What should you consider when pivoting or building a social enterprise business model? Tara Anderson shares some tools and tips, in the last in a three part-series.
This series has explored the what and how of social enterprise business models, providing a summary of the social enterprise business model toolkit. In the previous two parts of this series, we covered the components of a social enterprise business model, the trade-offs that have to be managed and the 16 social enterprise model types.
Part three explores seven steps to consider when pivoting or building a social enterprise business model with tools and tips along the way.
There are seven steps to building or pivoting a social enterprise business model. They are based on seven questions every social enterprise executive should be able to answer:
The first step (and it must come first), is to identify the social impact you hope to create – the change you want to see in the world. This sounds obvious, but it’s amazing how many social enterprises gloss over this step.
This is primarily about deciding on your beneficiaries – who or what you want to impact. Beneficiaries could include the environment, and it could be B2B or B2C.
The best way to capture your intended social impact is in a theory of change. We have created a theory of change tool for defining your purpose that integrates your vision and mission and strategic goals. That means you’ll end up with just one visual that shows on one page why you exist, how you’ll deliver impact and what your strategic goals are.
This should become the key piece of strategic infrastructure for your organisation, and guide all decision-making across the business.
Questions to ask yourself to develop your theory of change strategic framework:
Tool: Theory of change framework (available on page 37 of the toolkit).
Every social enterprise model must have a customer group that can pay. Many social enterprises don’t spend enough time thinking about who their target customers are and tailoring the offer.
Customers could include government funders or philanthropists (who are both different types of customer, but rather than buying a product they are “buying” social impact). In some cases the beneficiaries will also be the customers.
A clear understanding of what customers want and how they want it is fundamental to a successful businesses model. Without creating value for customers there is no profit to generate social impact.
To identify potential customers, ask yourself:
Tool: Target market prioritisation grid (available on page 40 of the toolkit).
Many social enterprises start with this step – an idea for something to create/sell. It’s important this step comes after step one and two.
Once you have identified the social impact you want to create, the beneficiaries you need to reach and the highest potential customers, the next step is to explore which products and services you could offer.
This step starts with brainstorming a long list of potential products and services that meet the needs of beneficiaries and/or customers (not just your first idea). This should take into account the core capabilities and resources you already have that you could draw on to meet those needs.
Each of the options should then be evaluated according to six criteria:
Tool: Social enterprise model map (available on page 42 to 43 of the toolkit).
Step four looks at how you can organise and combine the products or services you want to offer to your beneficiaries and customers.
Review the 16 social enterprise model types (explained in part two of this series). For each social enterprise model, ask yourself:
Parallel or integrated value propositions?
Here you will need to decide whether you can integrate your value proposition for customers and beneficiaries in one, or whether they will need separate parallel value propositions.
Creating parallel value propositions involves engaging with the market (customers) to cross-subsidise social activity (for beneficiaries) through multiple types of disconnect activity. This can be achieved through structural separation, for example by splitting a social enterprise into a charity and a trading company.
Creating an integrated value proposition involves linking commercial activity directly to the social mission. Social impact is generated as a result of trading activity. Profitability can rise significantly by shifting the model from acquiring funds for the social mission to generating revenues with the social mission. This involves finding a way to build beneficiaries into the offers for customers, so that social impact and profit are generated simultaneously.
How many models to run?
You can select multiple models or combine models.
On the one hand, it is devilishly difficult to operate multiple business models because it creates greater complexity, requires broader organisational skills and greater employee flexibility.
On the other hand, there are situations when a social enterprise may need to address multiple customer groups in different ways. Parallel business models such as this work well when they are mutually reinforcing (when the models are complements not substitutes).
As a rule of thumb, fewer models is simpler.
Ask yourself two questions to decide when to operate multiple business models:
Once you have decided on your beneficiaries and identified customers, you’ll need to work on your financial model. This includes your revenue model, financial projections, sources of finance, costs and price points.
This step is about determining how to generate enough revenue to cover the costs of delivering social impact.
The final component of the social enterprise model is your operational model. This involves deciding on your legal structure, staffing, partnerships, environmental approach and your supply chain.
The final step is to look at your social enterprise model portfolio in the round as a total package. Of the models you want to operate, check that you will end up with a financially and socially balanced portfolio. This step is only relevant if you are operating more than one model or product/service.
For your full suite of products and services, ask yourself:
Tool: social impact and profitability map (available on page 53 of the toolkit).
Social enterprise models are more important than ever in the COVID-19 recovery phase as new market opportunities emerge and community needs change.
The toolkit offers a starting point to developing a viable social enterprise model, to help executive teams wanting to build a purpose-driven business. There is no magic formula, and business model design always requires strong contextual knowledge and lots of creativity and imagination.
Designing a social enterprise model is never “finished”. It requires constant monitoring, review and tweaking as the environment and markets change. It is recommended that each of the seven steps be completed on a regular basis, built into the organisational strategic planning cycle.
Social enterprise models are inherently tricky to design well, particularly striking the right balance between social impact and profitability. But therein lies the immensely rewarding opportunity: to create business models that not only balance the books, but effectively build a fairer and more just world. For all of us.
This three part blog series explores the what and how of social enterprise business models. It’s a summary of the social enterprise business model toolkit based on 92 international journal articles and interviews with leaders of social enterprise peak bodies in the UK that support over 10,000 social enterprises.
Part one: The why and what
Part two: The 16 social enterprise model types
About the author: Tara Anderson is a social sector executive specialising in strategy, business models, marketing and multi-partner collaboration. She has experience across large and small charities and social enterprises in Australia, the UK and Europe. She has an MBA from Cass Business School (UK), an MA in Social Innovation (Austria) and a BA in Communications (Australia). She is currently a director and co-founder at The Dragonfly Collective (an international social sector consultancy), and leads on marketing at Social Traders (building a social enterprise marketplace across Australia).