I have had a few interesting conversations in the past week about business models. For Profit vs Not For Profit models. I have been involved in both over my career and I think with some notable exceptions that some of the cliches about both models have some truth. Nonprofits do seem to have a tendency to operate at a little slower pace (Village Capital excepted) and without the hunger that you see in the for profit businesses. Nonprofits seem to see themselves as a little more esteemed, a little purer than their for profit counterparts and sometimes that translates into complacency in action. On the other hand, for profit businesses do seem to have a tendency to cut ethical and social corners sometimes while seeking to maximize profits.
The idea that businesses can shift between the two models is intriguing to me. In a social enterprise start up, particularly when there are substantial barriers to enter the market, it makes sense to get funding from grants. Take a look at Embrace Global, a Bangalore, India based business that has developed a low cost baby warmer. It is a fraction ($200) of the cost of the $20,000 versions you see in US hospitals and is just as effective. In addition it does not need a continual electrical connection, an adaptation that is important in the developing world. This helps solve a problem across the world in places with limited resources and medical infrastructure. It takes a lot of resources, clinical trials, and engineering studies to get a product like this off the ground and when you have high upfront costs grant funding is often the easiest path to getting startup capital.
The problem then becomes scalability. Once the product design is completed how do you attract capital to scale the business? Nonprofits are not going to attract venture capital, so what Embrace has apparently done successfully is spin off a For Profit business that sells the items designed by the original Nonprofit. Embrace innovations, the for profit spin off, now sells the baby warmers at enough of a profit to allow them to attract investors and begin expansion.
A hybrid model like this has a lot of utility in the social enterprise space. After all social enterprise in itself is a hybrid business model combining financial returns with social.
Kim and I have been in Bangalore now for just short of one month and have really enjoyed it. Bangalore is a big city though and if there is something that is difficult for us to adjust to it is being in the middle of a city of 10 million people. We have a trip planned to Coorg this weekend in the foothills of the Western Ghats, a mountain range that runs along much of the West coast of India and has a tremendous amount of bio diversity. Right now there is a controversy in India about the impact of tourism on the national parks that have populations of tigers. The parks that have tiger reserves are now closed to the public until some new guidelines can be set up dealing with how to allow tourism without negative impacts on the wildlife. Also, and probably most importantly, they are trying to figure out how to get more money out of the tourists that visit the park, in particular, the foreigners. All of this means we won’t be able to get to Nagarhole Park this weekend….we are still determined to see a tiger while in India though and just being out of the city will be great!