NYT Casts Doubt on Nonprofit/For-Profit Hybrids

October 26, 2010; Source: New York Times | Are the various new hybrids mixing for-profit with nonprofit ventures working? Stephanie Strom, of the New York Times, takes a look at a couple of high profile failures starting with an awkward relationship between Global Giving and Many Futures, Inc., a profit-making business (owned by the founders of Global Giving, Mari Kuraishi and Dennis Whittle) which provided the technological platform on which Global Giving operates.

Apparently Global Giving loaned $10 million to Many Futures and was never paid back. It finally paid $12,000 to take possession of the company into which Kuraishi and Whittle had invested $1.4 million of their own dollars.

Strom likens the hybrid model to Dr. Dolittle’s “pushmi-pullyu, the animal that had trouble moving because its two heads could not agree on a single direction.” She writes in the Times, “The hybrid model for nonprofits is proving problematic. On occasion, the need to generate returns for investors overwhelms the social mission. In other cases, the business falters altogether and cannot support the nonprofit.”

Why did Kuraishi and Whittle choose the model? They wanted to “impose a brutal bottom line discipline on the model.” Our opinion is that there appears to be deep conceit in this statement, when we consider the extraordinary management skill of many nonprofit managers.

Strom references a number of other rich examples here and cites potential problems inherent in the model. Even some of the investors and entrepreneurs involved are expressing a good deal of caution. Will Rosenzweig, managing director of Physic Ventures, which invests in companies that bring social benefit, says, “I think you really have to make a choice and be a business or be a nonprofit . . . It’s hard to be both.”

For more on this topic, you can read “The Fatal Design Defects in L3Cs” in this summer’s issue of the Nonprofit Quarterly.—Ruth McCambridge