Shifting stakeholder expectations of nonprofit organizations to achieve larger scale social impact while also diversifying their funding has been credited as a major factor in the appearance of the “nonprofit hybrid” part for-profit and part nonprofit.
At this intersection of business and traditional nonprofit is where the social enterprise lies.
The Hybrid Spectrum includes four types of Hybrid Practitioners.
On the right hand side of the spectrum are for-profit entities that create social value but whose main motives are profit-making and distribution of profit to shareholders.
On the left hand side of the spectrum are nonprofits with commercial activities that generate economic value to fund social programs but whose main motive is mission accomplishment as dictated by stakeholder mandate.
Nonprofits are founded to create social value, however, financial sustainability cannot be achieved without external or self-generated funds. For-profits are established to create economic value, yet often must make social contributions to survive in the marketplace. Therefore, both types of hybrids pursue dual value creation strategies to achieve sustainability equilibrium. Nonprofits integrate commercial methods to support their social purpose and for-profits incorporate social programs to achieve their profit making objectives.
Social enterprise is a means to achieve sustainability through earned income; however, it is important to note that financial objectives differ among organizations. Unlike the microfinance field, the financial objective of a social enterprise is not by default viability (generating sufficient income to cover all costs).
Social enterprises don't need to be profitable to be worthwhile. They can improve efficiency and effectiveness of the organization by:
reducing the need for donated funds;
providing a more reliable, diversified funding base; or
enhancing the quality of programs by increasing market discipline.
From a programmatic perspective, social enterprise addresses one of the most pressing issues nonprofit organizations face--how to achieve ongoing sustainable impact. In some organizations social enterprise is highly compatible with the mission and hence, is a natural program fit. For example, program activities concerned with economic development revolve around work and wealth creation.
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