A hybrid business model
There is a person in a country somewhere in the world who has initiative and insight and wants to make a difference. There is a drive and independence that makes this person an ideal entrepreneur. Finally and most importantly, a burning social need has been identified that should be addressed. How does this person move forward to resolve this need while also earning some return for the time being expended and risk being incurred?
Our entrepreneur spends time to analyse this need to find out who has it, whether they consider it significant and that they want to do something about it. In speaking with the people with the need this person finds that there is little ability to pay for the currently available solution. There is also little ability to pay much for any solution.
The venture has to be able to produce a low cost solution that is affordable for the target audience. There are also opportunities to look at the need in a way that current service providers don’t. A sub-segment of the target market for the existing solution finds that one to be costly and more complex than they need. They have the ability to pay for the new solution. Between lowering the cost, developing a new business model and finding a group that can subsidize other users our entrepreneur has a way to provide a solution for the need.
The initial working capital to get the venture off the ground may have been provided by a development grant or loan, personal savings, a social venture fund or a member of the community that is able to assist. The objective of the business is to get to sustainability quickly using revenue from sales to carry the business.
Our entrepreneur has created what would be called a social enterprise that serves a social need but also uses market mechanisms to generate revenue and sustain the business. At no time in this story did this person think about whether to start a not-for-profit or profit-driven enterprise. There was no struggle with whether it was ethical to make profit while solving a social good or whether there was a sufficient return for a venture capital investor. A need was found and our entrepreneur found a way to meet it using a business model that fit the situation. There was a clear objective and the measure of success was the ability to meet this social need by creating and delivering value someone was willing to pay for.
If these types of enterprises form in large numbers what will that do to the existing not-for-profits and companies serving low end markets? Will they be so caught up in their current models that they become irrelevant in these circumstances or will they find ways to evolve to keep pace? There is a need to put aside pre-conceived notions of what a social enterprise is and focus on the jobs to be done.