At Idealist, we’ve been working closely nonprofits for many years to help them find passionate and talented employees, volunteers, and interns who want to change the world. However, over the past few years, we’ve seen an explosion of different kinds of organizations working social change: hybrid companies, Benefit Corporations, and more.
To help you get a sense of the ever-evolving social change landscape, we’ve put together a short list of different organizations working for the greater good. What distinguishes these organizations from each other isn’t their commitment to social change but rather, how they secure funding and how they are structured.
- What it is: Unlike businesses which exist to make money for their owners or shareholders, nonprofit organizations exist to promote a cause or to provide a public service. It’s okay for nonprofits to earn a profit, but those profits are re-invested in the organization, rather than disbursed among stakeholders or pocketed by other owners as business profits are.
- Who’s doing it: Millions, literally. A classic example is the March of Dimes, which leverages individual donations, grants, and corporate sponsorships to support its research and advocacy in preventing premature births.
- Pros and cons: Traditional nonprofits work well when the community being served cannot pay as they are able to raise funds from foundations and individuals in the form of tax-deductible donations. However, the reliance on donations and grants often puts these organizations in a perilous state when funding decreases or simply disappears. And while they don’t have to give their profits to shareholders, they are subject to oversight by their board of trustees and a variety of federal and state regulations.
Nonprofit with earned income
- What it is: Whereas many nonprofits usually rely heavily on grants and donations to stay afloat, some nonprofits organizations incorporate a source of earned income to diversify their income streams.
- Who’s doing it: Nonprofit performance venues are a common example of organizations blending earned income with donations. The Woodruff Arts Center presents a variety of visual and performing arts to the Atlanta, Georgia community, and supplements their corporate, foundation, and individual support with ticket sales to hundreds of events every year.
- Pros and cons: Nonprofits with an earned income branch lessen their dependence on gift income while retaining the tax advantages held by all nonprofits. However, the manpower needed to run the business side of operations (in Woodruff’s case, tasks like marketing, sales, and customer service) can put a strain on program staff, or necessitate running two different departments.
- What it is: The hybrid model links a for-profit company with a nonprofit organization.
- Who’s doing it: The Mozilla Foundation handles the development of the open-source web browser Firefox, while the Mozilla Corporation—its for-profit subsidiary—arranges revenue-sharing agreements with its search partners. (The foundation brings in around $200,000 in charitable donations annually; the corporation earns over $100 million.)
- Pros and cons: While linking for-profit and nonprofit is in many ways the best of both worlds, hybridization requires the formation of separate boards and management staffs, and conflict of interest issues can easily arise—possibly raising eyebrows at the IRS.
- What it is: Instead of investing for the sole purpose of turning a profit, impact investment firms lend cash to businesses working for social or environmental good—so both parties have a chance to invest in positive change as well as financial gain.
- Who’s doing it: Willow Impact, with offices in Nairobi, Dubai, and New York City, is an impact investment firm whose funds “generate positive, sustainable and demonstrable social and environmental impact while complying with a commercial imperative.”
- Pros and cons: Many conventional investors overlook businesses with “good” directives, leaving them ripe for impact investors. However, social returns can be difficult to quantify and present in the same language as financial reporting, and that can complicate communication between parties. Also, impact investing deals are often relatively small, less than $1 million, which turns some larger-scale investors off.
- What it is: A “B Corp” is a business that helps to solve social and environmental problems. B Corp certification is fairly new on the scene: the first state to pass legislation recognizing it was Maryland, in 2010. Companies wishing to attain B Corp certification must prove to the certifying organization, B Lab, that they have a corporate purpose to create positive change for society and the environment, and that they consider the impact of their decisions not only on shareholders, but also on their workers, community, and the environment. Flexible purpose (FlexC) and low-profit limited-liability (LC3) companies are two variations on the B Corp theme.
- Who’s doing it: Outdoor clothing and equipment retailer Patagonia was certified as a B Corporation in 2012. Smaller companies like Chicago creative firm Mightybytes and Philadelphia-based software developer Azavea have also come on board.
- Pros and cons: The B Lab label can be a compelling marketing tool for businesses, and the B Corp network is notable for offering their services to one another free of charge or for substantial discounts. But the certification process can be long and costly, and must be repeated every two years.
For-profit with a mission
- What it is: A company that operates as a typical legal corporation, but with a social or environmental mission integral to its product.
- Who’s doing it: Seventh Generation creates green cleaning products that are easy on the earth, with the explicit mission to inspire a revolution that nurtures the health of the next seven generations.
- Pros and cons: Companies with higher motives than profit alone have great built-in marketing fodder, and are candidates for partnership with the new crop of impact investors, including the $1 billion impact investing fund included in the Obama administration’s Startup America initiative. However, proving social impact to investors is always a challenge, and companies can face internal and public struggle if they grow but not all parties agree on the mission’s continuing place in the work.
Want to learn more? Here are a few other resources about social entrepreneurship and the growing opportunities we have to give back: