Business Modelling in Social Entrepreneurship

7/30/2018

As we have realized and already shared in the blog article 'Why Social Business Modelling is Important for Social Entrepreneurship' managing a social business is not about just adding business skills to the realm of social impact! Balancing a social mission with an intention to trade and manage a business requires a blending of skills which is greater than the sum of each set of skills alone.

The social impact inside a business operation is not cost neutral - so both the skills needed to deliver on a social impact and the costs involved in doing so need to be considered in designing a viable and sustainable business model. Therefore, business modelling is crucial for social entrepreneurs and for that reason, we are clarifying a few important points regarding business modelling in social entrepreneurship.

What is a Business Model?

A business model (BM) is more than the product or service an entrepreneur or a company offers. It is a logic description of how businesses make money. It is a tool that helps stakeholders understand and clearly articulate how the entrepreneur (company) creates, delivers and captures value for itself as well as the customers at an appropriate cost.

From the management point of view BM is a step-by-step plan for generating revenues and making a profit in a specific marketplace. It explains what products or services to produce and market, and how it plans to do so, including what expenses it will incur. The business models differ from each other depending on the nature of the business. To put together a good business model, one needs to know what to offer in the form of goods or services that is of value to potential customers or clients, ideally in a way that differentiates the entrepreneur (company) from its competitors (it is called value proposition). A successful business model just needs to collect more money from customers than it costs to make the product.

What does a Business Model consist of?

In their simplest forms, business models (BMs) can be broken into three parts:

Somebody makes useful something: design, raw materials, manufacturing, labour, and so on.
Somebody sells that thing to those who need it: marketing, distribution, delivering a service, and processing the sale.
Those who need it pays to have it: pricing strategy, payment methods, payment timing, and so on.

So, a BM is simply an exploration of what costs and expenses the entrepreneurs (companies) have and how much they can charge for the products or services they generate. New business models can refine and improve any of these three components.

What is a Social Business Model?

Many authors (D. Mills-Scofield) state that every business is (or should be) social business and there is no significant difference in the business models themselves. However, we need to recognize that social enterprises have business models that can be a little different from an ordinary business - indeed social enterprises are special business! In fact, social businesses are a powerful way to increase social impact.

The Social Business Model (SBM) differs from the classical business model, as aside from showing a road map how to generate economic value, it has to show also how to create social value in a measurable way. In other words, social impact also has to be a part of a business model. The process of building SBM relies on some strategic moves as the conventional business model innovation. However, one specificity of the social business model is the need to consider all stakeholders, not only shareholders, and the need to define the social profit that is the aim of the social business.

The purpose of every one SBM is the social entrepreneurs and the supporting professionals to understand how the enterprise generate both financial and social value, and what the relationship is between the two types of value in the enterprise. It should be able to be focused on how a social entrepreneur does business, how that business generates revenue, what value a business offers to whom, who the customers are, and why customers would keep coming back to the entrepreneurs.

The social business model can help the entrepreneurs understand how and why their business works, and it can help them to design and innovate their business and how to make and increase social impact.

Author
Coordinator @BASET
KISMC

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