News Column

NGO-Business Hybrids Do Well by Doing Good

November 22, 2013

Alison Moodie, theguardian.com

economic consultant
NGOs and businesses can help people and turn a profit through hybridization (file photo)

Turning a profit hasn't traditionally been the sphere of your average non-governmental organisation. The people most inclined to want to help the downtrodden and unfortunate haven't been the most ardent capitalists. But all of that is beginning to change as these two worlds increasingly collide.

In healthcare, agriculture, technology and education NGOs and businesses around the world are looking to each other for answers and collaborating in ever more inventive ways. The aim is both to help those who need it most and to turn a profit while they're at it.

This model is loosely called a "hybrid" and, like cars that uses electricity and gas, it taps into twin veins of human potential – altruism and greed. Done well, there's potential for both organisations to benefit. As more and more consumers demand corporate responsibility, the NGO tie could give a business a competitive advantage. And with government cutbacks in funding, non-profits are looking for alternative income opportunities.

One high profile example is Mozilla, the creator of the Firefox browser. The nonprofit Mozilla Foundation, which promotes an open Internet, in 2005 founded its for-profit subsidiary, Mozilla Corp, to manage operations related to Firefox and its other open-source software.

In the last few years, hybrid models have grown in popularity. A recent study from Harvard Business School and Echoing Green, a nonprofit that provides fellowships – which come with seed funding – to emerging social entrepreneurs, found that the number of hybrid applicants for this funding has grown significantly.

In 2010 and 2011, 50% of roughly 3,000 applicants were hybrids, according to the study, compared to only 37% in 2006. "Our application pool is a nice indicator of where the field is going in general," said Rich Leimsider, who runs Echoing Green's fellowship program, which last year received more than 1,000 hybrid applicants.

Because the structure is still relatively new, there's no set definition of what constitutes an NGO-business hybrid. On a basic level, it's the convergence of business and charity. In practice, the most prevalent model seems to operate more like two affiliated organisations – one that's been incorporated as a charity tied to a for-profit business.

Case study: Embrace

San Francisco-based Embrace, for example, which provides free warmers to infants with low birth weights and other infants in need, began as a non-profit in 2008. In 2012, it set up Embrace Innovations, a for-profit company that handles the design, manufacturing and clinical testing of the warmer.

Creating a separate for profit arm was a "bold move" but necessary to furthering the non-profit's mission, says Alejandra Villalobos, director of development at Embrace. "Our attempt was to unite the resources and strengths in both the social sector and the private sector in order to have a larger overall impact," she says.

Ideally, the hybrid model provides the NGO with a steady stream of income, so it doesn't have to rely on foundations, grants or wealthy donors for funding, said Nardia Haigh, assistant professor at the University of Massachusetts Boston's College of Management and co-author of an upcoming study looking at how social enterprises organize themselves."[The hybrid model] enables nonprofits to sustain their business model," she said. "Without money, there is no mission."

Challenges and complications

But the cost and hassle of managing two companies with two sets of legal requirements and two boards is often not worth the headache, said Allen Bromberger, a social enterprise lawyer with extensive experience in hybrid legal structures. "I discourage people from doing hybrids unless they really have to," he said. "It's always better to do a venture within a charity or within a business if possible, because then there is just one set of rules to deal with."

Complications could lead, ultimately to failure. Already, this model has seen some of those, but it's too soon to tell whether the hybrid structure carries a higher probability of failure than pure NGO or business structures.

Another challenge with a hybrid is overcoming scepticism from both the NGO world, which may view business askance, and from those who view most things through a profit-making lens. "There's a little bit of judgment," said Sridhar Tayur, professor of business at Carnegie Mellon University and CEO of OrganJet, an NGO for-profit hybrid that aims to circumvent the often long waiting list for kidney and liver transplants.But once he's taken the time to explain to them how it works, "their attitude changes for the better," he claims.

Case study: Organjet

Like Embrace, OrganJet's structure consists of two organisations that are affiliated with one another.

The for-profit arm, called OrganJet, provides last-minute private transport for patients to receive an organ transplant beyond their immediate area, at a price of approximately $8,000 to $10,000 per hour. The non-profit side, called Guardian Wings, helps subsidise this travel for those unable to afford it. It also offers a free web tool that enables people to find transplant centres in different areas.

OrganJet's revenue comes from privately insured patients and wealthier patients. Some of that revenue goes to Guardian Wings, which also relies on donations. Tayur claims the hybrid model allows him to save more lives than if he was purely either a business or a nonprofit. "It would have been much easier for me to have said it's a not-for-profit or a for-profit and satisfy the sceptics," he said. "But the primary goal of my company is to help as many people as possible get transplants quicker."

Alison Moodie is a multimedia journalist based in Los Angeles, California. She covers technology, higher education and sustainability issues

(c) 2013 Guardian Newspapers Limited.


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Source: (c) 2013 Guardian Newspapers Limited.


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