By John Converse Townsend, Media Mobilizer at Ashoka Changemakers
One of this week’s most-shared stories was Stephanie Strom’s “Hybrid Model for Nonprofits Hits Snags”. The New York Times article described several prominent examples of the hybrid model of social enterprise: the marriage between for-profit businesses and nonprofit organizations.
Making the hybrid model work is tougher than one might think, as Strom explains:
"[T]he hybrid model for nonprofits is proving problematic. On occasion, the need to generate returns for investors overwhelms the social mission. In other cases, business falters altogether and cannot support the nonprofit."
One of the snags faced by dual-mission companies in The Times piece was restrictive legal structures. Some of the hybrids mentioned, for example GlobalGiving, had launched before new legal structures, such as LC3 and B Corporations, were available to better allow for double bottoms lines. So while new hybrid models now have greater freedom to pursue profit and impact, some still feel limited by “flawed” business models.
Within the traditional hybrid model, there are two potentially conflicting goals: making money and making impact. The tension between the two goals has forced several ventures to either split up or dissolve over the last two years. Investors have started to voice their concerns about hybrid partnerships and others are left wondering if the hybrid models are already on the way out.
I reached out to Valeria Budinich, Ashoka’s chief entrepreneur of the Full Economic Citizenship Initiative (FEC), to get the input of someone with plenty of experience running successful hybrid models. (She was nice enough to take my call on a train to New York.) First and foremost, explained Budinich, citizen sector organizations (CSO) and for-profit ventures must focus on creating real, lasting social and economic value in order to work together effectively.
There is a way to overcome legal restrictions, clashing impact strategies, and limitations to progress. There is an innovative model taking advantage of the best the for-profit and nonprofit worlds have to offer. The answer is hybrid value chains (HVCs): a framework for capitalizing on those complementary strengths and using the resulting synergies to increase benefits and lower costs. The HVC approach a little bit different and “three steps ahead” of classic corporate-social partnerships. At its core, this innovative concept is about changing the nature of long-term transactions.
“The hybrid value chain is a much more clear and compelling way of building a hybrid,” clarified Budinich. “The important part is to keep every stakeholder and actor doing what they do best, to focus on the reasons they exist. A company’s mission is to generate profits; a nonprofit must generate impact. The two shouldn’t mix. And the way not to mix them is to create hybrid value chains.
HVCs operate by replacing using or leveraging philanthropic capital to enable more inclusive, competitive and equitable markets for all. As a result, entrepreneurs and for-profit companies are able to gain a competitive advantage by operating within lower-cost structures and with greater access to new, larger economies. Ashoka’s new hybrid model represents systemic change in the ways businesses and CSO interact. They redefine value so that all stakeholders willingly accept the risks and rewards of working toward profits as well as human progress.
As described in an article published in the Harvard Business Review last month, the housing industry represents a major opportunity for both sustainable impact and profits for developers. In India, Ashoka is working with mortgage companies, for-profit housing developers, and local CSO to create a thriving housing market to address the country’s climbing housing deficit – estimated at 24.7 million homes, perhaps the largest potential housing market on the planet.
The hybrid collaboration was designed to delivering affordable apartments to a growing number of “informal” workers, who have reliable sources of income, but lack proof of stability and thus are ineligible for mortgage loans. Through the HVC construct, Indian CSO can bring groups of potential customers to for-profit developers or as full design and investment partners. Already, almost 3,000 homes have been built, with an additional 7,500 promised over the next 18 months, representing more than $100 million in total sales. This HVC managed to unlock the potential of a billion-dollar housing market while serving a local workforce who would otherwise be forced to live in slums and squatter cities.
The case highlighted above is not unique. Around the world, HVCs are enabling socially-conscious for-profit businesses and motivated CSOs to deliver products and services that neither partner could provide on its own. By transforming industries – and even unlocking new ones – HVCs reduce poverty, unlock wealth, and prove that you can do well by doing good.
Photo courtesy of yoyolabellut Flickr
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