For-profit and nonprofit organisations have much in common, but there are significant differences between the two. The aim is to find a balance between the various features in both models and to build a customised model to reach financial sustainability, organisational growth and social impact for the organisation.
The rise of the hybrid model in the nonprofit sector seems to be a response to an increasingly uncertain funding environment. Hybridisation has the potential to enhance effective governance and sustainability for nonprofits, but it also comes with challenges regarding implementation and policy development.
Concepts such as “social innovation” and “hybridisation” is used left, right and center, but agreeing on the definitions, complexity, and implementation thereof still eludes us. Maybe that is exactly the ideal. That we implement these concepts on our own terms, at our own pace, and in our own contexts.
The various types of hybrid models exist on a continuum between for-profit and nonprofit. Finding the perfect balance between social mission and revenue generation and implementing a strategy that includes both, can be very challenging. In order to choose a custom hybrid business model, we need innovation in traditional organisational features such as structure, purpose, funding and leadership in nonprofit organisations.
All companies have a purpose, but this is the most significant difference between for-profit and nonprofit entities. We all see nonprofits, as serving a humanitarian or environmental need – making the world a better place; while generally, for-profit companies are income-generators and offer a service or product valued by their customers. It is therefore vital that government, investors and grant makers create a supportive network in which nonprofits are able to venture and make high-risk changes, without the fear and pressure of losing current and future funding opportunities because of this. Corporates make high-risk moves because of the promise of high returns. However, these risks are usually well calculated and evidence-based. When non-profits alter their purpose and want to exist in a dual mission organisation, they have to be able to back-up it with proper research and be able to provide evidence of previous successes.
A nonprofit prioritises a certain social cause, while a for-profit’s primary mission is to generate profits. Nonprofits need to promote their cause or mission to philanthropists, donors, corporate social investors, and government, in order to receive the necessary funding to support their organisational goal and to serve their beneficiaries. When shifting to a hybrid model, nonprofits need to realise that one cannot expect the same open-hand policy when providing a specific product or service in return for money. Convincing a client, investor or venture capitalist that your nonprofit’s service or product is worth being paid for takes entrepreneurial skill.
For-profits are unable to receive tax exemptions on revenue and must pay taxes according to law requirements. However, individuals and companies making charitable donations are able to receive tax-deductible benefits for contributions made to certain nonprofit entities. So as a nonprofit, leverage this and negotiate with potential investors and funders.
Nonprofit and for-profit organisations’ income source determines, largely, how the company can use its money. Since nonprofit income comes from donors, nonprofits are expected to utilize their funding in a way that maximizes benefits to their targeted recipients. Since for-profits earn their own income and pay their own debts, they have much more ethical leeway as to how they spend money. Hybridisation means income, so as nonprofit leaders it is important to understand the responsibility of liability and to upskill oneself through business and entrepreneurial courses.
Competition and demand in the corporate sector lead to new innovation on a daily basis. This means that generally for-profits have a strong drive and are meticulous in measuring success and customer approval of their services or products.
Success is based on a nonprofit organisation achieving its philanthropic mission and reaching its targeted beneficiaries with maximum impact. However, the danger in the nonprofit sector is that we perceive them as “good doers” and therefore we hold them to a different standard.
Operating on in a hybrid model will mean stronger competition and pressure to outperform others. Complacency is thus the enemy when running a nonprofit and constant improvement and innovation is key in surviving the competition for funding, but also for revenue generation. Maximum reach and impact will lead to better funding as investors want to see a return on their social investment. The other side of it is that monitoring and evaluation take time and skill, in order to draw meaningful conclusions about impact and social change. It is essential that non-profits focus their resources and attention on monitoring and evaluation if they want to improve constantly.
When financial gain is the key focus, the culture in a for-profit is designed to encourage innovation and performance measurement. In a nonprofit, the culture tends to look different to that of the for-profit sector. Group recognition, reaching the organisation’s mission and organisational memory is important to non-profit organisations. Unfortunately, this can have a negative impact on the professional growth, financial gain and personal motivation of staff members.
Professional development and the nurturing of entrepreneurial thinking should be a priority when creating a healthy working environment in the hybrid organisation. However, let us not overlook the importance of maintaining a collective goal of reaching the organisation’s cause or mission.
Hybridisation needs to be applied at all levels of the organisation – and this includes the leadership of the organisation and how they apply themselves in service of the organisation.
Executive leadership in the nonprofit sector are a difficult business. Committed board members are not as easily found in the nonprofit boardroom as in the skyscraper boardrooms of the corporate world, where commitment meets financial gain for executive leadership.
Most of the time nonprofit leadership are professionals such as accountants, doctors, lawyers, corporate leaders, academics and so forth. With the best of intentions, they bring a skills set to the organisation that otherwise would have cost the organisation huge amounts of money. As much benefit as this is to the organisation, unfortunately, most board members’ first priority does not always lie with the staff and organisation, as they have full-time careers, families and other commitments. This mean, they sweep in during crisis times and show up for quarterly meetings, but they are unable to provide the proper support and guidance that under-resourced, over worked and underpaid staff so desperately need.
Nonprofits need the advantage of meeting agendas with points of discussion such as social climate, organisational performance, fundraising and political policies by professionals with the necessary insight and knowledge.
Designing Hybrid Organisations
In order for nonprofits to thrive and not merely survive, we need to develop new models and find innovative opportunities. Over recent years, we have seen a melding of for-profit and nonprofit business models, as nonprofits seek to stabilise their income and for-profits seek to give something back to the community.
The time has come for nonprofits to adapt to the changing landscape of fundraising and we need to find ways to generate income and achieve sustainability while promoting the social causes we stand for. Corporate donors and philanthropists alike are looking for innovative solutions driven by sustainable organisations.
Impumelelo has unearthed and awarded many NPOs that have viable and profitable hybrid models that can be implemented. We offer monitoring and evaluation services, master class training and consultation on social enterprise development. Contact Jaen Beelders, Executive Director, at firstname.lastname@example.org or 061 410 4659 to collaborate with Impumelelo Social Innovations Centre.