The definition of a company with a “non-profit character” can affect its value creation and value capital

Companies that aim to create both commercial and social value have become increasingly popular in recent years. A study conducted in Journal for Strategic Entrepreneurship better defines four different types of social ventures. By looking at these nonprofit ventures from a business model perspective, the study provides insights into how model selection affects a company’s value creation and value capture potential.

“Despite the popularity of the term ‘social entrepreneurship’, not much was known about the business model of such companies,” says study co-author Lien De Cuyper from the University of Amsterdam. “We also thought that the decisions that entrepreneurs make in such a context regarding their business model are quite different from the decisions that entrepreneurs make in general.”

De Cuyper and his co-authors Bart Clarysse of ETH Zurich and Mike Wright of Imperial College Business School in London first defined three decisions that entrepreneurs must make. These included the scope of the company’s target beneficiaries, the degree of overlap between customers and beneficiaries, and how the company communicates its social mission through its value proposition. The team then combined these decisions in different ways to identify four different types of social business models:

1. Social Stimulators: These companies aim to raise awareness of a social and/or environmental problem. They have a broad definition of beneficiaries, with customers as the main beneficiaries. Their social values ​​are conveyed in the products/services sold.
2. Social providers: Such companies target a clearly defined community of beneficiaries and offer them products or services that focus on the functional benefits of their value proposition. Typically, customers are the beneficiaries.
3. Social Producers: These companies focus specifically on a certain group of beneficiaries. The beneficiaries are both the customers of the product and the suppliers. The social values ​​of the company are conveyed through the sourcing of the product.
4. Social Intermediaries: Such firms have a broad definition of beneficiaries, but customers are different from beneficiaries. The focus of these firms is on the functionality of the product. To fulfill their social mission and be financially independent, they sell services or products to a separate group of customers.

The researchers were also able to determine how these different models affected the company’s value creation and value capture. For example, social intermediaries are likely to have higher operating costs – compared to social stimulators and social providers – because they act as intermediaries between customers and beneficiaries. And the customers of social stimulators have a higher willingness to pay than the customers of a social provider.

“Instead of taking a one-size-fits-all approach when looking at social enterprises, we think it’s important to better understand their heterogeneity,” says De Cuyper. “Looking at the three business model options we’ve identified will help you understand what type of social enterprise you’re leaning towards. This can have important implications for your cost structure, your revenue structure, but also your organizational form.”