In recent years, there has been a surge in the popularity of ventures that aim to create both commercial and social value. However, a study published in the Strategic Entrepreneurship Journal has shed light on different types of social ventures and how their business model choices can impact value creation and capture potential.
Co-author Lien De Cuyper of the University of Amsterdam, along with Bart Clarysse of ETH Zürich and Mike Wright of Imperial College Business School, London, identified three critical choices that entrepreneurs of social ventures need to make. These include the scope of target beneficiaries, the degree of overlap between customers and beneficiaries, and how the venture communicates its social mission through its value proposition.
Based on these choices, the researchers identified four distinct types of social business models:
1. Social Stimulators: These companies aim to raise awareness about social and environmental issues, with customers being the main beneficiaries. The products or services they offer convey their social values.
2. Social Providers: These ventures target a specific community of beneficiaries and provide them with products or services focusing on the functional benefits of the value offering, with the customers being the beneficiaries as well.
3. Social Producers: Companies with a specific focus on a beneficiary group, where the beneficiaries are both the customers of the product and the suppliers. The social values of the business are conveyed through the sourcing of the product.
4. Social Intermediaries: These companies have a broad definition of beneficiaries, but customers are different from the beneficiaries. Their focus is on the functionality of the product, and they sell services or products to a separate group of customers to fulfill their social mission and be financially self-sustainable.
The study also revealed how these different models affected the value creation and value capture of the ventures. For instance, Social Intermediaries are likely to have higher operating costs because they act as intermediaries for customers and beneficiaries. Additionally, customers of Social Stimulators have a higher willingness to pay compared to customers of a Social Provider.
According to De Cuyper, the study’s findings indicate the importance of understanding the heterogeneity of social enterprises. It is crucial to have a structured understanding of the different business model choices to comprehend the implications for cost structure, revenue structure, and organizational processes.
The research, titled “Doing good while making profits: A typology of business models for social ventures,” provides valuable insights into the world of social ventures, aiding entrepreneurs in making informed decisions about their business models and their impact on value creation and capture.
With the aim of bringing about a better understanding of social entrepreneurship and its business models, this study serves as a significant contribution to the field, providing a framework for entrepreneurs and policymakers to navigate the complexities of social ventures. This, in turn, can lead to the development of more sustainable and impactful social enterprises.
The findings from the study are not only relevant for entrepreneurs but also for policymakers and investors, who can leverage this knowledge to support and nurture social ventures that are not only commercially viable but also socially impactful.
In conclusion, the definition of a ‘social good’ firm plays a crucial role in shaping its value creation and value capture potential. By illuminating the different business model choices and their implications, the study offers a nuanced understanding of the dynamics of social ventures, paving the way for more effective and sustainable approaches to social entrepreneurship.