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The Business Model Canvas and Social Enterprises

June 22, 2013

Osterwalder’s business model canvas is a picture of a business, a way to parse it out so that startups can figure out whether their fantasy can be real, and investors, brokers, and other interested parties can gauge the strengths and weaknesses of an established business.

One of the big weaknesses a business can have, the ur weakness, is a failure to make money.  If the revenue from customer box is lower, or on track to be lower, than all the costs associated with the other boxes, then the business is effectively destroying value. 

Social enterprises, though, aren’t obviously sustainable in that way, because the end users, or customers, normally can’t pay at all, or can’t pay the full costs of, the value provided.  If they could, then the value a social enterprise seeks to offer  could be offered on a commercial basis and you wouldn’t need a social enterprise at all. 

There’s an answer to this, though.  Lots of for-profit companies, Google’s a good example, have a two-sided customer model.  Google’s customers are the hundreds of millions of people who do internet searches for free, but they have another category of customers:  the millions of businesses that pay to put ads in front of that first group.  Providing what the free customers want creates value for the paying customers. 

It’s the same way with social enterprises.  Frequently, social enterprises have both end user customers, like poor women in Ecuador who need skills, or farmers in South Sudan who need electricity, or homeless people in New York who need homes.  If these people could pay market rate for what they need, then a commercial business could provide it for them – that’s the social enterprise raison d’etre.

But they also have paying customers, like Skoll and Rockefeller and USAID and all those people who contribute on Kickstarter.  Those are customers too.  They are buying something, some change in the world that need to buy, in order for them to be what they’re meant to be.  A sustainable social enterprise is one that can reliably and repeatably meet the authentic demand from their two sets of customers, and through doing that, generate enough money to keep going.

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