Different Types of Social Enterprise Business Models
3 June 2021
There’s more than one way to run a social enterprise. In this post, we’ll explore some of the different types of social enterprise business models, to help you decide what approach you might take to make the world a better place.
What is a Social Enterprise?
Essentially, a social enterprise is an organisation that exists to address a social need. On the surface, some social enterprises might look like any other business. They have a brand identity and a product or service to sell. The difference is that, where most businesses exist to enrich their shareholders, social enterprises instead channel their profits into achieving social objectives.
3 Different Types of Social Enterprise Business Models
Social enterprises are inherently innovative organisations, in that they use established business practices to achieve progressive, forward-thinking goals. Social enterprise business models may fit into the following categories:
- Community interest companies
- Community enterprises and co-operatives
- Social firms
Don’t think of any of these business models as rigid. A social enterprise might pivot to doing different things in different ways over the course of its existence. However, if you’re interested in starting your own social enterprise, and you’re looking for inspiration on how things might work, then these essential business models are a good place to start.
Community Interest Companies
These are limited companies that use their profits to achieve social goals. Some community interest companies operate on a business model that treats their beneficiaries as customers. They usually do this through developing a basic yet affordable version of an essential product or service.
Buy one, give one
For an example, check out Ruby Cup, an affordable menstrual cup the company developed to fight period poverty. These guys sometimes operate on a “buy one, give one” model, whereby if you buy one of their products, they’ll donate an additional product to a low-income beneficiary.
TOMS Shoes is another social enterprise that works on a “buy one, give one” model. For every pair of shoes that you buy, they’ll donate another pair to a child in a developing country.
Other community interest companies work on multisided models, treating their customers and their beneficiaries as separate entities. This means they’ll sell a product or a service to customers before channelling their profits into direct support for their beneficiaries.
For an example, check out Baron Fig. They sell notebooks, but they aim to “leave the earth better than we found it.” For every notebook you buy from them, they’ll plant a tree.
You can read our complete guide to what a community company is and how it works.
Community Enterprises & Co-Operatives
Some social enterprises enrich local communities through letting them own and operate certain essential services and initiatives. This is why the UK government set up the community interest company scheme in the first place: to fill the gap left by public sector cuts, they tried to make it easy for people to run their own local amenities.
Want an example of how this might work in action? Take a look at any community centre, social club, nursery or library in your local area. Chances are that it’s being run by local people and for local people as a social enterprise.
But for a more detailed case study, take a look at Culture and Sport Glasgow Trading. This is a social enterprise set up by Glasgow City Council to preserve the city’s museums, galleries, and leisure services.
These are social enterprises that intend to provide employment opportunities to people who might otherwise struggle to find work. The Big Issue is perhaps the most famous example of this sort of social enterprise. They pay homeless people to distribute their magazine, helping them to make a living, build self-confidence and get off the streets.
Jamie Oliver’s Fifteen Restaurant is another well-known example. Their model involved training homeless people, ex-offenders, disadvantaged youth, the long-term unemployed and people with substance problems to become chefs.
For a further example, take a look at Bristol Together. Their business model is ingenious: They buy empty properties before employing ex-offenders and long-term unemployed people to renovate them. They then sell these properties before channelling the profits back into the enterprise itself, enabling them to buy further properties and create further employment opportunities.
A Different Way of Doing Good
Don’t get too hung up on labels! In this post we’ve listed three very broad business models for running social enterprises. And as we’ve seen, even companies that use similar models might employ vastly different techniques to achieve their goals.
In short, if you want to run a social enterprise, there is no single clear path to success. This is a sector that rewards innovation like no other. In fact, it’s fair to say that the more innovative your approach, the better: A simple yet very clever idea could really strike a chord with your potential customers and investors!
What really matters is that you can define your social goal, and identify an effective way of achieving it.
If you need some more advice on how to do this, check out our step-by-step guide to setting up a social enterprise. As well as outlining some of the key things you’ll have to think about, it also lists some of the legal and regulatory boxes you’ll have to tick when setting up your social enterprise.
Also be sure to check out our guide to the advantages and disadvantages of running a social enterprise. This will give you more information on how social enterprises are structured, along with further guidance to the financial and legal side of things.
Running a social enterprise can be risky. So whatever path you choose to take, you’ll need to ensure that you have the appropriate insurance cover in place. At Hazelton Mountford, we offer specialist social enterprise insurance to cover the unique risks faced by non-profit organisations