Customer Segments are the key to innovating Social Enterprise business models

orange segments

I have been seeing this more and more as I use the Social Lean Canvas to help social enterprises innovate on their business models.

Someone was telling me the other day that social enterprises were “the worst of both worlds.”  They don’t get any of the benefits of being a charity (zero tax, etc) but also miss out on the advantages of being a for-profit company (find it hard to raise funding, can’t scale easily etc).  But in reality, if they can innovate on their customer segments, social enterprises can actually have a big advantage over traditional businesses.

With traditional (profit only) business models the process of identifying the customer segment is usually pretty simple—find someone who wants to buy your product or service. These models do get a little more complicated (e.g., Facebook, which provides a service for the user and then monetizes the user through advertisers).

More than One Stream of Value

However, with a social enterprise there is another dimension to the customer segments.  I am working with one social startup that is competing head-on with for-profits in a relatively low margin business and struggling to make headway. Using the SLC to dive into their business model, we soon found that, as well as the value they are providing their customers through their product, there are a whole host of other value streams that are being produced by their venture (in terms of social and environmental impact). These are value streams that customers would potentially be prepared to pay for. (I will share more details when they have implemented some of these strategies and it is no longer under wraps.)

More Value Driving the Business Model

With this social startup, the key thing to note is that they can operate with their current revenue model, which is the same as their competitors’ (sell a product and get paid by their customers). But now they can bring in extra revenue streams by monetizing people and organisations that want to support the impact they are creating, which are completely separate from their product offering.

This makes their business model considerably more powerful than those of their competitors. They can afford to add more value to their product, they can lower their prices, they can spend more on marketing and so on.  Identifying and leveraging these extra value streams just gave them a giant competitive advantage over their for-profit rivals.

  • Tembo

    A very good point. A lot of social enterprises set out to compete directly with the for-profit business sector, and that’s an extremely high risk strategy. What they forget is that an authentic social enterprise contributes value to the social and/or natural environments that the mainstream business community operates in, and in many cases these businesses would face significant challenges if the social enterprises didn’t exist which means they’re essentially dependent on social enterprises. Increasing numbers of CEs realise this and with the right strategy are open to paying for the services they depend on.

  • Karen Neumann

    I am so glad to have found this site. We are in the process of setting up such a company and all of this info is very good. Thank you.