Non-profit + For-profit = Awesome Hybrid

As I was discussing in my last blog post, why is it that social entrepreneurial organizations that create a profit have difficultly acquiring funding from philanthropic groups? It seems that social entrepreneurs run into problems because they are in the middle of the for-profit non-profit spectrum. Foundations/trusts as well as companies don’t know how to categorize these organizations and therefore are reluctant to financially participate. Although unfortunate, I do understand their point of view. For example, investing companies want to show that they have social responsibility and they want to get a tax break. If they are use to the benefits from donating to non-profits, they may be reluctant to try donating to other models. Same goes for a foundation/trust, they may see that a for-profit company or a business-driven non-profit has social benefits, but how do they know they are not solely profit driven. After reading one of this week’s articles The Funding Gap (by MichaelChertok, Jeff Hamaoui, and Eliot Jamison), I was thrilled to learn about the non-profit/for-profit hybrid.

           

This article discusses why social entrepreneurial organizations have difficulty obtaining funding and how different non-profit/for-profit structures can relieve this issue. The non-profit/for-profit hybrid is a brilliant structure where there are two separate groups that work together to accomplish their shared mission. The overall benefit to the hybrid is that it is easier to obtain funding because the non-profit can seek donations from individuals and grants while benefiting from tax-exemption and the for-profit can seek investors. Plus, the for-profit can make tax-deductible donations to its non-profit.¹ I looked online for examples of these hybrids and was surprised by its popularity and success. Below is a specific example of a hybrid:

Parent Earth
The for-profit Parent Earth Inc. and the nonprofit Parent Earth Foundation have the same mission—to educate the public about healthy eating habits—but they perform different duties. From offices in New York City, the nonprofit produces educational videos about food, while the for-profit generates advertising revenue on ParentEarth.com and pursues sponsorship opportunities. With this structure, the for-profit will be able to sustain the nonprofit while it waits for grant funding.²

Many hybrids begin as either a non-profit or a for-profit and then create the other to pursue another goal/mission. A popular example of this is a for-profit company creating a non-profit organization to manage its philanthropy. Many companies have taken this approach due it its convenience and tax benefits. Examples of this are even in Pittsburgh. PNC, EQT and Heinz are just a few that have separate foundations to create grants for non-profits. Another popular situation is a non-profit (such as a museum or theater) creating a for-profit to sell merchandise. One of my personal favorite examples of this is the NYC’s Museum of Modern Art online store where they sell prints of their art works and specially designed products. You can even register here for your wedding!

The non-profit/for-profit hybrid model is relatively new, but growing in popularity as well as evolving. New structures keep emerging and I believe that hybrids are going to become more and more standard especially for non-profits who wish to create a new sustainable revenue.

1) Chertok, Michael, Jeff Hamaoui, and Eliot Jamison. "The Funding Gap." 90-811:  Foundations of Social Innovations and Enterprise Course Packet (2012): n. pag.

2)"The Social Entrepreneurship Spectrum: Hybrids." Inc.com. N.p., n.d. Web. 27 Sept. 2012. <http://www.inc.com/magazine/20110501/the-social-entrepreneurship-spectrum-hybrids.html>.