Annoyingly enough, few people agree on the answer.
Here are the two classic approaches:
A non-profit that does ‘business stuff’ to fund itself.
A for-profit business that cares about its social and environmental impact.
These old-fashioned approaches are usually tied to the organisation’s history.
Non-profits have a lot of experience working with communities, getting grants, finding volunteers, and all that 'non-business' stuff. Pure for-profit businesses on the other hand are great at selling things, building products, and optimising delivery.
Often, each model doesn’t lend itself well to the other.
There is, however, a better way...
Social enterprise from the ground up.
These days, a good social enterprise is started from scratch to complete both a social impact mission and a financial mission, without compromising on either goal.
Making money and doing good is baked into the very structure of the beast.
Either way, it’s a very difficult thing to pull off, because a good social enterprise does all the difficult stuff of business on top of all the hard stuff of a non-profit.
In that way, it’s surprisingly similar to starting a technology startup.
Want some examples?
Who Gives a Crap is a for-profit product business that donates half of their profit to partners like WaterAid that build toilets in the developing world. They also build environmentally friendly efficiencies into their product.
Thankyou Water is a product business owned by a non-profit entity that donates 100% of profits to water projects in the developing world.
The Big Issue is a non-profit organisation that uses business mechanisms (sale of a product) to support its non-profit activities.
There are as many models of social enterprise as there are in business, including a whole bunch that haven't been invented yet.
What ties them all together is that they are impact and business driven at the same time, with compromising on either goal.
Like most entrepreneurship things, the best way to learn is to have a crack.