HYBRID FOR PROFIT AND NON PROFIT MODELS

PowerPoint for lecture on creating and operating a hybrid for profit and non profit organization. Presented at GES 2008

1. HYBRID FOR-PROFIT HYBRID FOR-PROFIT
AND NON-PROFIT AND NON-PROFIT
MODELSMODELS
Blended Value for Social ChangeBlended Value for Social Change
Patrick O’HeffernanPatrick O’Heffernan
Global Engagement Conference, 2009Global Engagement Conference, 2009

2. Workshop Process Workshop Process
An exchange, An exchange,
not a transmission, not a transmission,
of wisdom.of wisdom.

3. The hybrid’s dilemmaThe hybrid’s dilemma
Question now, answer laterQuestion now, answer later

4. What is a hybrid?What is a hybrid?
A hybrid organization tightly integrates A hybrid organization tightly integrates
a non-profit (NPO) and a for-profit a non-profit (NPO) and a for-profit
(FP) unit into one organization. (Virtue (FP) unit into one organization. (Virtue
Ventures)…Ventures)…but this covers a lot of but this covers a lot of
ground and there is no agreement.ground and there is no agreement.

5. The Mission Spectrum The Mission Spectrum

6. How NPOs and FPOs differHow NPOs and FPOs differ
•A FPO seeks profit for its owners/shareholders. The business A FPO seeks profit for its owners/shareholders. The business
pays taxes on its profit. pays taxes on its profit.
•A NPO operates with a mission to benefit the community. It A NPO operates with a mission to benefit the community. It
does not pay taxes, but it must use its funds for its mission. does not pay taxes, but it must use its funds for its mission.
•NPO’s can and do make a profit, but they must be used for NPO’s can and do make a profit, but they must be used for
operations or granted to other NPOS. operations or granted to other NPOS.
•FPOs can work to benefit the community, but they must make a FPOs can work to benefit the community, but they must make a
profit eventually.profit eventually.
•When a FPO goes out of business, its assets are distributed to When a FPO goes out of business, its assets are distributed to
the owners/shareholders. When a NPO goes out of business, its the owners/shareholders. When a NPO goes out of business, its
assets must be given to another nonprofit. assets must be given to another nonprofit.

7. Hybrids?Hybrids?
•Non-profit with income generating activities Non-profit with income generating activities
(most hospitals)(most hospitals)
•A social enterprise - a business created for a A social enterprise - a business created for a
social purpose social purpose (World of Good)(World of Good)
•Socially responsible business Socially responsible business (Green Mountain Coffee)(Green Mountain Coffee)
•Corporation practicing social responsibilityCorporation practicing social responsibility
(Marriot hotels)(Marriot hotels)

8. You tell meYou tell me
are these hybrids?are these hybrids?
•Banco CompartamosBanco Compartamos
•Ben & Jerry’s Ice CreamBen & Jerry’s Ice Cream
•Aveda cosmeticsAveda cosmetics
•GreenWorks division of GreenWorks division of
CloroxClorox

9. Creating your hybridCreating your hybrid

10. Advantages of hybridsAdvantages of hybrids
•Better financial stability – control your destinyBetter financial stability – control your destiny
•Freedom from funding constraints - no tied grantsFreedom from funding constraints - no tied grants
•Ability to plow profits back into the missionAbility to plow profits back into the mission
•Ability to pay real salaries and benefitsAbility to pay real salaries and benefits
•Ability to access private capital – much more plentiful Ability to access private capital – much more plentiful
than grantsthan grants
•Never have to beg for money (well, almost never)Never have to beg for money (well, almost never)

11. Drawbacks of a hybridDrawbacks of a hybrid
•Competition is not in most NPO leaders bloodCompetition is not in most NPO leaders blood
•Skillsets and mindsets are very differentSkillsets and mindsets are very different
•Pay taxes on profit incomePay taxes on profit income
•Mission can take over the business and go out of Mission can take over the business and go out of
businessbusiness
•Non-hybrids can enter the same business and Non-hybrids can enter the same business and
underprice and outcompeteunderprice and outcompete

12. The L3C legal modelThe L3C legal model
•Vermont legislation creating a Low Profit Limited Vermont legislation creating a Low Profit Limited
Liability Corporation (like a B corp, not same)Liability Corporation (like a B corp, not same)
•Attracts capital from foundations and investorsAttracts capital from foundations and investors
•Requires charitable/educational purposeRequires charitable/educational purpose
•Main mission is NOT income or value increaseMain mission is NOT income or value increase
•No politics allowedNo politics allowed
•Must identify itself as a L3cMust identify itself as a L3c
•Can operate in any state; HQ must be in VermontCan operate in any state; HQ must be in Vermont

