Nowadays, it’s hard to trust the guy at the office who doesn’t recycle, prints out unnecessary documents, and lacks involvement in community service activities. We appreciate authentic individual acts of kindness, and it turns out that just like profit-driven individuals won’t get many friends, single-mission businesses don’t reach many costumers either.
The rising tide of conscious consumerism and corporate social responsibility has enticed for-profit firms to integrate nonprofits in their business models. (See also: How Conscious Consumers Are Changing Business.) The simultaneous inability of the nonprofit sector to compete for limited funding has resulted in a mutually beneficial courtship between these two traditionally separate entities. In practice, the organizational structure of the hybrid business is undefined, as the mass of companies aiming towards this end is a fairly new phenomenon.
Just as nonprofits are seeking out avenues for revenue in an ultra-competitive market for funding, for-profit businesses are looking to integrate nonprofits within their business. In the past, companies have made philanthropic endeavors part of their corporate accountability mission; however, the direct acquisition of nonprofits is an innovation of 21st-century social entrepreneurs.
Nonprofits Need a New Look
In his TED Talk titled “The way we think about charity is dead wrong,” Dan Pallotta explains the inefficiencies of the nonprofit sector. He argues that historically harmful stereotypes of nonprofit and for-profit business roles have shrunk the capacities of many mission-driven organizations. He proposes that our reluctance to support nonprofits that advertise, spend on overhead, reward with large salaries, and take risks sets them up for failure.
Social causes would benefit immensely from allowing profit to attract capital investment, facilitating the creation of new ideas. Barring this activity from nonprofits restricts access to a multi trillion-dollar capital market. In the past 45 years, merely 144 nonprofits have crossed the $50 million annual revenue barrier, contrasted with the 46,136 for-profit companies that have done so.
Professional fundraising enterprises have the ability to scale investments and therefore possess a potential for real change. The hybrid business model arms the nonprofit with the resources to achieve their noble goals.
Why Integrating a Nonprofit Makes Sense for Big Business
Let’s talk stock price. In “Green Giants,” Freya Williams investigates the success of sustainable, socially responsible multi-billion dollar businesses. She squanders the stereotype of the good-hearted small business owner going up and failing against greedy corporations with sole profit motives. Rather, she looks at companies such as fast-food chain Chipotle, automotive company Tesla, and home product manufacturer IKEA, among countless others, who are simultaneously maximizing profit and social good.
Instead of incorporating social betterment efforts into the agendas of corporate social responsibility boards, the new hybrid model integrates nonprofit-like motives into every facet of the company.
Businesses are now aligning with social and environmental causes as a means to make money, rather than just a way to spend money. In this sense, actions are more authentic, impactful and strategic.
It’s not just new players that embrace social entrepreneurship. Older companies and traditional industries are transforming to compete and give back. Take Chipotle, one of the companies studied in "Green Giants," embodying the disruptive innovation that “turned the fast food category business model (cheapest possible ingredients, cheapest possible products) on its head by building a restaurant chain on the back of more expensive ethically and environmentally responsible ingredients.” Chipotle generated $4.11 billion in revenues internationally in 2014. (To learn more, see: For Companies, Green Is The New Black.)
Strategy for Newcomers
Although the hybrid business model is now mainstreaming, it’s difficult to mesh these structures as an early stage mission-backed startup in need of capital investment. The team at Stanford Social Innovation Review suggests that social entrepreneurs use their cause to emphasize the team’s passion and forward-drive when presenting to potential investors. Mission-driven entrepreneurs may need to take extra steps to “de-risk,” using data and research to emphasize business prospects during pitches.
The Bottom Line
An unusual partnership between nonprofits and traditional capitalistic businesses is another form of marriage some are weary to embrace in the 21st century. Analagously to other non-traditional marriages, we must be open to a mutually beneficial arrangement wherein the ideals of the nonprofit sector are coupled with an ability to attract talent, take calculated risks, support “overhead” and raise capital. The hybrid business model will contribute to massive social progress going forward, as large corporations transform stale business values and social entrepreneurs form mission-driven startups.