Welcome to the mad Hybrid life!

We at Empowerment Gateway have been faced with the same constraints as you and lots more because of the unique South African situation that we face ourselves in, as well for the past three years. We launched our own hybrid org in 2004 so we are bout 2 years further down the line.

Regarding your questions:

• What general learning from the ideas, practices, and experience of social entrepreneurship can be applied to this sort of for-profit/non-profit hybrid model?

1. Start by integrating into the core of both organisations the same set of value systems, supported by the appropriate control processes. 2. Develop networks on both sides of the spectrum 3. Walk the talk and don't compromise your values in either organisations (even if it cames at a price ... it always does)

• What has been learned about positioning this sort of a hybrid for investment?

1. Generate your own income in the for-profit sector 2. You could go the "full franchise model" " or co-ownership of divisions 3. You could run special events and raise marketing sponsorships with value propositions of real marketing ROI for your sponsors

• What experiences can members share with us about their own successes and failures with hybrid ventures that attempt to create a “fair trade” type industry with triple bottom lines?

After 3.5 years of trial and error it is now working for us. We have managed to remain totally independent and self-supporting through various initiaves.

Tell us a bit more of your constraints and challenges ... and I am sure that between all of us ... you will get some solutions.

Regards

Laurinda Seabra

Thanks for letting us know about your experience. One of the big challenges we faced was knowing how to "position" the relationship between the for-profit and the non-profit. Not that we have arrived at THE final formulation; but one of the core issues has been deciding how to index the for-profit equity for our investors to the non-profit initiatives. In our case the two organizations are dependent upon each other for their existence. The main role of the non-profit is to create an industry in medicinal plants in the DRC, while the main role of the for-profit is to create applications (market) for these plants on the demand side. So we have indexed the equity in PharmAfrican (for-profit) to the philanthropy in the BDA Foundation (non-profit). Crudely put you can't profit as a PharmAfrican investor apart from a simultaneous social investment in BDA.

The challenge here is one we have gladly faced on one level; it is the reality of our work and so why hide from it. However, at another level, I am sure we have a lot to learn from those of you who have trod this path. There are other challenges to discuss, but enough for now.

We have held discussions with the crowd at GRI and we have been requested to submit a proposal to them for the creation of a new classification module in their organisation so that they can create a new organisational classification that would cater for our unique type of organisation.

Who ever is interested in participating with us ... please e-mail me at laurinda.seabra@empowerment-gateway.com

Regards

Laurinda

I've not discovered yet why hybrids are deemed necessary. Is this a business wanting to extend it's CSR but not go too far, or a nonprofit looking for revenue streams but fearful of losing its donors by being too commercial?

Wouldn't that be the best way of harmonising value systems, by being one and the same?

I'm hearing Muhammad Yunus talking of social business enterprise being the way forward and the social enterprise community going in another direction.

Because of various legal requirements (varies country to country) and in a way a "REAL" social business is an hybrid.

I can't speak for others, but in our case, our hybrid is an integration of both for-profit and not-for-profit methodologies and we couldn't find anywhere yet a legal system that can accomodate us.

You asked: Is this a business wanting to extend it's CSR but not go too far, or a nonprofit looking for revenue streams but fearful of losing its donors by being too commercial?

My answer is neither of those! Again speaking within EGG's context. Our CSR component can at times be as high as 60% of our profits not to mention the income generated through annual dividends for our foundation which is also applied to social upliftment, and within "an NGO silo" we don't make good beggers, so we don't rely on donors but rely instead on income earned.

At the same time we believe that you can do any good unless you look after your own needs. All within balance. Look at nature, there is balance, so why not apply the same formulas within an hybrid context?

We use the Golden Ratio as a guide and the Sneider Tree ... for example and balnace the requirements based on whether the immediate need is economic, social or environmental.

Laurinda

Please don't understand our work as an apology for social enterprise over social business. Our case is contingent and emerged for us due to the fact that our business model has to take into account and "work around" various aspects of the industry in which we find ourselves: pharmaceuticals. In the convential synthetic drug model the risk is aggregated in the R&D phases since the choice of pipelines is based on knowledge of interactions between molecules and site of action. In the coventional biotech model the risk remains high and collected into the R&D phases as well since the choice of pipelines is based on knowlege of interactions between molecules and the site of action as well as on identification of new molecules from biological organisms. In both these cases the production risk is signficantly lower to non-existent. However, in a business model based on Afrian-grown medicinal plants for the creation of botanical drugs (not synthetic, nor biotech, but a new protocal for medicines made from the active ingredients of plants)the risk is flipped: the R&D risk is alleviated by the long ancestral knowledge and history of traditional use, while the the production risk becomes monumental (growing plants in the DRC). We thought that the organizational form that seemd to best fit the risk of growing plants in the Congo was indeed philanthropy...and so we also started a nonprofit that is training growers and funding their medicinal plant agri-business startups.

