3 Basic Models to understand Social Entrepreneurship

The paradox of social entrepreneurship is that, while its ecosystem continues to grow, the term “social entrepreneurship” means different things in different contexts. This occurs, among other reasons, because there is still no general agreement that helps to clearly distinguish the business model behind the “social entrepreneurship” label.

Profit Generator Model

Organizations that carry out a commercial activity that does not have a direct social impact, with which they obtain economic benefits, and then transfer part or all of these to another activity that has a direct social impact.

In this model, commercial activity mainly seeks a financial return. It is assumed that this does not have a direct social impact. It may be that commercial activity may have desirable effects (eg, job creation) but this situation is contingent on the predominant purpose of economic activity (ie maximizing monetary profit).

Example: Businesses and multinationals with Corporate Social Responsibility (CSR) programs

Compensation Model

Organizations that carry out a commercial activity that has a direct social impact, but must manage a balance between financial profitability and the social impact obtained.

In this model, the commercial activity itself has a direct social impact, but it is necessary to strike a balance between generating benefits and creating social impact. This type of social enterprise can increase its impact by decreasing financial returns, or vice versa. Unlike model one, the social impact on this model is an integral part of the nature of the commercial activity. Even if no financial benefit is achieved, some social impact can be achieved.

The key question to identify this model is: Can you increase the social impact of the venture by decreasing financial returns? If the answer is YES, we are facing this type of social entrepreneurship.

Example: Fair Trade Businesses and microcredit institutions.

Direct Correlation Model

Organizations that carry out a commercial activity that, in addition to generating a direct social impact, offer a financial return in direct correlation with the social impact created. The key question to understand this model is: Can you increase the social impact of the organization by decreasing financial returns? If the answer is NO, you are facing a social enterprise of this type.

Examples: renewable energy cooperatives.