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Business models in Social
Entrepreneurship and Social Business
Dr. Linda Kleemann
27/01/2014

1
Agenda for today
 Introduction on business models
 Options for social business models
 Legal forms
 Social business model canvas
 What is your business model?

2
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)

3
The traditional business model process

4
The traditional business model process

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

5
The traditional business model process

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

6
The traditional business model process

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

7
The traditional business model process

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

$
8
The traditional business model process

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

$
9
The business model process today

10
The business model process today

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

11
The business model process today

( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?

12
The business model process today

( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?

13
The business model process today

( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?

$
14
The business model process today

( )
Need?
Customers?
Costs?
Demand?
Competitors?
Revenues?

$
15
Stylized social business models (1)
Traditional business model

( )
$

16
Stylized social business models (2)
Impact investor type with government, investor or public as interested third party

17
Stylized social business models (3)
Cross-subsidized model

( )

18
19
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20
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.
21
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.

22
Social business model categories (1)
Business category
Entrepreneur
support
Market
intermediary
Employment

Fee-forservice/product

How it works
Examples
Key success factors
Sells business support to
Microfinance
Appropriate training for
its target population.
organizations, consulting,
the entrepreneur
or tech support
Provide services to clients Supply cooperatives like
Low start-up costs,
to help them access
fair trade, agriculture, and allows clients to stay
handicraft organizations
and work in their
markets.
community
Disabilities or youth
Provide employment
Job training,
opportunities and job
organizations providing
appropriateness and
work opportunities in
training to clients and
commercial viability
then sells its products or
landscape, cafes, …
services on the market.
Selling social services or
Membership
Establishing the
products directly to clients organizations, museums,
appropriate fee
or a third-party payer.
and clinics, solar lamps,
structure vis a vis the
microfinance, …
benefits
23
Social business model categories (2)
Business category
Low-income client

Cooperative

Market linkage
Service
subsidization

How it works
Similar to fee-for-service:
offering services to clients
but focuses on providing
access to those who couldn’t
otherwise afford it.
Provides members with
benefits through collective
services.

Examples
Healthcare
(prescriptions,
eyeglasses), utility
programs

Key success factors
Creative distribution
systems, lower
production and
marketing costs, high
operating efficiencies
Members have common
interests/needs

Bulk purchasing,
collective bargaining
(union), agricultural
coops, credit unions
Facilitates trade relationships Import-export, market Does not sell clients’
between clients and the
research, and broker products but connects
external market.
clients to markets
services
Sells products or services to
Consulting,
Can leverage tangible
an external market to help
counseling,
assets (buildings,
fund other social programs. employment training, employees) or intangible
The business activities and
etc.
(expertise, network,
social programs overlap.
methodologies)
24
Social business model THEMES
Business THEME
Education
Environment
Poverty
Disabled or
disadvantaged
people
Disaster relief

How it works
Key success factors
Provides additional or improved
Quality of service, demand by
educational opportunities or advocates beneficiaries, WTP of interest groups
for it
Provides or advocates environmental
Measurable improvement, WTP of
improvement in exchange for donations,
interest groups
payments or grants
Provides products or services to the
Products or services offer relief and
poor, similar to low income client
are demanded, cross-subsidization or
like low income client
Usually self-help groups, advocacy
Members have common interest,
groups or employment creation
WTP of interest groups
Usually government and donations
funded quick help

Fast response, efficient processes,
ability to mobilize funds

For all examples: do the beneficiaries demand it?
25
Legal forms

26
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

27
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.

28
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
29
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





30
Non-profit vs. For profit
non-profit

for 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

 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

31
Social Business Model Canvas

32
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.
33
roughly
HOW?

WHAT?

WHO?

HOW MANY €?

34
WHO?

HOW?

WHAT?

HOW MANY €?

35
36
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

37
Channels
Awareness

Evaluation

Purchase

Delivery

After Sales

Questions
raised by
Osterwald
er 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 postpurchase
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?

38
Channels ctd.
Awareness
Examples of
where this
can be
important

Evaluation

Purchase

Delivery

After Sales

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?

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

39
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

40
41
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?

