In recent times, customers have started purchasing products and services from socially responsible companies. While most companies get involved in social activities through their operations, some take it more seriously than others.
Therefore, these companies also modify their business models to compensate for social activities. Among these business models, the social enterprise business model is prevalent.
What is the Social Enterprise business model?
A social enterprise business model allows companies to focus on two aspects of a business – profitability and social impact.
These companies believe that these two aspects are related to each other, and one cannot work without the other. These companies contribute to social causes and charities through this business model.
There are a few numbers of companies that use a social enterprise business model. However, the number has been growing steadily over the past.
The more the customers demand companies change their business model, the more companies will adopt this model. Similarly, some companies have used the business model for a long time even before customers’ demands.
There are also some other business models that take inspiration from the social enterprise business model. For example, the one-for-one business model also builds on the idea of giving back to the community.
For most of these companies, contributing to social causes may take precedence over profitability. Similarly, these business models are popular due to the increased drive-in customer demand for social enterprises.
How does the Social Enterprise business model work?
The social enterprise business model is for companies that focus on the social impact of their operations. These companies believe in giving back to the community.
Therefore, the business model starts with companies that want to contribute to social causes. The reason for taking up a business model that allows it may be different for each company.
Once a company uses the social enterprise business model, it will focus on social issues and generate profits. These companies may share their earnings or donate to specific charities to play their role in giving back to social causes.
For companies that use the social enterprise business model, the primary source of revenues and profits is their operations. These companies also identify causes they believe will have a positive impact on society. Therefore, the social enterprise business model companies contribute to these causes through their operations.
The social enterprise business model is principal-based. It does not have defined rules to which companies must oblige. It allows companies to identify their own social causes and contribute to them. Similarly, it allows for much better customizability for companies to adopt this model in their own way.
What are the advantages and disadvantages of the Social Enterprise business model?
The social enterprise business model comes with various advantages and disadvantages. Some of these are below.
Advantages
Showing interest in social causes is crucial for companies around the world. It is because customers prefer companies that participate in social activities to those that don’t. For these companies, not using the social enterprise business model, or one of its variants, may not be an option.
The social enterprise business model also helps companies with market development through reputation. It means these companies can attract more customers compared to its competitors.
Through this, the company can increase its revenues and profits. Similarly, it means that these companies can promote their products and services while being socially responsible.
For all their social activities, companies can also benefit from tax advantages. Most of the charitable donations to social causes are tax-deductible. Therefore, companies can use it to their advantage when tax planning.
Disadvantages
The social enterprise business model can go against the goals of some companies. For companies that want to increase profitability, using the social enterprise business model may not be feasible.
For most companies, using the business model may be considered an investment. However, the investment may take a long time to realize.
Some companies may also use the social enterprise business model to benefit from the added reputation. However, sometimes, it may backfire.
Most modern consumers can identify companies that use the social enterprise business model for promotions. Therefore, it may end up harming the company more than it benefits it.
Examples
Companies such as ExxonMobil, Johnson & Johnson, Microsoft, Google, Apple, Dell, etc., take part in social activities. Some of these companies have specific social causes to which they contribute. Some others may contribute to general social causes. Other companies that use this model are Walmart, Allstate, General Electric, Adobe, Amazon, etc.
Conclusion
The social enterprise business model is for companies that contribute to social causes while also focusing on profitability. These companies believe in giving back to the community.
The social enterprise business model has become more common due to an increase in customer demand. The business model also serves as a base for many other prevalent models.