Topic 13 Building Social Venture Sustainability Models

Discussion Points
1) Defining Social Venture Sustainability Models
2) Comparing Business Models and Social Venture Sustainability Models
3) Designing a Business Model
4) Designing a Social Venture’s Sustainability Model

Social Venture Sustainability Models

Social business models or sustainability models are essentially different from com-
mercial business models.
In developing a sustainability model for a social venture, we need to answer the follow-
ing questions:
l How will the social venture sustain itself over time?
How would the social venture be sustainable while successfully addressing a particular social need?
l Why does the social entrepreneur need to build his/her social venture sustainability
model?
A simple answer to the questions is ………. entrepreneurs need to build
sustainability models to ensure that they understand what needs to be
done to make the venture sustainable over time.

1) Defining Social Venture Sustainability Models

A social venture sustainability model (SVSM) can be defined as the process of creating,
delivering, and capturing value for all stakeholders involved in the social venture.
l The social value proposition is the bundle of services that the social enterprise
proposes to its customers both beneficiaries and sponsors.

In switching from a commercial business model to a social venture sustainability model (or so-
cial business model), the first element is the specification of targeted stakeholders, and the
provision that the value proposition and constellation are not focused solely on the customer,
but are expanded to encompass all stakeholders.

The second element is the definition of desired social profits through a comprehensive
ecosystem view, resulting in a social profit equation. The third element is that the economic
profit equation targets only full recovery of costs and capital, not financial profit maximization

2) Comparing Business Models and Social Venture Sustainability Models

l A business model asked the question: How do I make money doing what I do?
l The social venture sustainability model poses a different question in a different con-
text: how do I sustain this venture while solving a social problem?

© K. alZamel - KFUPM -Business School - Social Entrepreneurship - ENTR 415 DL TOPIC – 14 V-200329 1
 l Social business models challenge or question conventional wisdom (i.e. what has be-
come acceptable). By questioning underlying assumptions, social entrepreneurs can
find solutions to social problems.

Five lessons that one can learn from social business models.

(1) Social business models should challenge the prevailing conventional wisdom (e.g. How
Grameen Bank changed conventional banking by awarding loans without a collateral)
(2) Finding complementary partners (collaborate to pool resources rather than compete)
(3) The necessity to undertake continuous experimentation. - always look for ways to im-
prove, refresh, adapt, or change the business model when conditions change.
(4) Favoring social profit-oriented shareholders. - although profit-making is not the pri-
mary motivation of a social venture, however, in building social venture sustainability
models, the value proposition should include all stakeholders.
(5) Specify social profit objectives clearly. - because the social profits will be the yardsticks
against which to measure the social venture’s performance.

3) Designing a Business Model

Developing a business model consists of creating the content, structure, and govern-
ance of transactions designed to create value through the exploitation of business op-
portunities.

In the design of a business model, two sets of parameters that business model de-
signers must consider: design elements and design themes.

l Two parameters in building business models:

1) design elements
2) design themes.

l Design elements include:

l Content (What activities should be performed?)
l Structure (How should they be linked and sequenced?)
l Governance (Who should perform them and Where?).
The design elements are the conceptualization and configuration of the business model.

l Design Themes include:

l Novelty (Adopt innovative content, structure or governance)
l Lock-in (Building in elements to retain business model stakeholders)
l Complementarities (Bundle activities to generate more value)
l Efficiency. (Reorganize activities to reduce transaction costs)
Design themes describe the sources of the model’s value creation
Some entrepreneurs start their ventures with a well-formulated business model.
However, many others start without a clearly defined model. For these entre

© K. alZamel - KFUPM -Business School - Social Entrepreneurship - ENTR 415 DL TOPIC – 14 V-200329 2
 The business model of a new venture describes how the new venture plans to make
money and sustain itself over the long term.

It is worth noting that the effectiveness of a business model depends not only on its
design but, more importantly, on its implementation

4) Designing a Social Venture’s Sustainability Model

The starting point in the design of a social venture’s sustainability model is to an-
swer the following question: how do social enterprises generate income?

