Hybrid Spectrum

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.1

At this intersection of business and traditional nonprofit is where the social enterprise lies.

Spectrum of Practitioners2

	Purely Philanthropic	Hybrid	Purely commercial
Motives	Appeal to goodwill	Mixed motives	Appeal to self-interest
Methods	Mission-driven	Balance of mission and market	Market-driven
Goals	Social value creation	Social and economic value creation	Economic value creation
Destination of Income/Profit	Directed toward mission activities of nonprofit organization (required by law or organizational policy)	Reinvested in mission activities or operational expenses, and/or retained for business growth and development (for-profits may redistribute a portion)	Distributed to shareholders and owners

All hybrid organizations generate both social and economic value and are organized by degree of activity as it relates to: 1) motive, 2) accountability, and 3) use of income.

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.3

1Adapted from Tom Reis, Unleashing New Resources and Entrepreneurship for the Common Good: A Scan, Synthesis, and Scenario for Action. W.K. Kellogg Foundation, January 1999.
2Adapted from Gregory Dees, Why Social Entrepreneurship is Important to You, from Enterprising Nonprofits: A ToolKit for Social Entrepreneurs, John Wiley and Sons, 2001; and Lee Davis and Nicole Etchart, Profits for Nonprofits, NESsT, 1999.
3Adapted from Etchart, Nicole and Lee Davis, Profits for Nonprofits, NESsT, 1999.

Nonprofit with Income-Generating Activities

Nonprofit organizations that incorporate some form of revenue generation through commercial means into their operations. Income-generating activities are not conducted as a separate business, but rather are integrated into the organization's other activities.These activities usually realize little revenue relative to the organization’s overall budget and traditional fundraising contributions.

There are two types of income-generating activities, delineated here by purpose:

Cost Recovery (discrete)--a means to recuperate all or a percentage of the costs to deliver a nonprofit service or fund a discrete activity related to the organization's mission. Special events, conference fees, paid training, and fee-for-service are examples. Cost recovery activities are linked to programs; once a program ends, the related cost recovery activities are terminated.

Earned Income (ongoing)--provides a stream of unrestricted revenue to the organization, generated through activities both related and unrelated to the mission. Membership dues, sales of publications and products, and consulting services are examples. Earned income activities are rooted in operations; they may progress into social enterprises when implementation is accompanied by a business plan.

When is an Earned Income Activity a Social Enterprise?

Is it the size of the income-generating activity; the amount of revenue earned; its legal structure, or type of staff involved that determines whether or not a income-generating activity can be considered a social enterprise? Though subtle, and subject to debate, the defining characteristic is that an income-generating activity becomes a social enterprise when it is operated as a business. The following characteristics apply: the activity was established strategically to create social and/or economic value for the organization. It has a long-term vision and is managed as a going concern. Growth and revenue targets are set for the activity in a business or operational plan. Qualified staff with business or industry experience manage the activity or provide oversight, as opposed to nonprofit program staff.

More than half of all nonprofits are engaged in some form of income generation, though few have the tools, knowledge, expertise or desire to develop these activities into enterprises, thus realizing their potential social and economic benefit for the organization. The example below demonstrates how elephant waste was turned into an earned income activity in one zoo and a social enterprise in anther.

An Example of Earned Income Activity versus Social Enterprise

The National Zoo in Washington DC sells Elephant dung to the public as exotic fertilizer. Although the humorous product is popular among local organic gardeners, the "Zoo Doo" venture is not treated as a business and the income it earns is insignificant. Opportunities to scale Zoo Doo into a viable enterprise by selling the product in nurseries and gardening catalogues, as well as adding other "zoo products" to the line have not been realized. Instead Zoo Doo functions as an innovative public relations and marketing strategy used to attract visitors and patrons to the National Zoo. The small amount of money it generates is considered a plus.

Using the same raw material, Zookeepers in Bangkok, Thailand turned their Elephant dung into lucrative business. The Thais transform the animal excrement into high-quality handmade paper which are sold in stationary stores, nature shops, and used in premium paper products in domestic and export markets. The enterprise employs several people who process the organic pulp to produce handmade paper. To keep up with demand, Thai zookeepers source dung from other zoos and elephant habitats. Unlike Zoo Doo, the Elephant dung products are not advertised to consumers as such; rather, socially-conscious consumers are sold on organic nature of the product and the fact that proceeds from sales are used to fund zoo activities and animal protection organizations.

