Improving the Hybrid Model: Less Integration

In a piece from the Stanford Social Innovation Review entitled, “the Funding Gap,” we are introduced to the hybrid social venture. According to the article, social entrepreneurs choose to build their ventures as hybrids (two coordinated organizations—one for-profit and the other not-for-profit) in order to give themselves access to both philanthropic and commercial capital. The article underscores some of the pitfalls of the hybrid model, but does not delve into the intricacies of the model’s shortcomings. A recently-published article from the New York Times that has already been referenced by a fellow blogger this week, entitled, “Hybrid Model for Nonprofits Hits Snags”, offers several examples of recently formed hybrid ventures that have encountered difficulty and points to reasons why the hybrid nonprofits it offers as examples have struggled. Two of the hybrid ventures it discusses, the partnership between a charitable foundation, GlobalGiving, and a private company, ManyFutures, and a similar partnership between a nonprofit that supports artisans worldwide and a private company that connects artisans around the world with retailers, encountered trouble because the private arms of their partnerships could not generate returns for investors. Based on this article from the Times and the piece from the Stanford Review, the inability of the private partner in a hybrid social venture to take off and thereby provide a strong source of funding to its nonprofit affiliate seems to be a common problem.

When the private partner of a hybrid venture encounters financial difficulty, it may entirely fold, or be taken over by a larger private firm. Under either one of these scenarios, it is extricated from its nonprofit partner, leaving this latter entity in the lurch. How can the hybrid model be improved so that hiccups by the private partner of a hybrid social enterprise do not spell doom for the entire venture? Perhaps if the two partners were not entirely integrated, the model would be more successful. The partners in the hybrid ventures we read about in this week’s readings shared common boards of directors and operational structures. When this is the case, the two partners have no option but to share a common fate. What if, however, a hybrid venture was established with discrete boards and systems of operation? Sure, if the private partner failed, the nonprofit partner would still take a major funding hit and face the question of how to raise capital independently. Its owners and operators, however, would not be financially bereft and demoralized after just having lost a good portion of their assets. They therefore would most likely still possess the resources and the wherewithal to stay afloat. Perhaps, then, the best practice for hybrid partners is cooperation rather than integration.

For two entities to form separately, but concurrently, with an agreement to cooperate and share assets would be challenging. It would require constant communication between the partners and a strong sense of common mission. I would be interested to explore the extent to which something like this has been attempted.