Business Models for Social Enterprises
Pathways for social change
Navigating through social entrepreneurship can become quite a challenge, especially for those approaching it for the first time.
As a matter of fact, there are hundreds of social businesses worldwide generating positive impact in different ways. If interested, this section of our website discusses few of them!
Now, as you might guess, every social enterprise has its own mission, a specific value proposition to offer, and most importantly, a solid business model. But it isn’t always easy to understand how each one of these companies manage to create, deliver and capture value. You don’t know where to start, it all gets confusing, time consuming.. we’ve been through that before.
So, in order to help aspiring changemakers getting more familiar with the topic, we put together a list of business models for social enterprises and social businesses. As you will see, they all are abstract, conceptual structures, so to say. Nevertheless, they might help you get more acquainted with business modeling and eventually help you choose the best pathway for your project.
Business models for social enterprises
Let’s be clear: we are not the first ones digging into this topic. Actually, quite the opposite. Business modeling has been extensively researched in recent years. And that is why the Internet is filled with a ton of insightful content on the subject.
Among all these works, we decided to build on the research done by Business Model Zoo, a project developed by Cass Business School. In fact, Dr. Baden-Fuller and his team identified four main business model pathways for developing a business: product, solution, matchmaking and multi-sided. Any startup and organization, including social ones, usually falls into one (or a combination) of these categories.
In the following sections, for each of these categories we provide a brief explanation as well as few examples of social enterprise model types.
1. Product Model
Product model is definitely the easiest category to understand. Organizations using a product model sell (or rent) standardized products/services to a customer segment, getting paid in return. Those customers might be individuals (B2C) or other businesses (B2B): still, the logic doesn’t change.
When it comes to social entrepreneurship, businesses choosing a product model sell/rent directly to their beneficiaries. In other words, customers and beneficiaries are one and the same. Because of that, this model is also often called “beneficiary as customer model“. In this scenario, beneficiaries either buy/rent a product, purchase a one-time service, or subscribe to repeatedly access an ongoing service.
2. Solution Model
To a certain extent, a Solution model might look similar to the previous model we discussed, even though it radically differs from it. As a matter of fact, the company still sells directly to the end customers. However, it does it by offering tailored products/services, instead of standardized ones.
You can put it in this way: in a solution model, a company develops a product/service with and for each customer. Something that obviously requires to engage with customers first, to collect their needs and unmet desires. From there, the value proposition design process then follows.
Solution models can be found in social entrepreneurship too. The “cooperative model” (beneficiaries own the firm) and the “beneficiary as business owner model” (beneficiaries receive consulting and financial support from the firm) are indeed typical examples of solution models. Here, once again, beneficiaries and customers tend to overlap.
3. Matchmaking Model
In a matchmaking model, the firm typically connects complementary groups: customers and sellers. In other words, it helps matching demand and supply. When adopting this model, the value provided by the firm is therefore transactional.
Facilitating such matches is not always easy. As a matter of fact, the company has to create a physical or digital platform (namely, the “marketplace“) and to make sure that both segments meet there at the same time. Then, it usually capitalizes on the value created by charging a fee on each transaction.
When applied to the social sector, matchmaking models can get a little more tricky. For ease of understanding, we identified two main sub-categories within this cluster. On one hand there is the “market intermediary model“, in which the enterprise physically connects beneficiaries with markets interested in their products/services, acting either as an intermediary or as a re-seller. On the other hand, you have the “platform as intermediary model“, with online platforms connecting two complementary segments (i.e. buyers and sellers, fundraisers and donors, etc.).
4. Multi-sided Model
Last but not least: the multi-sided model. In a multi-sided model, the enterprise provides diverse value propositions (products, services, solutions) to different segments. Even though the value created for one target is different from the other one, one of the two sides usually receives additional benefits from the other group’s transactions.
Multi-sided model can take various forms in social entrepreneurship. Below we list the most common ones:
– “customer segment cross-subsidization model” = the firm delivers pretty much the exact same product/service to two targets (customers and beneficiaries). The first one pays, the other one then receives it for free or at a discounted rate. “One buy, give one” models fall into this sub-category.
– “product line cross-subsidization model” = here, the firm delivers two different products/services to two targets (customers and beneficiaries). Once again, the first segment pays, the other one receives it for free or at a discounted rate. “Freemium” models tend to be considered part of this cluster.
– “cross-subsidization with parent company model” = in this case, the social enterprise solely acts as a funding mechanism for its parent company. Eventually, the profits generated by the enterprise are later used by the parent organization to serve beneficiaries and fulfill its social impact mission.
– “donation model” = to some extent, this model is quite similar to the previous one. Yet, the social enterprise donates its profit not to a parent company, but to a distinct social organization. This organization then uses the funds received to generate positive social change.
– “employment model” = the firm trains and employs beneficiaries, and later sells products/services to conscious customers (at times, willing to pay premium prices to contribute generating impact).
This is just a first taste of what business models for social enterprises might look like. In order to further help aspiring changemakers getting more confident with the topic, we decided to collect data through different case studies.
In our “” section, we indeed discuss how different social enterprises and social businesses are creating, delivering and capturing value. Beside that, for each organization we also investigate what’s the business model framework behind it. So, don’t forget to keep browsing and check this section! 🙂
Any business model you would like us to discuss?
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