Aditya Pal

Roll No- 17005

Hybrid Organizations

Hybrid organizations are those which combine the social logic of a non-profit with the
commercial logic of a for-profit business. These organizations start off as a non-profit or profit
organization, and then they launch another entity.

As funds start to dry up, non- profits need to rethink as to how to generate revenue to keep the
organization in working condition. Generally, they take the option of setting up another for-
profit entity. Let us take one example. Consider two organizations with the same purpose: of
solving the problem of poor eyesight in developing countries. The first, the Centre for Vision
in the Developing World follows a traditional non-profit model, which runs on donations that
fund the creation and distribution of specially designed eyeglasses that can be calibrated by the
user to circumvent the need for an optometrist. The second, Vision Spring follows a different
approach, working to build a network of entrepreneurs who sell eyeglasses in their
communities. But they sustain themselves by selling glasses. Vision Spring is what
organization scholars call a hybrid social venture, since it combines the social welfare logic
of a non-profit and the commercial logic of a for-profit business.

Advantages of Using a Hybrid Model

When hybrids work, they can be a fantastically creative means of solving real-world problems
in totally self-sustaining ways, harnessing the strengths of both for-profit and non-profit
models. Hybrid structuring brings together the best of both worlds. It can attract both grants
and donations and is still eligible for VCs. To put it simply, hybrid structures are a combination
of a For-Profit and non- profit entity, where both the entities function together as a joint unit.
The For-Profit entity can be a subsidiary of the non-profit entity and vice versa. They can also
be two separate legal entities but working for the same cause. A hybrid model helps in scaling
up easily. Hybrid models are coming up in all spheres including healthcare, technology,
agriculture. NGOs and businesses are collaborating with each other in new inventive ways.

Let us take one more example. The non- profit Mozilla Foundation which promotes an open
internet, in 2005, opened its for profit-subsidiary , Mozilla Corp to manage operations related
to Firefox, the Web Browser created by Mozilla Foundation, and its other open source
software.
Disadvantages of Using a Hybrid Model

The most important thing to remember is that there is no fixed guideline on how a hybrid
organization should operate. The hybrid organizations are immensely complicated
organizations and each hybrid organization is set up for a particular objective. The success of
a hybrid organization often depends on how well the non-profit entity and the For-Profit entity
are working together. Several complexities can arise as for how these hybrid organization will
be governed, to whom the Intellectual Property will belong , and sometimes there might be a
conflict of interest between the for- profit entity and the non-profit entity.

The funding for the two entities also remains a problematic issue. For instance under the IT
Act, a charitable trust cannot invest money in the shares of a company. There is no fixed chain
of command, and nor is there any guideline on how these conflicts will be solved. So it will
depend on the hybrid organization to solve its problem internally. While establishing the hybrid
organization, it must be seen that the objectives and purposes of each entity are identified, in a
well-drafted document, including any structural and governance problem. This will help in
solving the conflicts between the two entities in a relatively easier way.

Another problem is that the entrepreneurs do not want to invest in a hybrid structure because
hybrid social ventures fall into a gray area between business and charity. They are not easily
funded by venture capitalists on the one hand or philanthropic foundations on the other.

Conclusion

However, it must be noted that, to maintain a hybrid organization it takes a huge amount of
workforce and a huge amount of money. Different legal entities have different rules and
regulations. They need to follow certain guidelines of the Government. To maintain a non-
profit entity (for example a Trust) and a For Profit Entity (a Company) at the same time, all the
necessary compliances has to be followed for both the entities. Hence, hybrid organizations are
not always ideal, and must be used only in cases where it is needed.

Hybrid organizations enjoy the bests of both- the non-profit entity and a for-profit entity. A
hybrid organization has some distinct advantages as well as disadvantages over the traditional
for-profit and non- profit organization. It is up to the entrepreneur as to how he wishes to
structure his enterprise according to the needs of his enterprise.