Social Entrepreneurship is not well defined. It is not a certification, like the B-Corp status. Anybody can call themselves a social enterprise. You can be a non-profit, for-profit, or a for-profit whose profits go into a foundation. It suggests that you have a revenue model and are a business (not a charity, relying solely on donations and grants for survival) and that you make some social impact.
A Limiting Belief: It’s wrong to earn money as a Social Enterprise
One question that comes up often is that of profit: how do you ethically serve your mission and earn a profit at the same time? As social entrepreneurship is undefined, this is up to you. But a typical accepted model is that most of your profits (i.e. at least 50%) go to support your cause.
Some people think that it’s wrong to earn money as a social enterprise, but as a whole, that belief can be quite limiting. Imagine that your aim was to hire homeless youth as a way of introducing them to real-world employment. How real could you make it without running a business? You do need to be careful not to take advantage of a disadvantaged population just to prop up your own ethical image. But by being honest and transparent with your customers about your social focus, you enable consumers to evaluate the contribution they’re making by using your services, before deciding how to spend their money.
The Four Social Enterprise Business Models
Building a for-profit social enterprise is not wholly different from a normal startup; you need a working business model with a quality product or service, and a customer base whom you can reach and who will purchase that product or service. On top of that, you need your impact model, which defines how you will deliver your social impact. And here are the four main impact models:
- The Hiring Model – where you employ someone who might not be able to access employment.
- The One for One model – where for every product you sell, you give one away.
- The Awareness & Cause Model – where products or services are sold as a way of raising awareness or getting people involved in a cause and the profits generated to go back to that cause.
- The Environmental Model – where the company makes a significant positive impact on the environment.
Let’s look at each of them in a bit more detail.
The Hiring Model
The hiring model of a social enterprise is one where your social impact is about job creation for people who have barriers to employment. Examples include migrants and refugees, people coming out of prison, survivors of human trafficking, people dealing with addictions, and people living with mental health issues, conditions such as autism, or other handicaps.
But the hiring model almost always goes beyond just hiring someone for a job and seeks to provide additional services to help employees succeed.
People face challenges at different stages in the employment process. For migrants or refugees, it might be at the application stage due to language issues or employer prejudice. For others, the issue may not be getting a job but working effectively to keep it. Coming out of prison, your life might be quite messy – you might be trying to find housing and get custody of your kids and hold down a job at the same time. Perhaps you have a drug addiction that you’re struggling to get under control, and you relapse. Maybe you’ve never had a job before, and you don’t know how to work with others. Or perhaps you’re autistic and face additional challenges in a work environment because you understand things differently.
The Right Support is the Answer
The point is that people don’t just need jobs, but the right support. And the right support varies based on the person. Freedom a la Cart has a caseworker that helps their employees, who are survivors of human trafficking, with issues they’re facing outside of work. That way, when they’re at work, they can focus on work. Part of the Clean Turn workforce consists of people dealing with drug addictions. Clean Turn have random drug testing to keep their workers accountable, but they also have a truth policy, where anyone can come and tell HR that they’ve relapsed – and, yes, they’re suspended, but if they seek treatment, they don’t lose their job and are able to return to work once they’ve gotten clean again.
I like this model because it provides opportunities for people for whom, for whatever reason, this standard model doesn’t work. For the most part, our society is structured according to a regular pattern where people show up for work and behave in an expected manner to get paid and go and buy stuff. We spend years in education so we can get “good jobs”. (By “jobs”, I mean any career path that brings you income.) Society, on the whole, doesn’t have a great system for working with those that don’t fit into this model. And without a job, it’s hard to get housing or afford transportation. And without housing and transportation, it’s hard to get a job. It’s a vicious cycle. This model helps break the cycle.
