How a “socially good” company is defined can affect its value creation and capital.

In recent years, ventures that pursue both commercial and social value have become increasingly popular. Journal of Strategic Entrepreneurship We more clearly define four different types of social ventures: By focusing a business model lens on these social benefit ventures, this study provides insight into how the choice of model affects a firm’s value creation and value capture potential.

“Despite the popularity of the term ‘social entrepreneurship,’ little is still known about the business models of such companies,” said Liane de Kuyper, study co-author at the University of Amsterdam, “and we believe that the business models that entrepreneurs choose in these contexts will be very different from those chosen by entrepreneurs in general.”

De Kuyper and his co-authors, Bert Klaris of ETH Zurich and Mike Wright of Imperial College Business School in London, started by defining three choices entrepreneurs need to make, including the scope of their venture’s target beneficiaries, the degree of overlap between customers and beneficiaries, and how the venture communicates its social mission through its value proposition. The team then combined these choices in different ways to identify four different types of social business models:

1. Social Inspiration Companies: These companies aim to raise awareness about social and environmental issues. The definition of the beneficiary is broad, with the main beneficiary being the customer. Their social values ​​are reflected in the products and services sold.
2. Social Provider: Such ventures offer products or services that target a clearly defined community of beneficiaries and focus on the functional benefits of the value proposition. The beneficiaries are usually customers.
3. Social producers: These companies focus on specific beneficiary groups, who are both customers and suppliers of their products. The social value of the business is communicated through the sourcing of its products.
4. Social intermediaries: These companies have a broad definition of beneficiary, but customers are different from beneficiaries. These companies focus on the functionality of their product. They sell their services or products to another group of customers to fulfill their social mission and become financially independent.

The researchers were also able to determine how these different models affected the venture’s value creation and value capture. For example, social intermediaries tend to have higher operating costs compared to social stimulators and social providers because they act as an intermediary between customers and beneficiaries. Also, customers of social stimulators have a higher willingness to pay compared to customers of social providers.

“Rather than looking at social enterprises in a uniform way, we think it’s important to understand their diversity more systematically,” says De Kuyper. “Looking at the three business model options we’ve identified gives us an idea of ​​what type of social enterprise you’re leaning towards. This can have important implications for your cost structure, revenue structure, but also the way you organise yourself.”