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06 Dec 2009

Social Enterprise business models

06 Dec 2009
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Social enterprises apply business solutions to social problems. The ultimate goal is to achieve
sustainability by enabling non-profits to support themselves financially in innovative ways
instead of relying solely on grants and donations. Since there are no shareholders in a non-
profit organization, the profits from the related social enterprise are completely re-invested
in the work of the organization.
The emergence of revenue-generating activities for non-profits has created a new operating
model where business principles, market characteristics and values (competition,
diversification, entrepreneurship, innovation, and a focus on the bottom line) co-exist and
work with traditional public sector values like responsiveness to community and serving the
public interest. Essential to the success of a social enterprise is an effective business model.
A business model includes two key elements:
1. an operating strategy that includes internal organizational structure and external
partnerships that are crucial for creating the organization’s intended impact; and,
2. a resource strategy that defines where and on what terms the organization will acquire
the resources (financial and human) it needs to do its work.
The business model for a social enterprise is the channel that the social entrepreneur
converts inputs into outcomes; the generation of both social value (measurable impact) and
economic value (revenue).
A social enterprise can be integrated with the non-profit organization in one of several ways:
Embedded:
The enterprise and the social program are one and the same

The business is created to serve clients (central to the mission)

Integrated:
The business activities overlap with the social programs

The business is created as a funding mechanism and to expand/enhance the mission of

the organization
External:
 Social and business activities are separate and may or may not be related to the mission
of the organization
 The business is created mainly as a funding mechanism to support social activities
Virtue Ventures provides an excellent summary of the various types of business models that
are summarized in the table below. These social enterprise business models can be applied
equally to institutions, programs, or service delivery. These models are designed in
accordance with the social enterprises’ financial and social objectives, mission, marketplace
dynamics, client needs or capabilities and legal environment. Most of the business models
are embedded within the organization.

Business
How it works Examples Key success factors
model
Microfinance
Entrepreneur Sells business support to its organizations, Appropriate training for
support target population. consulting, or tech the entrepreneur
support
Supply cooperatives
Low start-up costs,
like fair trade,
Market Provide services to clients to allows clients to stay
agriculture, and
intermediary help them access markets. and work in their
handicraft
community
organizations
Disabilities or youth
Provide employment organizations
opportunity and job training providing work Job training
Employment to clients and then sells its opportunities in appropriateness and
products or services on the landscape, cafes, commercial viability
open market. printing, or other
business
Establishing the
Selling social services directly Membership
Free-for- appropriate fee
to clients or a third-party organizations,
service structure vis a vis the
payer. museums, and clinics
benefits
Similar to fee-for-service in Creative distribution
Healthcare
terms of offering services to systems, lower
Low-income (prescriptions,
clients but focuses on production and
client eyeglasses), utility
providing access to those who marketing costs, high
programs
couldn’t otherwise afford it. operating efficiencies
Bulk purchasing, Members have common
Provides members with
collective bargaining interests/needs, are key
Cooperative benefits through collective
(union), agricultural stakeholders, and
services.
coops, credit unions investors
Facilitates trade relationships Import-export, market Does not sell clients’
Market linkage 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, land,
 fund other social programs.
employees) or
This model is integrated with employment training,
intangible (expertise,
the non-profit organization; leasing, printing
methodologies, or
the business activities and services, and so forth
relationships)
social programs overlap.
Similar to service Similar to service
subsidization, but applying subsidization–
Organizational Similar to service
the external model; business implement any type of
support subsidization.
activities are separate from business that
social programs leverages its assets
If you want to launch a social enterprise you should ensure that:
1. it is a good fit with the agency;
2. you know your industry;
3. you treat your enterprise as a business;
4. you hire the right people;
5. you set realistic expectations; and
6. you improve your financial literacy.
Source: Doing Well While Doing Good: How to Launch a Successful Social Purpose Enterprise.www.torontoenterprisefund.ca

 You should also consider the following questions:

 How can you tell if your group is ready to embark on a social enterprise?
 What are the steps in a social enterprise planning process?
 How do you identify and assess enterprise opportunities?
 How do you plan for a social enterprise?
 How can you measure social returns in a business setting?
 What do you need to know about the legal context?
Source: www.enterprisingnonprofits.ca , The Canadian Social Enterprise Guide

For more information about developing a business model, download the MaRS workbook,
Business model design. The information and exercises will help you design a business model
by working through the key variables in executing a market strategy—competition,
partnership, distribution, pricing and positioning.
Interested in learning more about social innovation and social entrepreneurship? Visit
the SiG Knowledge Hub.

REFERENCES
Virtue Ventures. Retrieved April 27, 2009, from
http://www.virtueventures.com/setypology/index.php?id=MODELS&lm=1
Dooling, A., Liburd, J., and Taylor, M. (2008). Doing Well While Doing Good: How to Launch a
Successful Social Purpose Enterprise. Toronto Enterprise Fund. Retrieved April 27, 2009, from
www.torontoenterprisefund.ca
Enterprising Non-profits. The Canadian Social Enterprise Guide. Retrieved April 27, 2009, from
www.enterprisingnonprofits.ca
Center for the Advancement of Social Entrepreneurship (CASE). (2008, June). Developing the
Field of Social Entrepreneurship, Duke University. Retrieved April 27, 2009 from Duke
University’s Fuqua School of Business, Center for the Advancement of Social
Entrepreneurship Web site: http://www.caseatduke.org/documents/CASE_Field-
Building_Report_June08.pdf
MaRS Social Entrepreneurship. (2009). Part 1 – Social Venture Financing: Enabling Solutions to
Complex Social Problems [white paper]. Toronto.

SOME SUCCESS STORIES

Business Week: America’s Most Promising Social Entrepreneurs