Business model development in Social Business

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Business models in Social Entrepreneurship and Social Business

Dr. Linda Kleemann 27/01/2014

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Agenda for today

Introduction on business models

Options for social business models

Legal forms

Social business model canvas

What is your business model?

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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)

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The traditional business model process

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Need? Customers? Costs? Demand? Competitors? Revenues?

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The business model process today

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Stylized social business models (1)

Traditional business model

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Impact investor type with government, investor or public as interested third party

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Cross-subsidized model ( )

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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.

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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.

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Social business model categories (1) Business category How it works Examples Key success factors

Entrepreneur support

Sells business support to its target population.

Microfinance organizations, consulting,

or tech support

Appropriate training for the entrepreneur

Market intermediary

Provide services to clients to help them access

markets.

Supply cooperatives like fair trade, agriculture, and handicraft organizations

Low start-up costs, allows clients to stay

and work in their community

Employment Provide employment opportunities and job training to clients and

then sells its products or services on the market.

Disabilities or youth organizations providing work opportunities in

landscape, cafes, …

Job training, appropriateness and commercial viability

Fee-for-service/product

Selling social services or products directly to clients

or a third-party payer.

Membership organizations, museums, and clinics, solar lamps,

microfinance, …

Establishing the appropriate fee

structure vis a vis the benefits

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Social business model categories (2) Business category How it works Examples Key success factors Low-income client Similar to fee-for-service:

offering services to clients but focuses on providing

access to those who couldn’t otherwise afford it.

Healthcare (prescriptions,

eyeglasses), utility programs

Creative distribution systems, lower production and

marketing costs, high operating efficiencies

Cooperative Provides members with benefits through collective

services.

Bulk purchasing, collective bargaining (union), agricultural coops, credit unions

Members have common interests/needs

Market linkage Facilitates trade relationships between clients and the

external market.

Import-export, market research, and broker

services

Does not sell clients’ products but connects

clients to markets Service

subsidization Sells products or services to an external market to help

fund other social programs. The business activities and

social programs overlap.

Consulting, counseling,

employment training, etc.

Can leverage tangible assets (buildings,

employees) or intangible (expertise, network,

methodologies)

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Social business model THEMES Business THEME How it works Key success factors

Education Provides additional or improved educational opportunities or advocates

for it

Quality of service, demand by beneficiaries, WTP of interest groups

Environment Provides or advocates environmental improvement in exchange for donations,

payments or grants

Measurable improvement, WTP of interest groups

Poverty Provides products or services to the poor, similar to low income client

Products or services offer relief and are demanded, cross-subsidization or

like low income client Disabled or

disadvantaged people

Usually self-help groups, advocacy groups or employment creation

Members have common interest, WTP of interest groups

Disaster relief Usually government and donations funded quick help

Fast response, efficient processes, ability to mobilize funds

For all examples: do the beneficiaries demand it?

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Legal forms

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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

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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.

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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

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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

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Non-profit vs. For profit

non-profit Tax advantages Specific funding only available for

non-profits Funders don‘t expect financial

return Activities highly regulated in

particular towards income generation

Risk of being not sustainable financially

for profit Less regulated Stronger identification and

responsibility by owners due to financial involvement

Risk of turn towards (too much) focus on financial returns

More difficult to get funding for social purposes

Usually no tax advantage

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Social Business Model Canvas

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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.

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roughly

HOW?

WHAT?

WHO?

HOW MANY €?

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HOW?

WHAT?

WHO?

HOW MANY €?

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Value Proposition

Commercial Value Proposition Examples

Impact Value Proposition Examples

Tasty drinks with a new style made in Germany

Fair trade: quality products that improve producers‘ lives

Fresh seasonal food from the region conveniently delivered to the doorstep

Local economic development: revitalising the local economy Employment: good jobs for people with disabilities

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Channels Awareness Evaluation Purchase Delivery After Sales

Questions raised by Osterwalder and Pigneur (2009)

How do we raise awareness about our company’s products and services?

How do we help customers evaluate our organisation’s value proposition?

How do we enable customers to purchase specific products and services?

How do we deliver a value proposition to customers?

How do we provide post-purchase customer support?

Additional questions for social enterprise

How does this social enterprise stand out in a crowded market? How do we raise awareness of products/ services AND impact?

Why should customers buy from us as a social enterprise (especially if we compete directly with mainstream businesses)?

How do customers find and access us? Who can we partner with to extend our sales reach?

Are there more efficient, effective or innovative ways we can deliver our goods/ services and/or impact?

How can we ensure that our customers will champion social enterprise?

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Awareness Evaluation Purchase Delivery After Sales

Examples of where this can be important

There is a growing interest in social procurement - but many procurement officers are not aware of social enterprises. How could this change?

Many corporate and government customers are interested in the value proposition of social enterprises but are looking for evidence. How could this happen?

It can be difficult to build financial sustainability into retail focussed social enterprises. How could you address this challenge?

Some social enterprises turn their ‘customers’ into their ‘communities’. How could you connect your customers more directly?

Dissatisfaction can have a flow-on effect not just for repeat custom in this enterprise, but for purchasing from other social enterprises. How do we ensure satisfaction?

Channels ctd.

Source: Burkett: Using the Business Model Canvas for social enterprise design

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Typical costs Business Operation Impact Rent and inventory Wages/salaries Equipment, machinery and tools Utilities Communication and postage Insurances Printing and Stationary Advertising /marketing Bank charges and interest Vehicles / transport Accountancy and other professional fees Tax Depreciation License and compliance costs Training

Support and participation costs (extra staff costs for people to support workers) Work readiness costs (licences, permits etc. for disadvantaged workers) Provision costs (for non-attendance, extra sick leave etc.) Impact training (eg. training for support staff) Opportunity costs (eg. reduced productivity) Fundraising costs Impact assessment costs Ethics costs (eg. premiums for fair trade goods)

Source: Burkett

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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?

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contact:

[email protected]

[email protected]