Again, this is not a statement about the necessity of hybrids, but merely commentary on that when considering the appropriate organizational form for the job in DRC, it seemed that this hybrid model was what made most sense. Working in the DRC as a nonprofit has some very important advantages. The for-profit, which works on this side of the ocean, is creating the demand which will allow the growers in DRC to enter a market with huge econmoic potential for them, their families, their communities, and their environment. Many of these plants grow in the jungle and can create an alternative to clear cutting the equitorial forests of the Congo.

Hi Jeff:

While I understand the current corporate/legal/tax constraints in the US that push us towards hybrids, I am so heartened to read your thoughts!

I agree with you. To me, the hybrid sounds like the best cobbled-together solution that reflects the limitations of our thinking about commerce and charity

we are caught in the binary thinking that they each should have their own purpose and never the twain shall meet.

Again

not to slam the hybrid folks -- it's a valiant effort that I think can be effective, and is a next step towards solving deeper cultural/perception issues about how companies live with relevance in the world around them.

I've considered taking my company hybrid, and, so far, have chosen not to. Here's why:

Even if that split between profit and social responsibility is not inherent in the ways that we want to think about our efforts, it is pressed upon us as we imagine constructs, money flow, etc. It begins to create elaborate and strangled infrastructures, separates the energy/idea/wisdom holders from one another in what should be an organic flow of how the enterprise moves forward (keeping board representation separate for each entity, etc.). Among other things, it deflects visionary leadership, forcing the entity into a multiple, de-centralized organizational structure. There are times when this is an asset, and times, particularly in the early stages of the organization's development, that this can be fatal.

So

it seems to me, that the hybrid now not only is trying to dance to the demands of the funding community (if they are seeking external funding, which is particularly difficult as evidenced by comments here) and the IRS -- each have an enormous capacity to pull us away from the clarity of the vision of the project.

Instead, it seems to me, that the push should ultimately be towards redefining commerce as something that inherently values its relationship to the world, its impacts, and its responsibilities.

This is not an easy process, I know, because it demands the corporate community, government, and the public to re-imagine how companies should walk in the world in a variety of ways. I'm reminded of the corporate social responsibility movement that has been pushing to change laws about the corporation's sole ultimate responsibility being to make money for its shareholders, broadening that responsibility to a responsibility to stakeholders (those affected by the companies activities, including employees, community members, and broader environmental, social justice, and cultural concerns).

Here's an article about it:

http://www.progressiveregulation.org/perspectives/corp_behav.cfm

I'm very intrigued with the Community Interest Companies effort in the UK, and am wondering both how that is shaking out there and if there is any momentum in that direction that you're aware of in the US?

And I obviously need to go read some more Muhammad Yunus...

Thanks and best,

Leigh

Oops - sorry about the strange spacing/bolding.

It seems that my addiction to the double dash has created instructions for the php or whatever programming language is supporting this forum to bold text and leap about with great enthusiasm.

I will try to contain my double dash addiction!

All the best, Leigh

Our success in Russia was something initiated by my colleague and founder using own funds to research and leverage development aid funding to create 10,000 small businesses in a USAID run project. That's what we've continued to do as a business, over the last decade as an activist group creating anti-poverty strategies now funded from revenues generated from software development. Part of that activism has been to advocate for a new form of capitalism, in a business model which is profit for social purpose.

The activism started 11 years ago, pitching the concept of abandoning the nonprofit model completely at the Clinton government.

http://www.p-ced.com/History/tabid/57/Default.aspx

Failure followed shortly afterward, attempting to replicate and scale up for a repatriated Islamic community. Activism was then directed at corruption which threatened to render the project useless, it was resisted by enforcing business copyright and has since stood in limbo. Fortunately we're now seeing more support for the stance against corruption and there's a chance that it may still proceed 5 years later.

For the last 3-4 years we've been engaged in scaling up to a national level, again more engaged in activism to raise awareness but we are getting indications of progress.

I've never considered this a hybrid, though in many ways it crosses boundaries which define typical business and nonprofit activity, simply that our product is both monetary and social. Thus I might consider the costs and time engaged recently in efforts on a small project in Uganda as my "surplus" for my business to deploy as it sees fit.

