SOCIAL BUSINESS MODELS
What are the business models for social enterprises to generate revenue?
Social enterprises need to make money to operate and pursue their social mission. The way they make money is what we call a business model.
There are almost as many business models as companies, as social enterprises are finding innovative ways to generate money while pursuing a social mission. We’ve detailed the most popular and inspiring business models for each social mission on this website (Visit the Visions section).
Where to find capital to get started and grow your social enterprise?
Access to capital to start and grow a social business is a real challenge for social enterprises, as investors should expect lower returns on investment than for traditional enterprises.
There are a range of financial instruments which take into account the particular needs of social enterprises. Social enterprises can get grants from various private or public organizations, capital and loans from crowdfunding / P2P lending websites (StartSomeGood, ECrowd!, Community Chest,…), loans from ethical banks (Charity Bank, Triodos Bank, Alternative Bank…) or venture capital from impact investment funds (Oikocredit, Yunus Social business, Acumen, Unitus Seed Fund, Intellecap, Bridges Fund Management, CAN Invest,…).
What to do with the profits?
That is a crucial question for social entrepreneurs.
There are 3 different models – with pros and cons. You’ll find them described below.
Non-Profits organizations (also called Charities) have been the more common social enterprises models for years. Non-profits depend on donations or on private or public grants to survive and to operate. However, this kind of model isn’t sustainable or scalable as funds can only be spent once. Non-Profits need to spend a lot of time and money in communication to collect donations.
The idea that enterprises can both pursue two goals, maximise profit and generate a social impact, has seduced a lot of entrepreneurs. However, these two goals are often contradictory : a for-profit business must generate dividends for its investors and will have to take decisions that are not maximising the social impact to satisfy its investors.
A well-known example for-profits models which have a social mission is Elon Musk’s Tesla. The company sells fancy electric cars to rich people, but a part of the money generated is used for the real mission of the company, which is to develop cheaper batteries that will make it much easier to transition to a green economy, and eventually electrify all of transport.
Social Businesses / Not-For-Profit
A Social Business is a more recent concept. It was first defined by Nobel Peace Prize laureate Professor Muhammad Yunus as a business that is created and designed to address a social problem and is a non-loss, non-dividend company, i.e. it is financially self-sustainable (doesn’t depend on donations) and profits realized by the business are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact. Per Yunus’ quote: “A charity dollar has only one life; a social business dollar can be invested over and over again.”