What are the advantages and disadvantages of establishing a Not-for-Profit & a for-profit as a hybrid organization?


Social Enterprise: What are the advantages and disadvantages of establishing a Not-for-Profit & a for-profit as a hybrid organization?

Answer by Maurizio Gioli:

First of all it depends very much from how the social sector is regulated in your country. Secondly it really depends from your vision. According to this initial points you can build up the business model that is more suitable for you and your country legislation. In UK for example you can have different forms of social enterprises starting from the one that are just like any other business to the ones such as a CIC (Community Interest Companies) limited by guarantee where all you asset is locked and your profits are mostly to support your mission. The first allows you to have access to investors funding and not much grant funding. The second allows you more grant funding and very little private funding. Also a Social Enterprise have to support itself as a result of trading and your social mission has to be supported from that resources. For this reason you have to be carful not to forget about your social mission just because your are driven away from the necessity of generating business. Your customer is the community that you support not the one that supports you (ex who buys your services).  This is one of the 2 common mistakes of a social entrepreneur in UK. The other is to think like a charity and try to rely on grants only, forgetting that at the end of the day you run a business that as such has to generate a profit. The hybrid system can also be a really good solution for a charity that wants to become sustainable and stop relying on donation only. Again in UK we have many examples like this where the charity has also a social businesses such has a CIC connected to it and supporting the charity through trading. A good example are charity shops. It’s like having two side of a coin and none of the two is bad or good but is fundamental that you maximise the opportunity offered from each sides and tailor it to you strategy and social goals. What is radically important is how you measure the Impact that you generate on your community. This can be based on many different factors that can be financial or just social and this factors will also effect your capacity of fundraising or your operation/production capabilities. Two very simple examples. a) you could have a non-profit organisation with the mission of providing education to disadvantaged kids. This could be funded with 50% of your profits from your social enterprise selling vegetables or any other product of your choice. In this case you could also set up a very tax efficient plan fro your Social Enterprise. Your impact would be measured on the money given away from your social enterprise but also on the number of educated kids helped from your non-profit organisation. b) You could also have a very lucrative software business selling Apps for smartphones and then channel a very specific project to design an App to help disadvantaged people trough a charity of your choice or even partner with an existing charity that will do that. in this case your social impact will be base on the number of people who’s life will be effected from your tool. In this case your model will be based on pro-bono work from your main business.
Bare in mind that a “Social Entrepreneur” is a disruptor, someone who thinks different and sees opportunities where others see problems. Someone who find solutions and change the market and mostly the mindset associated to it.
In brief:
  1. There is no model that fits all. The perfect model for you is the one that you create
  2. An hybrid model can be used to attract different source of funding and people interested in what your social mission is about
  3. It can be tax efficient (accordingly to your legislation) and business model
  4. It varies from country to country
  5. Can be tailored to your changing needs and the changing needs of your community
  6. You can start it with a non-profit or a Social Enterprise which ever is better for you
  7. It can be sustainable and measured with different criteria of impact

What are the advantages and disadvantages of establishing a Not-for-Profit & a for-profit as a hybrid organization?