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Business models in Social Entrepreneurship and Social Business
Article · March 2014
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Linda Kleemann
Kiel Institute for the World Economy
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Business models in Social
Entrepreneurship and Social Business
Dr. Linda Kleemann
27/01/2014
1
Agenda for today
Introduction on business models
Options for social business models
Legal forms
Social business model canvas
What is your business model?
2
What is a business model?
The plan implemented by a company to generate revenue and make a profit
from operations. The model includes the components and functions of the
business, as well as the revenues it generates and the expenses it incurs.
Answers the question: How are we going to make money to survive (and
grow)?
>> builds on cost plan, product plan, market analysis (business language)
>> builds on expected expenses, impact plan, stakeholder analysis, statement of
need (social sector language)
3
The traditional business model process
4
The traditional business model process
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
5
The traditional business model process
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
6
The traditional business model process
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
7
The traditional business model process
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
8
The traditional business model process
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
9
The business model process today
10
The business model process today
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
11
The business model process today
( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
12
The business model process today
( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
13
The business model process today
( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
14
The business model process today
( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?
15
Stylized social business models (1)
Traditional business model
( )
16
Stylized social business models (2)
Impact investor type with government, investor or public as interested third party
17
Stylized social business models (3)
Cross-subsidized model
( )
18
19
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20
Fairtrade is an alternative approach to conventional trade and is based on a
partnership between producers and consumers. Fairtrade offers producers a
better deal and improved terms of trade. This allows them the opportunity to
improve their lives and plan for their future. Fairtrade offers consumers a
powerful way to reduce poverty through their every day shopping.
When a product carries the Fairtrade Mark it means the producers and traders
have met Fairtrade standards. The standards are designed to address the
imbalance of power in trading relationships, unstable markets and the injustices
of conventional trade.
21
VisionSpring has developed several innovative models for bringing high-quality, affordable
eyeglasses to customers in developing countries. Through mobile optical units, optical shops, and
Vision Entrepreneurs, more than 600,000 pairs of eyeglasses have been sold.
22
Social business model categories (1)
Business category How it works Examples Key success factors
Entrepreneur Sells business support to Microfinance Appropriate training for
support its target population. organizations, consulting, the entrepreneur
or tech support
Market Provide services to clients Supply cooperatives like Low start-up costs,
intermediary to help them access fair trade, agriculture, and allows clients to stay
markets. handicraft organizations and work in their
community
Employment Provide employment Disabilities or youth Job training,
opportunities and job organizations providing appropriateness and
training to clients and work opportunities in commercial viability
then sells its products or landscape, cafes, …
services on the market.
Fee-for- Selling social services or Membership Establishing the
service/product products directly to clients organizations, museums, appropriate fee
or a third-party payer. and clinics, solar lamps, structure vis a vis the
microfinance, … benefits
23
Social business model categories (2)
Business category How it works Examples Key success factors
Low-income client Similar to fee-for-service: Healthcare Creative distribution
offering services to clients (prescriptions, systems, lower
but focuses on providing eyeglasses), utility production and
access to those who couldn’t programs marketing costs, high
otherwise afford it. operating efficiencies
Cooperative Provides members with Bulk purchasing, Members have common
benefits through collective collective bargaining interests/needs
services. (union), agricultural
coops, credit unions
Market linkage Facilitates trade relationships Import-export, market Does not sell clients’
between clients and the research, and broker products but connects
external market. services clients to markets
Service Sells products or services to Consulting, Can leverage tangible
subsidization an external market to help counseling, assets (buildings,
fund other social programs. employment training, employees) or intangible
The business activities and etc. (expertise, network,
social programs overlap. methodologies)
24
Social business model THEMES
Business THEME How it works Key success factors
Education Provides additional or improved Quality of service, demand by
educational opportunities or advocates beneficiaries, WTP of interest groups
for it
Environment Provides or advocates environmental Measurable improvement, WTP of
improvement in exchange for donations, interest groups
payments or grants
Poverty Provides products or services to the Products or services offer relief and
poor, similar to low income client are demanded, cross-subsidization or
like low income client
Disabled or Usually self-help groups, advocacy Members have common interest,
disadvantaged groups or employment creation WTP of interest groups
people
Disaster relief Usually government and donations Fast response, efficient processes,
funded quick help ability to mobilize funds
For all examples: do the beneficiaries demand it?
25
Legal forms
26
Legal forms
Social enterprises can take various legal forms from non-profit to for-profit.
The legal form is particularly relevant for:
Tax
Funding
Liability
Legal forms differ from country to country
27
Legal forms for social enterprises in Europe
Europe
Social enterprises take various legal forms in different countries across Europe,
e.g. solidarity enterprises, co-operatives or limited liability social co-operatives,
collective interest co-operatives (Italy, France, Spain, Portugal, Greece), social
purpose or collective interest companies (Belgium), community interest
companies (United Kingdom).
A number of European countries have adopted national laws regulating social
enterprises, e.g. Belgium, Finland, France, Italy, Poland, Portugal and the United
Kingdom.
