For-Profit or Non-Profit? How Hybrid Tension Yields Success

November 30, 2014

By Kirsten Bunch

Years of hard work building a thriving social enterprise are starting to pay off for VisionSpring. This year, we expect to generate an estimated $1.6 million in earned income from the sale of eyeglasses, and our business units are currently averaging nearly 70 percent cost coverage.

Moreover, we have a loyal cohort of individuals and institutions that support our work through grants and donations needed to fill the gap between earned income and operating expenses.

As a hybrid social enterprise, both earned income and philanthropy are critical to VisionSpring’s success in bringing affordable eyeglasses to the base-of-the-pyramid (BoP) consumer.

In 2001, when plans for VisionSpring were being drawn up, we asked the same question that most social entrepreneurs ask themselves – should we incorporate as a for-profit or non-profit?

The answer to this question lay in the market dynamics of the eyewear industry. Markets for eyeglasses at the BoP had failed utterly, evidenced by the absence of affordable products in poor communities. BoP consumers weren’t aware of the benefits of eyeglasses, making it harder to sell them to people with many demands on their limited resources. And distribution costs were high given the high-touch nature of vision care and eyeglasses, and the desire to reach BoP customers outside of urban areas.

Recognizing that market dynamics were working against us, we knew it was going to be a long, slow slog towards profitability. Most investors want to see a return within three to five years, but it was going to take quite a bit longer for VisionSpring to become profitable.

With neither commercial nor impact investment a possibility, VisionSpring incorporated as a 501(c)(3) in order to access philanthropic capital to launch and grow its social enterprise. However, mixing philanthropy with the desire to create earned income doesn’t come without its challenges and tensions.

Earned income is a core part of our model. It’s in our organizational DNA to believe that consumers living at the lower levels of the economic strata find enough value in correcting their sight that they will purchase eyeglasses, if the glasses are affordable and to the consumer’s taste.

Yet we recognize that because we are working in difficult marketplaces where there is lack of awareness of the benefits of eyeglasses, low capacity to pay and undeveloped distribution channels, it is going to take a long time for our businesses to be profitable. So, we leverage philanthropy to give our business – and earned income – time to grow.

Grants and contributions allow us to be innovative in our approach to reaching the BoP consumer. They give us flexibility in testing new strategies, products and technology. Philanthropy lets us enter a new country knowing that it will most likely be many years before we reach cost coverage, let alone profitability. This is important to our social mission – getting eyeglasses to people who need them – but it’s also important because part of what we are trying to do is demonstrate to the commercial eyewear sector that there is money to be made in BoP markets. It takes time and resources to do that.

At the same time, throwing philanthropy into our revenue mix creates tensions within our organization, just as the relationship between profitability and mission creates tension within other companies that have double or triple bottom lines. If our goal is to create a profitable business, and we know that it will take philanthropy to get us to that point, how do we decide how much philanthropy we need, and when we need it?

We risk starving our business units if we don’t give them the nutrition they need to be healthy and to grow. But if we feed them too much, we can end up with a business that has lost sight of the goal of profitability. We may take too many risks, believing that we have lots of financial room to make mistakes. And we risk swinging too far in the direction of mission – “putting glasses on faces” – no matter what the cost, to the detriment of profitability. If the mandate we give our global team is profitability, we have to be careful about sending the message that we will continue providing a flow of capital even if profitability goals aren’t met.

In reality, we have two teams within VisionSpring – one that focuses on selling eyeglasses and the other on raising money. These two teams operate independently from one another over 75 percent of the time. While we all agree that grants and contributions are key to our success and we are all incredibly grateful to our donors for their support of our work, the two teams don’t always agree on who should be involved in fundraising.

As any good fundraiser knows, donors are most interested in hearing from the people closest to the action. But, like most organizations – whether a hybrid social enterprise or a more traditional NGO – the people closest to the action need to focus on the action.

For VisionSpring, this means that our people in India and El Salvador, where we have our primary operations, need to focus on selling eyeglasses. To that end, we try to limit the number of fundraising requests that go to our in-market staff, and instead educate our fundraising team through field visits and business-focused discussions so they can accurately and passionately represent our work to donors.

Finally, we have a saying at VisionSpring: “We don’t scale losses.” We constantly remind ourselves of this because in our passion to bring clear vision to people in need, we are tempted to open more stores and push into new markets because we have access to philanthropy that enables to do so. But we know that we won’t be doing ourselves or our donors justice in stretching ourselves too thin while ignoring our focus on profitability.

More importantly, we best serve our current and future customers if we create a long-lasting model that will lead to the availability of affordable eyeglasses for the 700 million people globally who need them to learn, work and lead better lives.

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