Take the example of jobs designated for people who have been previously incarcerated. Our reform system has a 75% failure rate! Meaning 75% of people released from prison in the US will return to prison within 5 years. Isn’t that shocking? People generally don’t want to go back to prison, but quite often, when they can’t find work, they return to criminal activity for survival, which lands them back in prison. Social entrepreneurship can be one of the missing links that reduce this statistic significantly.
Life is messy. We’re all different, and we all live together on the same planet. To really move forward, we need to find systems that work for all of us.
The Buy-One-Give-One Model
Another model for social entrepreneurship is buy-one-give-one. This is where, when customers buy an item, they pay enough that an extra one can be given away to someone who needs it. Or to put it another way, the business uses the profits from its sales to get products and services to those who can’t afford them.
An Example of a Buy-One-Give-One Model
The Aravind Eye Hospitals exemplify this model. Their mission, over 30 years ago, was to eradicate needless blindness in India. Achieving this entails providing cataract surgery for free to a large population – no small task. But today, they’re one of the most innovative and successful social enterprises on the planet and have served millions.
They have a tiered model. Basically, the paying customers cover the costs for those who can’t afford to pay for treatment. The same doctors provide the same care to both free and paying customers, but there are differences in other respects. Paying customers, for example, receive better accommodation, with perks such as private rooms or A/C.
However, this tiered system alone wasn’t sufficient to subsidize the cost of providing free eye care. Aravind needed to lower the costs of performing the surgery, without sacrificing the quality. And so they put in place strict protocols to cut out anything that wasn’t necessary. They repositioned how the operating tables were arranged, so the doctors could switch from one patient to the next more efficiently. When the cost of lenses was too high, they embarked on a huge undertaking to manufacture their own lenses. While it took some work, they were able to produce lenses at a fraction of the cost ($2 vs $100) with quality that matched and exceeded what was on the market.
The Buy-One-Give-One Model is NOT for Everyone
The buy-one-give-one model is typically suited for quality products – using the higher margins from quality goods to subsidize what’s given away. At the same time, the model pushes companies to be relentless about cutting costs so that they can maximize their impact.
I’ve heard that social entrepreneurship has little marketing power. It’s nice, and it feels good, but it doesn’t drive people’s purchases. That’s probably for the best anyway – otherwise, companies would greenwash their products to make them look like they were making a social impact.
But the real impact is on your company culture. If you have a mission connected to something deeper and bigger than just selling a product, then people are motivated to go the extra mile – because, in a company with a mission, you’re all in it together.
The Awareness & Cause Model
Often called the advocacy model, this model is less about the direct impact towards a social cause. Instead, products or services are designed in such a way as to raise awareness about social issues and encourage others to get involved. These businesses typically donate at least 50% of their profits back to the causes they support.
One of my favorite examples of this is the Roosevelt Coffeehouse, here in Columbus Ohio. They support causes connected with clean water, hunger, and human trafficking. They raise awareness through their coffee shop and are very active in the community to support these causes. Roosevelt Coffeehouse operates as a non-profit, and in 2018 raised $16k to impact human trafficking, $7k for clean water initiatives, and $9k to fight hunger. Another example is Patagonia, a company that produces high-quality outdoor wear and also has environmental activism at the core of its business.
While this model might not provide the direct service that the first two models do, it offers more flexibility in running a competitive business that can reach a wide audience. There are so many people who want to give back, but don’t know how, or don’t understand the issues. Companies that raise awareness and make it simple for people to get involved help raise the collective impact.
The Environmental Model
I would argue that an Environmental Model is in a category of its own. Environmental impact is often a third bottom line that companies monitor in addition to their profit and social impact.
It takes a lot of community awareness to shift momentum to environmentally friendly solutions, but the more companies work this into their DNA, the easier it is to justify decisions that help our planet (and not just the human race) to thrive.
For B-Corp registered companies, environmental impact is a key component of their registration. Patagonia, as mentioned above, is a B-Corp, and their impact is clearly measured.
So there you have it – four models for social enterprise business models.
Not enough? Here’s a list of eight.