Social enterprises generate income from:

l Those who receive the service;
l Third parties with vested interests; and
l Others who pay indirectly.

A framework for successful business models comprises four elements:

l Customer value proposition (CVP); - what value are you providing, or problem are
you solving for the customer?
l Profit formula; how do you intend to earn a profit from the product/service you offer?
l Key resources; what key resources do you require in order to provide the product/service?
l Key processes. - what internal processes are needed to produce a product/service
that the customer will need?

See the Table in the next Page for Designing an effective business model
Note: This same design framework can be used to design social business models

The customer value proposition is the extent to which the social venture adds
value to the lives of the beneficiaries. Here, the profit formula encompasses social
profits. It deals with the social objective accomplished by the social venture.
The key resources and key processes can be like those of a commercial venture.

However, the specific nature of the social venture would require that the social business
model be adapted to the contingencies it faces

Three elements that are essential in the implementation of a business model or a social
venture sustainability model include:

l the creation of value networks, (particularly relevant for social ventures which de-
pend on many different stakeholders)
l the procurement of strategic resources, and
l the management of customer interface

© K. alZamel - KFUPM -Business School - Social Entrepreneurship - ENTR 415 DL TOPIC – 14 V-200329 3
 Table - Designing an effective business model

Customer Value
Proposition Profit Formula Key Resources Key Processes

Target customer Revenue model Needed to deliver the As well as rules, metrics,
Job to be done to How much money can customer value and norms, that make the
solve an important be made price x proposition profitability. profitable delivery of the
problem or fulfill an volume? Volume can be Might include: customer value proposition
important need for thought of in terms of repeatable and scalable.
the target customer market size, purchase l People Might include:
frequency, ancillary l Technology/products
Offering sales, etc. l Equipment l Processes: design,
product Development,
Which satisfies the l Information
problem or fulfills Cost structure sourcing, Manufacturing,
l Channels marketing, hiring and
the need? How costs are allocated:
l Partnerships, alliances training, information
This is defined by not includes cost of key
assets, direct costs,
l Brand technology
only what is sold but
also how it is sold. indirect costs, econo- l Rules and metrics: margin
mies of scale. requirements for
investment, credit terms,
Marginal model lead times, supplier terms
How much each l Norms: opportunity size
transaction should net needed for investment,
to achieve desired profit approach to customers
levels. and channels

Resource velocity
How quickly resources
need to be used to sup-
port target volume.
Includes lead times,
throughput, inventory
turns, asset utilization,
and so on.

It can easily apply to the design of social business models.

See the following Figure for an illustration of the social venture sustainability canvas, derived
from the business model canvas for commercial ventures.

© K. alZamel - KFUPM -Business School - Social Entrepreneurship - ENTR 415 DL TOPIC – 14 V-200329 4
 Table - Social Business Model Canvas

Key Stake- Key Activities Value Propo- Customer/Benefi- Customer/Benefi-

holders Identify the key sition ciary Relationships ciary Segments
Who will help activities to What problem What types of Who are the
the social perform to is the social relationships to beneficiaries or
venture accomplish the venture develop with customers of the social
implement its social mission. solving? beneficiaries who do venture?
business model? How will not pay for the service Who are those
Governments solving this and those who pay for beneficiaries who
Foundations problem have the service? would not pay but still
Other an impact? receive the service?
companies Who are those
beneficiaries who will
pay?

Key Resources Channels

What resources How to reach the ben-
are needed to eficiaries and/or cus-
perform the dif- tomers?
ferent activities?
How to acquire
these resources?

Cost Structure Revenue Streams

Identify cost areas How would revenue be
What activities generated?
will cost the most? Grants/dona-
tions/earned income
Surplus

The 9 elements of the business model canvas

l Partners;
l Activities;
l Value proposition;
l Beneficiary or customer relationships;
l Beneficiary or customer segments;
l Resources;
l Channels;
l Cost structure; and
l Revenue stream.

and how the social venture captures (through revenue streams) some profit in order to remain
sustainable.

© K. alZamel - KFUPM -Business School - Social Entrepreneurship - ENTR 415 DL TOPIC – 14 V-200329 5