Evolving Opportunities for Achieving Mission
We recently came across the article “In Search of the Hybrid Ideal” in the Summer 2012 edition of the Stanford Social Innovation Review (SSRI) that echoes several conversations we’ve had with clients over the past year. The article discusses the growing trend of so-called “hybrid” organizations that seek to combine aspects of both nonprofit and for-profit organizations to tackle social issues and the challenges that they face in doing so.
In the article microfinance organizations – which in the U.S. context comprise a large percentage of certified CDFIs – are highlighted as an example of the kinds of organizations pursuing a hybrid model, resulting from the fact that, “When carefully managed, an additional loan can equal both more revenue and more of the desired social impact.”
The article discusses a number of key challenges facing hybrid organizations, one of the key difficulties being that current legal structures – nonprofit vs. for-profit – do not fully support the needs of hybrid organizations to fully blend social mission with commercial revenue. One such solution the article presents is the push to establish alternative legal structures, including the L3Cs (low-profit limited liability company), the Benefit Corporation, and the Flexible Purpose Corporation, which seek to integrate the organizational benefits of both nonprofit and for-profit organizations.
After our previous post on the use of investment funds to diversify capital sources and numerous strategic conversations with clients, the article led us to speculate on the extent to which CDFIs are considering these new legal structures for their own organizations, as a key factor cited in the article as contributing to an increase in the number of hybrid organizations is the interest in creating more sustainable financial models that are less reliant on donations and grants.
One of the most remarkable aspects of the CDFI industry is the sheer diversity of community and economic development issues that CDFIs are engaged in – from fostering small business development and job creation, to expanding access to affordable housing, to increasing access to healthy foods in underserved communities. And it is this depth and breadth of mission across the CDFI industry that constantly challenges CDFIs to be forward-thinking about the organizational models that best serve in the interest of achieving their social mission and goals and increasing their reach.
While it is still too soon to tell whether or not these new legal structures can successfully fuse together nonprofit and for-profit organizational models primarily for the benefit of a social mission, they demonstrate the evolving nature of community development and social enterprise and the continued interest in seeking more diverse means to generate socially beneficial outcomes. Additionally, CDFIs would do well to be aware of these types of emerging organizations, which would be an excellent vehicle for their own capital to help these organizations get their operations off the ground and amplify a CDFI’s own mission by assisting these social enterprises to grow and thrive.
What has been your experience with hybrid organizations? Have you come across these organizations in your own work or considered these new types of legal structures for your own organization?
If you are interested in learning more, SSRI will also be hosting a webinar on the topic next Tuesday, July 17 at 2 PM ET .