurship


Notes: Social entrepreneurship has likely the messiest definition with some definitions including many charitable projects and some including a small number. Depending on the type of social entrepreneurship, our current sense of its impact varies greatly. To talk about its impact, we are going to break social entrepreneurship into two types: flow-through effect social entrepreneurship and double bottom line social entrepreneurship. Confidence: Our confidence on the impact for both of these areas is lower as we have seen fewer examples of social entrepreneurship. Additionally, Charity Entrepreneurship and the EA movement we are a part of have done less research on the topic. Flow-through effects of social entrepreneurship Definition: In many ways, social entrepreneurship is similar to for-profit entrepreneurship. However, the flow-through effects of the project have significant positive externalities. For example, starting a for-profit company targeting an under-served demographic such as emerging markets. Examples of this type of project include Wave, Upwork, and plant-based or clean meat companies. Each of these projects can compete from a for-profit perspective and if they succeed will create significant benefit outside of their revenue generated. Average: We expect that on average, successful founding of these projects would be more challenging than for-profit entrepreneurship as the flow-through effect consideration adds another factor to consider when founding. The impact of projects like these also occur more at scale meaning unsuccessful projects would likely only generate impact via the donations made by founders and employees in the meantime. Top founders: For top founders, we feel pretty optimistic but with low confidence about this type of social entrepreneurship. Our best estimate is that this option could be on par with other top entrepreneurship paths if (i) the project has significant positive flow-through effects, (ii) it gets into incubation programs like Y Combinator, and (iii) its founders donate ~25% of their earnings. Overall: We are cautiously optimistic about this type of entrepreneurship although think the band of people who would be a good personal fit for it is likely more narrow than nonprofit or for-profit entrepreneurship. Double bottom line social entrepreneurship Definition: This type of social entrepreneurship is quite different in that it generally could not be a successful model without donations and profits. Thus, it has to maximize a double bottom line of both profits and impact. Often these bottom lines will pull in different directions and require hard trade-offs. Examples of projects that look promising in this space include Living Goods. Average impact: We expect the average impact of projects like these to be quite limited and have seen many projects in this space struggle to gain traction and achieve impact. Top founders: Although we think some impact can be had from founding projects in this space, we generally do not see it as competitive with the other entrepreneurship options and would generally encourage people towards those paths. Overall: We are fairly pessimistic about this type of entrepreneurship. In summary Different kinds of entrepreneurship can be promising, and personal fit could incline someone towards any of them. All things considered, however, we think charity founding is a unique and under-considered option that can be the most impactful career path for someone who is the right fit.

If you’re interested in learning more about the different career paths within entrepreneurship, watch Joey’s talk and Q&A on Impactful Opportunities Around and Adjacent to Charity Entrepreneurship.