Many nonprofits struggle to secure enough funding. Grants and philanthropic gifts often are not enough to meet these organizations’ needs. To make up the shortfall, a growing number are developing innovative business models that combine for-profit and nonprofit activities.
In some corners of the social sector, hybrid business models have long been the norm. Consider American hospitals, which receive payments from insurance companies, while also raising philanthropic gifts to fill in the gaps. Or consider universities, which charge tuition while also seeking donations to build a stronger financial foundation. In both of these cases, charging fees to some clients enables the organization to meet its goal of caring for everyone, including those who are unable to pay for their healthcare or education, but who are no less deserving of these vital services.
These models are less common among smaller nonprofits, but many small social-sector organizations could benefit from diversified business structures. Developing a sellable product or service can offer more predictability and sustainability to organizations that are dependent on a few large grants or on a handful of generous major donors. Adding a for-profit arm can also boost a group’s financing to enable the expansion of programs or the launch of new nonprofit initiatives. If you work in the nonprofit sector, consider creating a for-profit segment of your organization.
How to develop a hybrid business model for your nonprofit
The key to successfully establishing a for-profit enterprise within your nonprofit is to turn something you already do well, or an asset you already possess, into a marketable product or service that others are willing to pay for.
Consider whether a new customer segment might have a willingness to pay for the services you offer for free.
- Example: If you offer free therapy to survivors of traumatic events, could you also offer counseling on a sliding-scale fee structure to other clients who are able to pay?
- Example: If you run an educational program, could you license your curriculum to other organizations, or develop a for-profit tutoring operation to serve families who are able to cover their costs with fees?
- Examine whether one of your underutilized assets be turned into a business opportunity.
- Example: If some of your facilities are unused during the week or on weekends, could you rent them out for coworking or special events? This is especially profitable for organizations located in city centers or whose grounds are a key asset, such as farms or gardens.
Investigate whether you could sell an output of your social services to the public.
- Example: If you run a job-training program for restaurant staffers, could your students’ baked goods be sold at a local farmer’s market to help cover costs?
Lines are blurring between the business and social sectors. More and more for-profit companies are setting themselves apart by incorporating a social mission into their work. Examples include buy-one-give-one companies such as TOMS Shoes or Warby Parker glasses. Others donate a portion of their profits to charity, such as Product Red. Still others offer ethical-sourcing guarantees, such as Brilliant Earth jewelry and any number of fair trade coffee companies. These corporations stand out to customers, and are able to charge premium prices, because more people are willing and able to prioritize products that have a strong social connection.
Nonprofits are well positioned to benefit from customers’ shifting expectations. With a bit of creativity and willingness to experiment, nonprofits can seize on recent trends in order to build a stronger financial foundation and better serve the people who need them most.