Social Enterprise Business Models: An Introduction

Social enterprises provide a market-based solution that addresses a societal or environmental problem. In a typical social enterprise business model, the organization considers all of its stakeholders and looks to create value for multiple groups. Certainly, as a for-profit venture, social enterprises aims to generate returns for investors. However, in addition to money-making goals, they place high value on the interests of other stakeholders. Social enterprises integrate stakeholder value into the core business model, offering unique benefits to its employees, customers, and the surrounding community. Social enterprise business models provide compelling opportunities to entrepreneurs who want to do good.

Decreases Dependency on Donor Funds

If social enterprises successfully serve their customers and manage related costs, the for-profit model leads to financial sustainability. For organizations that are exclusively for-profit, this revenue generation eliminates dependence on donations and grants from a shrinking pool of nonprofit funding. For organizations that implement a hybrid model, integrating some for-profit activities within a larger nonprofit, it decreases dependence on these funding sources and provides the nonprofit with unrestricted operating cash. In both cases, the for-profit activities contribute capital that can be used for business expansion or other growth initiatives.

Increases Impact Potential

Beyond financial sustainability, a well-designed social enterprise business model can dramatically increase an organization’s overall impact. For one, the for-profit model provides flexibility and freedom for the organization to try new ideas that may better-serve its stakeholders. The steady income stream allows the organization to focus on its core mission and objectives, rather than fundraising. Finally, if the organization provides a market-based solution for a previously unsolvable problem, it offers an innovative model for others who wish to solve similar issues.

Common Social Enterprise Business Models

In this September series, Professor Bentley will cover three common social enterprise models, explain how they operate and provide an example of each. He terms the three models as value rub, operational efficiency, and mission market.