42
contact:
Linda.kleemann@ifw-kiel.de
kleemann@heldenrat.org

43

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Business model development in Social Business

  • 1. Business models in Social Entrepreneurship and Social Business Dr. Linda Kleemann 27/01/2014 1
  • 2. Agenda for today  Introduction on business models  Options for social business models  Legal forms  Social business model canvas  What is your business model? 2
  • 3. 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) 3
  • 4. The traditional business model process 4
  • 5. The traditional business model process Need? Customers? Costs? Demand? Competitors? Revenues? 5
  • 6. The traditional business model process Need? Customers? Costs? Demand? Competitors? Revenues? 6
  • 7. The traditional business model process Need? Customers? Costs? Demand? Competitors? Revenues? 7
  • 8. The traditional business model process Need? Customers? Costs? Demand? Competitors? Revenues? $ 8
  • 9. The traditional business model process Need? Customers? Costs? Demand? Competitors? Revenues? $ 9
  • 10. The business model process today 10
  • 11. The business model process today Need? Customers? Costs? Demand? Competitors? Revenues? 11
  • 12. The business model process today ( ) Need? Customers? Costs? Demand? Competitors? Revenues? 12
  • 13. The business model process today ( ) Need? Customers? Costs? Demand? Competitors? Revenues? 13
  • 14. The business model process today ( ) Need? Customers? Costs? Demand? Competitors? Revenues? $ 14
  • 15. The business model process today ( ) Need? Customers? Costs? Demand? Competitors? Revenues? $ 15
  • 16. Stylized social business models (1) Traditional business model ( ) $ 16
  • 17. Stylized social business models (2) Impact investor type with government, investor or public as interested third party 17
  • 18. Stylized social business models (3) Cross-subsidized model ( ) 18
  • 19. 19
  • 20. Bored by learning languages in school without much progress? Learn another language with a native speaker and do good at the same time. Whether you are interested in Spanish, French or Arabic or you want to learn something as exotic as Tagalog, Burmese or Pashto, our teachers fit their lessons to your needs! The money you spend improves the lives of teachers in Africa, Asia and Latin America. 20
  • 21. 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. 21
  • 22. 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. 22
  • 23. Social business model categories (1) Business category Entrepreneur support Market intermediary Employment Fee-forservice/product How it works Examples Key success factors Sells business support to Microfinance Appropriate training for its target population. organizations, consulting, the entrepreneur or tech support Provide services to clients Supply cooperatives like Low start-up costs, to help them access fair trade, agriculture, and allows clients to stay handicraft organizations and work in their markets. community Disabilities or youth Provide employment Job training, opportunities and job organizations providing appropriateness and work opportunities in training to clients and commercial viability then sells its products or landscape, cafes, … services on the market. Selling social services or Membership Establishing the products directly to clients organizations, museums, appropriate fee or a third-party payer. and clinics, solar lamps, structure vis a vis the microfinance, … benefits 23
  • 24. Social business model categories (2) Business category Low-income client Cooperative Market linkage Service subsidization How it works Similar to fee-for-service: offering services to clients but focuses on providing access to those who couldn’t otherwise afford it. Provides members with benefits through collective services. Examples Healthcare (prescriptions, eyeglasses), utility programs Key success factors Creative distribution systems, lower production and marketing costs, high operating efficiencies Members have common interests/needs Bulk purchasing, collective bargaining (union), agricultural coops, credit unions Facilitates trade relationships Import-export, market Does not sell clients’ between clients and the research, and broker products but connects external market. clients to markets services Sells products or services to Consulting, Can leverage tangible an external market to help counseling, assets (buildings, fund other social programs. employment training, employees) or intangible The business activities and etc. (expertise, network, social programs overlap. methodologies) 24
  • 25. Social business model THEMES Business THEME Education Environment Poverty Disabled or disadvantaged people Disaster relief How it works Key success factors Provides additional or improved Quality of service, demand by educational opportunities or advocates beneficiaries, WTP of interest groups for it Provides or advocates environmental Measurable improvement, WTP of improvement in exchange for donations, interest groups payments or grants Provides products or services to the Products or services offer relief and poor, similar to low income client are demanded, cross-subsidization or like low income client Usually self-help groups, advocacy Members have common interest, groups or employment creation WTP of interest groups Usually government and donations funded quick help Fast response, efficient processes, ability to mobilize funds For all examples: do the beneficiaries demand it? 25
  • 27. 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 27
  • 28. 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. 28
  • 29. 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 29
  • 30. 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     30
  • 31. Non-profit vs. For profit non-profit for 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  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 31
  • 33. 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. 33
  • 36. 36
  • 37. 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 37
  • 38. Channels Awareness Evaluation Purchase Delivery After Sales Questions raised by Osterwald er 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 postpurchase 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? 38
  • 39. Channels ctd. Awareness Examples of where this can be important Evaluation Purchase Delivery After Sales 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? Source: Burkett: Using the Business Model Canvas for social enterprise design 39
  • 40. 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 40
  • 41. 41
  • 42. 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? 42