Those specific laws include the definition of social enterprise, asset allocation,
stakeholder and governance systems, and accountability and responsibility
towards internal and external stakeholders.
28
Legal forms for social enterprises in Europe
…. Europe ctd.
Roughly three different models according to organisational form:
the “co-operative”,
the “company” and
the “open form”: no specific legal form but rather defines the criteria that need to
be met to be considered a social enterprise (Cafaggi and Iamiceli, 2009), e.g.
“Community Interest Company” in the United Kingdom benefits from improved
tax treatment and other support.
Germany: no explicit legal form (yet)
New government is planning a “bureaucracy-free” legal form for social
enterprises (Koalitionsvertrag)
Until then: gUG, gGmbH, for-profit or non-profit or both
29
gUG, gGmbH
gUG= gemeinnützige Unternehmergesellschaft = mini gGmbH
gGmbh = gemeinnützige Gesellschaft mit beschränkter Haftung
…are variants of UG and GmbH and fall as such under those laws
…have tax advantages due to a charitable status
… have to act accordingly to keep their charitable status
… profits have to be used for the charitable purpose and cannot be distributed
unless its shareholders are themselves charitable organisations
… are becoming more popular in particular due to restrictive regulations for
business activities of charities
30
Non-profit vs. For profit
non-profit for profit
Tax advantages Less regulated
Specific funding only available for Stronger identification and
non-profits responsibility by owners due to
Funders don‘t expect financial financial involvement
return Risk of turn towards (too much)
Activities highly regulated in focus on financial returns
particular towards income More difficult to get funding for
generation social purposes
Risk of being not sustainable Usually no tax advantage
financially
31
Social Business Model Canvas
32
How to – (Social) Business Model Canvas
The Business Model Canvas is a template for developing new or documenting
existing business models. It is a visual chart with elements describing a firm's
value proposition, infrastructure, customers, and finances. (Alex Osterwalder)
Business model: helps to design and articulate how a business could work.
Business plan: detailed document setting out the goals of a business and how
they are to be achieved.
Adapted social business model canvas (Burkett)
Separation between ‘commerce’ and ‘impact’ to see how they interact.
Neither the commercial nor the impact story is sufficient in and of itself – a
good business model story needs a coherent and sensible relationship
between commerce and impact.
33
roughly
HOW? WHAT? WHO?
HOW MANY €?
34
HOW? WHO?
WHAT?
HOW MANY €?
35
36
Value Proposition
Commercial Value Proposition Impact Value Proposition Examples
Examples
Tasty drinks with a new style made in Fair trade: quality products that
Germany improve producers‘ lives
Fresh seasonal food from the region Local economic development:
conveniently delivered to the doorstep revitalising the local economy
Employment: good jobs for people with
disabilities
37
Channels
Awareness Evaluation Purchase Delivery After Sales
Questions How do we How do we How do we How do we How do we
raised by raise awareness help customers enable deliver a value provide post-
Osterwald about evaluate our customers to proposition to purchase
er and our company’s organisation’s purchase customers? customer
Pigneur products and value specific support?
(2009) services? proposition? products and
services?
Additional How does this Why should How do Are there more How can we
questions social customers customers find efficient, ensure
for enterprise buy from us as and access effective or that our
social stand out in a a social us? Who can innovative customers will
enterprise crowded enterprise we partner ways we can champion
market? (especially if with to extend deliver our social
How do we we compete our sales goods/ enterprise?
raise awareness directly with reach? services and/or
of products/ mainstream impact?
services AND businesses)?
impact? 38
Channels ctd.
Awareness Evaluation Purchase Delivery After Sales
Examples of There is a Many It can be Some social Dissatisfaction
where this growing interest corporate and difficult to enterprises can have a
can be in government build financial turn their flow-on
important social customers are sustainability ‘customers’ effect not just
procurement - interested in into retail into their for repeat
but many the value focussed ‘communities’. custom in
procurement proposition of social How could you this
officers are not social enterprises. connect your enterprise, but
aware enterprises How could you customers for purchasing
of social but address this more directly? from other
enterprises. are looking for challenge? social
How could this evidence. How enterprises.
change? could How
this happen? do we ensure
satisfaction?
Source: Burkett: Using the
Business Model Canvas for social
enterprise design 39
Typical costs
Business Operation Impact
Rent and inventory Support and participation costs (extra staff
Wages/salaries costs
Equipment, machinery and tools for people to support workers)
Utilities Work readiness costs (licences, permits etc.
Communication and postage for disadvantaged workers)
Insurances Provision costs (for non-attendance, extra
Printing and Stationary sick leave etc.)
Advertising /marketing Impact training (eg. training for support
Bank charges and interest staff)
Vehicles / transport Opportunity costs (eg. reduced
Accountancy and other professional fees productivity)
Tax Fundraising costs
Depreciation Impact assessment costs
License and compliance costs Ethics costs (eg. premiums for fair trade
Training goods)
Source: Burkett 40
41
It‘s your turn
…to develop your business model
What is your business model and why this one?
On what points are you „blank“?
What do you need to work on to turn it into reality?
42
contact:
[Link]@[Link]
kleemann@[Link]
43
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