Social Enterprise

A social enterprise is defined as any business venture created for a social purpose--mitigating/reducing a social problem or a market failure--and to generate social value while operating with the financial discipline, innovation and determination of a private sector business.1

Social enterprises use entrepreneurship, innovation and market approaches to create social value and change; they usually share the following characteristics:

Social Purpose - created to generate social impact and change by solving a social problem or market failure;
Enterprise Approach – uses business vehicles, entrepreneurship, innovation, market approaches, strategic-orientation, discipline and determination of a for-profit business;
Social Ownership – with a focus on public good and stewardship, although not necessarily reflected in the legal structure.

Social enterprises may be structured as a department within an organization or as a separate legal entity, either a subsidiary nonprofit or for-profit.

The purpose of the social enterprise may be:

an additional funding mechanism for the organization’s social programs or operating costs;
a sustainable program mechanism in support of the organization's mission; or
a leadership development mechanism in support of social innovation.

Used for either purpose, business success and social impact are interdependent.

Social enterprises can be classified based on their mission orientation...

...as well as the level of integration between social programs and business activities.

1Definition from Virtue Ventures LLC

Socially Responsible Business

For-profit companies that operate with dual objectives-making profit for their shareholders and contributing to a broader social good. Ben and Jerry's and Body Shop are examples of this type of hybrid.1

In socially responsible businesses the degree to which profit-making motives affect decisions and the amount of profit designated for social activities ranges. Socially responsible businesses are willing to forsake profit or make substantial financial contributions rather than distribute earnings privately, and frequently place social goals in their corporate mission statements. In some cases a socially responsible business may be considered a social enterprise when it is a registered for-profit subsidiary owned by a nonprofit organization (parent organization) created for the purpose of earning income for the parent organization as well as supporting a social cause.

For additional information, see the Business for Social Responsibility web site.

Green Mountain Coffee Roasters, an example of Socially Responsible Business

Green Mountain Coffee Roasters (GMCR), based in Vermont, is an example of socially responsible company. At GMCR every business decision is anchored in the company's core values concerning the environmental and the social impact of its business actions.

In 1989, GMCR established an environmental committee comprised of employees to explore the many ways its corporate environmental vision could be executed in its business practices. One outcome was the establishment of the Company's extensive on-site recycling program.

In 1992, GMCR launched its "Stewardship" line of coffees, which are grown and harvested using ecologically-sound sustainable farming techniques beneficial for the land and workers. GMCR employees travel to coffee farms in Hawaii, Mexico, Costa Rica, Peru, Guatemala, and Sumatra to evaluate the farm management and quality of the coffee. These visits help develop strong relationship with the growers and better profits.

In 1997, GMCR funded construction of a "beneficio and hydro" plant for 16 coffee-farming families in Peru. Then in 1998, the Company provided funding for a Coffee Kids micro-lending project in Huautsco, Veracruz, Mexico. This project has already grown to include over 270 participants.

In addition to these socially responsible business activities, GMCR contributes 7.5% of its pre-tax earnings, the highest amount allowable by law, to social and environmental organizations such as Conservation International.

1Young, Dennis, Social Enterprise in the United States, 2001.

Corporation Practicing Social Responsibility

For-profit businesses whose motives are financially driven, but who engage in philanthropy. "Strategic philanthropy" helps companies achieve profit maximization and market share objectives while contributing to public good.

A private company or corporation engages in socially beneficial activities such as grant-making, community involvement, volunteering company personnel, and sponsorship as a means to improve public image, employee satisfaction, sales, and customer loyalty.

Corporate social responsibility is not classified as social enterprise, although philanthropic activities may support social enterprises, make a positive social impact, or contribute significantly to a public good.

Amanco, an example of Corporate Social Responsibility

Amanco, part of the Nueva Group based in Costa Rica, produces and markets piping for irrigation construction, infrastructure, and industry in 13 countries of Latin America.

Amanco Argentina has two plants, including one at Pablo Podestá where the company started a community integration program in 2000. They are working with the Agrupación Ecológica Oasis (Oasis Group), which brings together needy youth for local activities, including reforestation and tree planting, and collecting aluminum, glass, and newspaper that they sell to recycling companies. The money is used to buy school supplies, tools, seeds, and other items. The company provides them with a space to create a library and meeting center, for which Amanco employees collected the first books. Employees will also teach classes.

Amanco identified community leaders who will be trained to continue the work organized by the Oasis Group, and plans to bring other companies in the region into the program, which will be expanded to work with other local community groups.