Ventures that aim to create both commercial and social value have gained popularity in recent years. A study from the University of Amsterdam now defines four distinct types of social ventures. By analyzing these ventures through a business model lens, the study provides insights into how model choices impact a firm’s ability to create and capture value.

“Despite the buzz around ‘social entrepreneurship,’ the business models of such companies were not well understood,” the authors note. “We also believed that the business model choices for social entrepreneurs differ significantly from those of traditional entrepreneurs.”

Key questions

The researchers identified three key decisions entrepreneurs must make: the scope of target beneficiaries, the overlap between customers and beneficiaries, and how the venture communicates its social mission through its value proposition. Combining these choices, they identified four distinct types of social business models:

1. Social Stimulators: These firms aim to raise awareness about social and/or environmental issues. They define beneficiaries broadly, with customers being the main beneficiaries. Social values are embedded in their products or services.
2. Social Providers: These ventures target a specific community of beneficiaries, offering products or services that emphasize functional benefits. Typically, the customers are also the beneficiaries.
3. Social Producers: These firms focus on a specific group of beneficiaries, who are both the customers and suppliers of the product. The business’s social values are conveyed through the sourcing of the product.
4. Social Intermediaries: These firms have a broad definition of beneficiaries, but customers are different from the beneficiaries. They focus on the functionality of the product and sell to a separate group of customers to fulfill their social mission and maintain financial sustainability.

The study also examined how these models affect a venture’s value creation and capture. For example, Social Intermediaries often face higher operating costs compared to Social Stimulators and Social Providers because they act as intermediaries between customers and beneficiaries. Customers of Social Stimulators typically have a higher willingness to pay than those of Social Providers.

“Rather than using a one-size-fits-all approach to social enterprises, we believe it’s crucial to understand their diversity,” the authors conclude. “Analyzing the three business model choices helps you identify the type of social enterprise you are leaning toward. This understanding has significant implications for your cost structure, revenue structure, and organizational strategy.”