As had been mentioned in the previous paragraph social entrepreneurship draws upon business techniques and approaches in order to resolve social, cultural and environmental problems such as to end poverty, to improve the standard of living, to support vulnerable populations etc. However, one of the main goals is to maintain sustainability and self-sufficiency by re-investing the profits deriving from various operations of the social enterprise in order to accomplish its missions.
The need of revenue-oriented operations for social enterprises signifies the necessity of generating a unique business model of operation, within the co-existence of business principles and rules, market characteristics and values such as, for instance competition, diversification, openness, innovation, combined with the need that the community itself generates, thus delivering public value. A couple of illustrations on the structure of a social enterprise’s business model are being given in the pictures below.
As it is being depicted in the previous pictures, the requirements for a successful business model is to propose an operating strategy that contains both the internal structure of the organization as well as the external partnerships through which the social enterprise will be capable to create a pre-determined social impact. Additionally, a successful business model should also contain a complete resource strategy, implying the way in which the organization will manage to acquire specific forms of financial and human capital, thus accomplishing its mission.
What’s a business model and what makes it successful?
In economic terms, the business model for a social enterprise is the mode through which the inputs are being converted into outcomes, in order to create social and economic value. There are various type of social enterprise business models which are being proposed in relevant books, articles and on-line sources and which could be applied to different institutions, always in consistency with various factors such as social enterprise’s financial capacity, social mission, marketplace dynamics, legal context, clients’ or any other target group’s needs and demands etc. Accordingly, a table which provides a review of various types of models is given below.
One of the most popular books which categorizes social enterprises by putting them under three business structures is John Elkington’s and Pamela Hartigan’s book entitled as ‘The Power of Unreasonable People’. Elkington and Hartigan basically use the idealism of ‘non-profit’ in combination with the usage of forces deriving from the commercial sector as they support the view that the ideas that can be accomplished and re-executed on a large scale, derive from social enterprises which are allowed to make profits. To support this idea, the authors provide the example of the expansion of the Indian telephone support line in order to include ‘Aflatoun’, an organization that is responsible for providing training to children concerning their human rights and ways in which they could handle money, a target which is being accomplished by forming a strong alliance with banks, thus guarantying the financial sustainability of the specific model.
Accordingly, the formulation of strong alliances between non-profit and private business could create an important path towards the successful implementation of a social enterprise’s mission. Another example that belongs to the specific category is the Grameen bank which was managed by Mohamed Yunis who formed an alliance with a food provider company named Danone, aiming at the provision of low-budget yogurt in the so-called third countries. Additionally, the authors also provide the example of Schwab Foundation for Social Entrepreneurship which collaborated with Lemelson Foundation in order to apply innovative entrepreneurial models across the world, through the establishment of the ‘Leapfrog Fund’.
The Social Business Structures of Elkington and Hartigan
All those entrepreneurial models are being analysed within three different entrepreneurial structure models. At this phase, we would attempt to provide the reader with a brief description for each one:
(1) Leveraged non-profit ventures: In this case, social entrepreneurs establish a non-profit organization in order to apply an innovative model that is deemed capable to address a previous market failure, or even a governmental failure. This target is being achieved through the engagement of a cross section of society, composed of both private and public organizations, to accelerate the applicability of this innovative model, thus generating a multiplier effect. In terms of funding, at the initial phase this type of entrepreneurial structures rely on external philanthropic sources, although if the partner wish to constantly work on this venture, the longer term sustainability could be reinforced in various ways;
(2) Hybrid non-profit ventures: In this case the entrepreneur establishes a non-profit organization, whilst at the same time the model contains an extent of cost-recovery, primarily maintained by the sale of goods and the provision of services towards a cross section of both private and public organizations and many other pre-determined target groups. Frequently, the entrepreneur establishes or supports the creation of various legal entities in order to maintain the accommodation of the earning derived by the incomes, as well as the charitable expenditures, thus attempting to detect the optimal entrepreneurial structure. Subsequently, to be able to support all the transformation activities to satisfy the needs of clients, social entrepreneur should detect other funding sources in the form of loans or grants, deriving from both the public and philanthropic sectors;
(3) Social business ventures
In the last case, social entrepreneurs establish a for-profit institution or business with the aim to provide products and services related with the social or ecological interest. Due to the status of organization (for-profit), the ultimate goal is not to reach a maximum of financial earnings that return to shareholders, but to make the social venture itself more sustainable, thus serving many more underserved social groups. Simultaneously, profits could be re-invested in the expansion of the funds. Accordingly, the investors in this case should be individuals who are willing to receive both financial and social returns on their investments.
- Elkington J. and Hartigan P., (The Power of Unreasonable People (2008), Harvard Business Press, Boston Massachusetts
- Weerawardenaa J. and SullivanMortb G., (2006), Investigating social entrepreneurship: A multidimensional model, Journal of World Business, Volume 41, Issue 1 p. 21-35
- Yunus M., Moingeon B., Laurence L., (2010) Building Social Business Models: Lessons from the Grameen Experience, Long Range Planning, Volume 43, Issues 2-3, April-June 2010, p. 308-325