In recent years, the intersection of commercial and social value creation has gained prominence, leading to a growth in ventures that aim to address social needs alongside financial goals. A pivotal study published in the Strategic Entrepreneurship Journal has shed light on this trend by categorizing social ventures into four distinct types. This classification is achieved by applying a business model perspective, which clarifies how different approaches can influence value creation and capture within these enterprises.

Lien De Cuyper, a respected figure at the University of Amsterdam, along with her esteemed colleagues Bart Clarysse from ETH Zürich and Mike Wright of Imperial College Business School, London, spearheaded the study. Their collective expertise and dedication led to the identification of three critical decisions that entrepreneurs in this space must make: defining the scope of target beneficiaries, determining the overlap between customers and beneficiaries, and deciding how to communicate the social mission through the business’s value proposition. These decisions form the foundation for identifying the four types of social business models: Social Stimulators, Social Providers, Social Producers, and Social Intermediaries.

Social Stimulators aim to increase awareness about social and environmental issues, often defining their beneficiaries broadly, with customers directly benefiting from their products or services. Social Providers target specific communities, offering products that focus on the functional benefits to these direct beneficiaries. Social Producers, on the other hand, concentrate on a group that acts both as customers and suppliers, integrating social values deeply into the sourcing process. Lastly, Social Intermediaries have a broad scope of beneficiaries but keep a clear distinction between the beneficiaries and the customers, focusing on functional product aspects to sustain their social missions financially.

The study also delves into how these business models impact the ventures’ operational and financial dynamics. For instance, Social Intermediaries typically incur higher operating costs due to their role as facilitators between different stakeholder groups. In contrast, Social Stimulators can command higher prices from customers due to the intrinsic social value of their offerings. This differentiation in business models leads to varied implications for a venture’s cost structure and revenue generation strategies.

By moving beyond a one-size-fits-all approach, De Cuyper and her team advocate for a nuanced understanding of social entrepreneurship. This structured analysis, with its practical implications, helps stakeholders identify the social enterprise they are dealing with or considering establishing. Such insights are crucial for crafting strategic decisions that effectively balance social impact with economic viability, ultimately leading to more sustainable and impactful social entrepreneurship practices.

More information: Lien De Cuyper et al, Doing good while making profits: A typology of business models for social ventures, Strategic Entrepreneurship Journal. DOI: 10.1002/sej.1502

Journal information: Strategic Entrepreneurship Journal Provided by Strategic Management Society