13. L3C continuedL3C continued
•Hybrids often cannot offer ROI sufficient for Hybrids often cannot offer ROI sufficient for
most investorsmost investors
•Need 3(c) money to get startedNeed 3(c) money to get started
•Allows for some private capital, some patient Allows for some private capital, some patient
money (grants) and social investors who can money (grants) and social investors who can
take a a lower profit margintake a a lower profit margin
•Encourages PRI funds from foundationsEncourages PRI funds from foundations

14. Louisiana State Office Louisiana State Office
of Social Entrepreneurshipof Social Entrepreneurship
•New office; still figuring out its operationsNew office; still figuring out its operations
•Set up to encourage hybrids – businesses and/or Set up to encourage hybrids – businesses and/or
NPOs that work across sectors for sustainabilityNPOs that work across sectors for sustainability
•Offers networking, training; no cash as yetOffers networking, training; no cash as yet
•Helps with access to fundsHelps with access to funds
•Assembling a public-private social innovation Assembling a public-private social innovation
fundfund

15. Hybrid FormsHybrid Forms
•NPO converts to an FPO NPO converts to an FPO
•NPO and FPO together NPO and FPO together
•FPO operates as an L3C or similar low profit, FPO operates as an L3C or similar low profit,
high mission businesshigh mission business
•NPO creates an FPO - FPO funds the NPONPO creates an FPO - FPO funds the NPO

16. How to decide which formHow to decide which form
•The for-profit aspect of your organization The for-profit aspect of your organization
should extend the NPO mission should extend the NPO mission
•Creating a hybrid for a for profit structure Creating a hybrid for a for profit structure
should reduce the pressure to raise moneyshould reduce the pressure to raise money
•The hybrid/for profit structure shouldn't require The hybrid/for profit structure shouldn't require
an expensive infrastructure an expensive infrastructure
•Financial failure shouldn’t undermine the NPO Financial failure shouldn’t undermine the NPO
missionmission

17. Models and examplesModels and examples
•World of GoodWorld of Good
•The Body ShopThe Body Shop
•InTheStudio podcastingInTheStudio podcasting
•Neuman’s OwnNeuman’s Own
•WorkingAssets/Credo MobileWorkingAssets/Credo Mobile
•Play RugbyPlay Rugby
•Empowerment Group GatewayEmpowerment Group Gateway
•Others – your experienceOthers – your experience

18. Play Rugby hybrid Play Rugby hybrid

19. Getting startedGetting started
•Due diligence: careful researchDue diligence: careful research
–

What business willyou be in

What business willyou be in
–

Who is yourmarket

Who is yourmarket
–

Where willyourcapitalcome from

Where willyourcapitalcome from
–

Howwillyou operate

Howwillyou operate
–

Whyis a hybrid idealand not a SRCor NPO

Whyis a hybrid idealand not a SRCor NPO
•Talk to your donorsTalk to your donors
•Understand the lawUnderstand the law
•Chose the best formChose the best form
•Work out the operational detailsWork out the operational details
•Write a business planWrite a business plan

20. Where can the money come fromWhere can the money come from
•SVN – Social Venture NetworkSVN – Social Venture Network
•Investors CircleInvestors Circle
•Calvert Foundation Gift ShareCalvert Foundation Gift Share
•Skoll FoundationSkoll Foundation
•PRI money from large foundationsPRI money from large foundations
•Friends and Family fundsFriends and Family funds
•Corporations (entry money or buyout)Corporations (entry money or buyout)

21. Your answer to the questionYour answer to the question
yes or no?yes or no?

22. ResourcesResources
•Social Investment Forum Social Investment Forum
http://www.socialinvest.org/http://www.socialinvest.org/
•Good money Directory Good money Directory
http://www.goodmoney.com/directry.htmhttp://www.goodmoney.com/directry.htm
•Community Re-investment FundCommunity Re-investment Fund
http://www.crfusa.com/socialinvestors/Pages/ListofSocialInvestors.aspxhttp://www.crfusa.com/socialinvestors/Pages/ListofSocialInvestors.aspx
Innovation Exchange Innovation Exchange
http://innovation-exchange.org/about/social-investors/http://innovation-exchange.org/about/social-investors/