Changing the model is part of the "being the change" in my view. Where we work now, it's either business or charity forms, hence part of our current strategy plan being a faculty for social enterprise with a view to helping develop the social business form overseas.

Being a rather small business we manage this informally, though where I'm based in the UK, the social form does now have a formal mode of incorporation in what's known as a Community Interest Company.

Apart from cringing about the possiblity of the introduction of another acronym into this arena...I'd be interested in finding out more about the Community Interest Company idea.

I agree that we live in a world where the for-profit and non-profit labels no longer fit the the value creation potentialities that exist somewhere between these forms or in some unique combination or outright alteration of these forms.

What have been some of the specific drawbacks in your experience to just using the for-profit form...starting a business...albeit with social purpose?

Well, as an alternative to those models discussed in John Perkin's "Confessions of an Economic Hit Man," this is certainly a bit less messy and more marketable. Aloha e, Mike

Richard, The CIC is a UK legal structure introduced in 2004. Like charities they are monitored by a regulator to ensure that businesses so incorporated, conform to CIC standards.

http://www.cicregulator.gov.uk/

We were a little early in the adoption of a for profit model, to take advantage of the new structure when we were advised to take a form know as a guarantee company (an informal cooperative) which has no share ownership. At this time there was only one source of project seed funding, that of the cooperative movement and three months work developing a proposal was wasted when we were declined simply for not being a formal cooperative because there were many technology based initiatives and priority was being given to those who were formally registered as mutual societies.

Another difficulty was the left and right hand of government, which on one hand supported social enterprise but on the other didn't understand what we were doing. Our founder having declared his social purpose under my sponsorship was then refused readmission to the UK for being a potential economic migrant. Seeking the assistance of a government representative got a testy response, "I don't know what kind of business you are involved in but I'm not prepared to help" indicating that we'd created a perception of a shady overseas operation. Both the above obliged the abandonment of the guarantee company and the need to relocate in Eastern Europe.

Being activists we were going to attract antagonism and that was another problem for us. A smear campaign calling attention to this business masquerading as a charity to make money from the plight of disabled children gained ground rapidly when activism brought us to the story of 'Death camps for children", ironically hosted by Google who as I understand promote their concept of a 'for-profit charity". I have little doubt that having rendered ourselves vulnerable as a business, out antagonist was able to deter some of our potential customers and affect our revenue streams.

http://eng.maidanua.org/node/581

On the subject of Economic Hit Men. We'd been aware of the way in which US funds were being deployed, not least from our experience in Russia in the wake of the Defense Enterprise Fund fiasco. This was the very point of the P-CED whitepaper and it's message, that we were risking our own security, 5 years before 9/11.

In Ukraine, this was no different. US interests didn't much like the pinkish hue of a populist Prime Minister and took it upon themselves to deconstruct her. The opposing oligarchs brought in American PR expertise in the form of Paul Manafort.

http://eng.maidanua.org/node/295

So, perhaps not all problems related to being for-profit, but then again I suspect that we'd have been reigned-in by rules of conduct, if we'd have been any kind of non-profit.

We are a fair trade org.based in Cameroon.Our org.is seeking partnership company to enable us fight povertry in rural communities through fair trade.

The collection of medicinal plant from the wild , to foreign markets will improve the welbeing and safeguard the livelihood of people living in rural communities.

Last year I founded a rather unique "hybrid" social venture (Impact Makers) based in Richmond, Virginia. I think our model is fairly unique in that it is nonprofit structure based on the corporation's mission to maximize profits in order to maximize "community stakeholder value" rather than the traditional "shareholder value" - but the corporation competes in the free market.

Specifically, Impact Makers is a “competitive social venture” operating in the management consulting space, and I believe is truly unique in that it:

Provides professional services (currently focused in healthcare) at market prices - Competes with other firms to win business - Pays market salaries to its professionals - Is a nonprofit structure with books open to the public - Contributes all profits to community organizations (and consulting time) For a brief overview of our organization, you can visit our website at: http://www.impactmakers.org

Aside from local print press, we are also being covered on CNN Headline News in the local Richmond market – you can see the 5-minute video at: http://www.youtube.com/watch?v=6dWEckHnxW4

The model is unique in that we are based on the following premise: 1) we partner with a separate, 501c3 charitable organization chosen by our volunteer board (secular, apolitical, and "helping people help themselves"). Our first partner organization is a domestic violence program and shelter called Safe Harbor.

