A Model for Social Business

Social Enterprise by
A Model for Social Business

Social Entrepreneurship is a term that’s been used since the 1970’s, though it is far more prevalent in business language used in the past 10 years. What a social enterprise is and how you classify one takes many forms, but I don’t think anyone would argue that fundamentally the core focus of a social venture, is to have some sort of positive impact with the financial aspect taking a back seat.

The challenge for any social entrepreneur or person running an organization with a social mission, is that money is required to keep things running and the model must cater for that.

The majority of charities work on a very simple business model whereby donations fund people and projects. Some charities raise the money from donors and then work out how it can be best spent. More effective charities will develop a plan of what needs to be done, then go out and find the funds.

This model works well for charity, but no entrepreneur would want to develop a social enterprise in this way. In the early days of ‘the build’ there may be a need for seed funding, grants and other investment support but the long term plan should always be to work towards a model that has a sustainable revenue stream.

There is no golden ticket for growing a social business and the very nature of entrepreneurship means people make their own rules, but there are some guidelines for models that can work across the board.

Profit Generator Model: Engaging in a trading activity that has no direct social impact, making a profit, and then transferring some or all of that profit to another activity that does have direct social impact.

The most common place the Profit Generator Model can be found is inside large corporates. They make profit and with that profit fund their CSR activities or make charitable donations. It’s not as commonly seen in small social enterprises though it can be adapted.

Trade-Off Model: Engaging in a trading activity that does have direct social impact, but managing a trade-off between producing financial return and social impact.

The trade off model is the most commonly seen and in my view is the safest place for a social entrepreneur to be. Micro finance companies and organizations that employ ex-offenders or disadvantaged are some of the classic examples and in both cases they have a consistent revenue model that follows the rules of conventional business. This model will be far more attractive to banks and other investors, who are often required in the early stages of development.

Lock-Step Model: Engaging in a trading activity that not only has direct social impact, but also generates a financial return in direct correlation to the social impact created. A model that not only makes a difference but also makes a profit; solar companies, wind farms, organic food production and many more.

Utopia for the social entrepreneur and a place for the capitalist to start wearing their social hat. Though I have never been a fan of profit for the sake of profit, even with this model a leader with a vision beyond financial value will ultimately reinvest in other areas that support a bigger cause.

The challenge of playing in this space as a social entrepreneur is being faced with a moral dilemma such as Richard Reed from Innocent Drinks faced, when Coca Cola purchased a chunk of the business for an estimated USD$100M.

Whether one of these models, another or some kind of hybrid, every social business will be defined by a model and though you are likely to be leading with a mindset of making a difference, that difference must to be financially sustainable in order to run the operation.