Cross the Line: How to Start a Nonprofit with a Hybrid Revenue Strategy

For the risk-averse it’s better to toe the line than to cross it. But playing it safe won’t cut it as nonprofit budgets tighten and grant resources dry up. Instead we recommend diversifying your nonprofit’s income strategy—even if that means breaking the boundary between businesses and charitable organizations.

We recently interviewed consultant John Fulwider about nonprofits that adopt for-profit business models to better compete for much-needed income. Fulwider’s interest in hybridized business models was driven in part by an article by Julie Battilana, Matthew Lee, John Walker and Cheryl Dorsey: “In Search of the Hybrid Ideal.” In this article from Stanford Social Innovation Review, the authors argue that hybrid organizational models are fountains of innovation. They explain that hybrid organizations are “combining social welfare and revenue generation models.”

And while your nonprofit doesn’t have to become equal parts business and charity, as organizations described by the authors do, it wouldn’t hurt to integrate revenue streams besides fundraising or foundation grants. Instead, introduce goods or services people will happily buy.

Your relationship with customers will change upon hybridizing your structure. Instead of donors, they’ll be customers. Beneficiaries may become customers too.

The key to effective integration is holding fast to the heart of mission. As Battilana and her counterparts explain, “Traditional nonprofits think of their consumer base as beneficiaries. Hybrids, however, break this traditional customer-beneficiary dichotomy by providing products and services that…produce social value.”

Change Your Mindset

To cross the boundary from a dependent nonprofit to one in charge of its own success—rethink your identity. Nonprofits always provide social value. Now you’re coming up with ways to exchange social value for revenue. As the authors in pursuit of the “Hybrid Ideal” write, “Social and commercial value creation enables a virtuous cycle of profit and reinvestment in the social mission.”

Change Your Culture

Help your nonprofit staff and volunteers understand your goal for diversified revenue so they can help you reach it. Discuss how to broaden your perspective for income generation without losing sight of your mission. “[Identify] and communicate organizational values that strike a healthy balance,” instructs Battilana and her counterparts.

Change Your Offering

The restorative promise of hybrid models goes both ways. California store Kepler’s Books is integrating a nonprofit dedicated to literacy to bolster revenue.

Following the lead of Kepler’s Books, consider what products or services your nonprofit can offer to supporters. Select something that will ultimately serve your mission. For example, a nonprofit that helps immigrants assimilate might sell books for English language students.

One final word: rules and regulations vary by state regarding legal status and your organization’s sources of revenue. Check with your state about whether integrating for-profit business practices will affect your nonprofit’s legal status.

What’s attractive about a hybrid business model to your nonprofit, and what steps is your organization taking to incorporate one?