2) We provide our partner(s) with strategic / process improvement support and also up to 30% of their budget as unrestricted funds that we closely monitor - so that they can focus their management / board attention on their "core competency" and on higher quality & lower cost service delivery, and less on fundraising.

3) At the same time, we raise funds not through traditional fundraising, but through free-market competition in the for-profit IT / management consulting space.

In our first full year of operations as of Oct 1, we were able to generate over $500k of revenue and provide our partner with $40k of donations and over 200 hours of consulting servcies and support, making us their largest corporate donor and one of the largest in the Richmond area to any single nonprofit.

Has anyone out there seen a similar model, and any thoughts / advice on such a "hybrid" structure?

I look forward to any and all feedback. - Michael

Hi Michael,

Like yourselves we generate a revenue stream from for profit IT. In our case development and maintenance of a product for corporate use.

We also promote people helping themselves though rather than engage with nonprofits, we do it ourselves as a for-profit. In this way we can call on development aid funding and treat it as investment capital by making the case for uplift. Thus we can source projects like the microfinance initiative in Russia making an overall business case for investment and return.

We don't manage these projects, only steer them where there's cause to d so. For example, insisting on Finca as a banking partner, because they like Grameen offer funds to create new business. Many others only inject funds into existing enterprises, ie they don't lend money to the poorest.

Jeff

Hi Michael ... and others!

You have asked about a similar model. The model that we have structured in Empowerment Gateway is as follows:

• we have both a for profit and a not-for profit in our organisation!

The Fundacao Empowerment Gateway (Empowerment Gateway Foundation) is the mother NGO, structured as a trust. In turn it has created country sub-trusts (EGUF - Empowerment Gateway Universal Foundation)(per country)

The mother foundation (in a country) holds a minimum of 30% shareholding in our For Profit (Empowerment Gateway Business Solutions). 51% is held by the holding company in which the foundation also holds a 30%, 10% is allocated to a distributed share trust that benefits all employees / partners, the balance is held by local investors.

Like you, we are also a consulting group, but we are multi discipline and multi sector. We earn market related income, but alloacted 3% of turnover as a CSR contribution to the foundation on a monthly basis. We are not reliant on donations but earn the income that is needed. So, the foundation gets not only dividends but also a monthly CSR contribution. This equals to +- 60/65% of profits being allocated to social projects.

For the past 3 years we have tested our concept ... and it works.

Our social initiatives varies from financing drug rehabilition programmes to funding entreprise development projects, etc.

We have taken it one step further in that we are now replicating it at community level with various programmes in an endeavour to maximise currency retention in a comunity thus creating an enabler for "demand" .. thus facilitating sustainable entreprise development projects in a community.

Currently we are acheiving capital retention in a comunity of +- 45%.

Regarding volunteer Pro-Bono - we expect to generate a minimum of 40000 man hours per year in 2008. We "Demand" from everyone a contribution of 40 hours per year to be applied in social causes in their community.

We predict that by FY09 we would have contributed $5M to social projects.

Michael you ask for thoughts or advice ... what challenges are you facing?

Regards

Laurinda Seabra

As a hybrid social enterprise, by far our biggest challenges have been 1) structuring restraints in US tax law, and 2) extremely limited funding options.

My org, The Emancipation Network is a hybrid with a US nonprofit (501c3) named TEN Charities and a taxpaying corporation named The Emancipation Network Inc. They both have the same goal – fighting slavery with business development. Ideally, we would use tax exempt donations to help slavery survivors set up businesses and then sell the exported products though the business. 100% of funds from the business go to the non-profit. (more info at http://www.madebysurvivors.com/)

The reality under US tax law is that as long as there is an inside relationship between the entities (in our case 1 common employee between the two) then the non profit cant in any way help the for profit. So we can currently only use tax exempt donations for non-business items like rescue and rehabilitation. For this reason we are probably going to sever the insider relationship to remove the constraint, but that creates other problems.

The other problem we have is that funders seem very uncomfortable with hybrids. I cant be completely sure about this because we operate in a very difficult funding space in that almost no foundations fund anti-slavery work and very few fund social enterprises so perhaps our experience has to do with our space. But I think it is fair to say that the hybrids that are getting funding are general business add-ons to existing well funded non-profits, as opposed to new entities using the structure from the beginning.

A short answer to a question about why a hybrid instead of keeping it all in the non-profit: In the US, it is extremely hard to operate a competitive business in a non- profit. Even simple things like bank loans become a hassle at best an are often unavailable. Government is increasing the operating burdens on non-profits in ways that make it even harder to run a business. This is going to sound offensive to some, but if you want to run a badly run business then there nothing wrong with doing it in a non-profit, but if you have a charitable purpose that requires an aggressively run business, then a hybrid is a much better structure in the US.

