Pioneering a hybrid economic modelA leveraged nonprofit might seem like something of a paradox: it's a nonprofit, but it's also a business that addresses a true market need. Here's help understanding the model.
How do leveraged nonprofits operate?
Leveraged nonprofits identify communities at the bottom of the wealth pyramid — those that lack access to necessary goods or services as well as the resources to create viable market options — and then rely on fundraising and philanthropy to support the venture. Leveraged nonprofits often promote innovation by selling or giving away newly invented products to the poorest socioeconomic groups worldwide.
Leveraged nonprofits often seek conventional sources of nonprofit funding, such as philanthropic support and foundation and government grants. Many leveraged nonprofits also look to private sector partnerships and program-related investments. Leveraged nonprofits can be attractive to private sector investors interested in building the wealth of the communities they serve.
What are some examples of leveraged nonprofits?
Examples of leveraged nonprofits include:
- Embrace Thermpod. The Thermpod is a device resembling a tiny sleeping bag that provides warmth for newborns in hospitals with unreliable electricity.
- Barefoot College. This college teaches women in rural villages in 80 countries to be solar and electrical engineers. After taking engineering courses, often coached by women who've completed the program themselves, graduates bring electricity to their villages — improving quality of life for everyone.
- VisionSpring. This organization sells low-cost eyeglasses to people in the developing world. Helping people see better also helps them learn better, get better jobs and increase their earning potential, thereby improving the economic health of entire communities.
What are some considerations for launching a leveraged nonprofit?
A leveraged nonprofit has no technical difference from any other nonprofit or nongovernmental organization (NGO). Leveraged nonprofits must be mission-driven and provide some benefit to the communities they serve. The difference is in the options for fundraising and support. Private sector partners can often see tangible benefits from their support of leveraged nonprofits because they increase the economic potential of the community.
Leveraged nonprofits that operate in the U.S. should be aware of fee-for-service guidelines. Should the venture become profitable, the organization might be subject to Unrelated Business Income Tax (UBIT). In that case, a separation from the founding nonprofit might be considered. Some international social ventures have become successful enough that they spin off, or shift, to mission-driven for-profit enterprises.
One example is Jane Chen, creator of the Embrace Thermpod, who saw enough success with the device that she separated the original nonprofit from a for-profit venture. The for-profit company now manufactures the device, while its distribution is handled by an international NGO.
The founders of leveraged nonprofits are distinguished both as philanthropists and entrepreneurs as they pioneer a hybrid economic model. Although only a small sector of the larger nonprofit landscape, leveraged nonprofits offer extraordinary social benefits: they drive innovation, create new markets and benefit entire communities.
Schwab Foundation for Social Entrepreneurship: What is a social entrepreneur?
Cause Capitalism: What is a social business venture and is it right for you?
Reset: Social entrepreneurship
Forbes: Forbes' list of the top 30 social entrepreneurs by Helen Coster (2011)