John

Not only in the US but world wide.

Laurinda

It is heartening to know that this model is in operation elsewhere in the world. The background of starting the hybrid model in the state of Tamilnadu, India was the lack of accountability in an NGO run organization. This is in the business of Microfinance. We are serving 10,000 members in nearly 600 Self Help Groups. The NGO model was in operation for 8 years and sustainability becam critical and the the Hybrid model For-profit Non-profit was put in place in 2004 and today we have turned around the organization. We have gone one step further by launching an initiative for technology devolution in the market place for improving the impact of the microfinance program. This program becomes operational in first quarter 2008. Please see our website: www.anishamicrofin.org I am keen for closer contact within this community and profit from each others experience and resources.

I read through your web site, and commend you on the great work you are doing. I'd be interested in what you think about sustainable development based on medicinal plant farming. We plan on using micro-finance mechanisms to launch medicinal plant farmers' agri-businesses. Any experience in Indian you know about doing this? Any thoughts to share with us?

Hi

I have been trying to contact BDA Foundation to get more information about their Incubator Model, but so far have unable to get in touch with them (their email address doesn't work).

Does anybody have link / information, from where I can get more information?

Will appreciate the help

Regards

Kamran

You can contact the Director of the BDA Foundation at the following email:

1. klopp@bdafoundation.org

1. klopp@bdafoundation.org is the right email. For some reason when I hit enter the wrong email address was loaded in the following reply. My apologies.

Okay...don't know what's wrong with this function, but when I chose SAVE, the email I'm trying to send you here is changed from r.klopp@bdafoundation.org to what you see above. I'll try one more time here: the right email is r.klopp@bdafoundation.org.

sounds like a good economics for the farmers area and for the industry

Hybrid concept can be used within any industry and commodity. We are starting our operational model in January and February in South Africa, as we assist with the development of organisations (SMEs) we will be facilitating the concept of creating hybrid organisations as part of development methodologies.

Our first sectors are the mining, petroleum, agricultural and tourism sectors. If we can facilitate the development of integrated values organisations from start-up right throught to maturity phases we would have acheived part of our goal and met our vision for a sustainable future for all.

Laurinda Seabra

After reviewing the criteria for a hybrid organization again I am unsure if we should structure the for profit as a "stand alone" vs a subsidiary. We are convinced that our for profit activities will extend Polder's mission to assist in the development of communities by enhancing education. http://www.ompt.org/ T We don't want an expensive infrastructure and we don't want this model to undermine Polder.

We are working out the operational details. The FP will transfer resources to the Polder through cash payments. Initially our staff will divide their time in one office. We will have overlapping boards. We have not completed the by laws or the articles of incorporation.

Does anyone have an opinion on the merits of a "stand alone" vs a subsidiary? Will donors be skeptical if the president of the non-profit is also a shareholder in a for-profit that gains financially from its collaboration with the non-profit?

Wondering, Matt York

Dear Richard, Congratulations for this brilliat endeavour. i strongly believe that you have stated a process which will be the future of business. We have a corporate body and a NGO working hand in hand in Rural India in areas related to Healthcare to the rural folks. The employments situationa as well in the Rural area is disastrous. The project has enlisted and motivated a group of young men, who were at the brink literally, in looking at the healthcare sitauation as an opportunity - to serve the needy, the more affluent people in need of healthcare services and counselling services to young people. We have been able to involve the local community and have been approaching various corporates worldwide.

The approach involves - Selecting towns within the district Identifying a local entrepreneur Provide 2 laptops (since power position is not good with frquent power cuts) loaded with e software tailor-made for the project, provide link to the Central Data base for support & guidance. This also qualifies the project as an ICT project Visiting each house within the municipal wards Surveyng, Messaging and enlisting families for services Providing each an user-id in case they need to cantact Skills and working experience of families viz., handwoven fabrics, agricultural activities etc.

We have plans to provide the supply of various products and other services essential to the requirements of the families, marketing help for their produce (excellent quality of handwoven materials are produced but with little or noexposure to the growing market demand worldwide for such produce. This should help us to generate HUGE funds (from surplus) which would be utilised by the NGO for services deeper into the villages in sectors related to human development activities.

Would look forward to be in touch with you

SBR

This topic is really important for the future of nonprofits everywhere. The politics of funding for nonprofit ventures is a serious issue when t