Beneficiaries vs. Customers
Understanding the difference and building a social business model that serves both.
“But isn’t every business, at it’s core, fundamentally social?”
Every social entrepreneur has faced this question at one point or another. It generally comes from a skeptic who doesn’t really believe social enterprise is any different from traditional business. After all, every business exists to solve a problem, right?
Well, sure. But simply solving a problem does not a social enterprise make. The question is, who are you solving a problem for and how are you creating value for them? And to answer that as a social entrepreneur means knowing the difference between your customers and your beneficiaries.
So what’s the difference?
Most of us intuitively know what a customer is. It’s a person or organization who is willing to pay you for a product or service that satisfies an unmet need — in other words, solves their problem. A beneficiary is a person or organization who benefits from the value created by your product or service, though they might not be the one to pay for it.
In a traditional business model, there is generally no distinction between the customer and beneficiary — the person paying for the product is also the person receiving the value from it. In a non-profit or charitable model, focus tends to go only to serving beneficiaries, and external donors provide funding instead of customers. Non-profits use external funders because often charging their beneficiaries would undermine their social mission.
To be a social enterprise, you need to find creative ways to serve both customers and beneficiaries and that’s what makes it distinct.
For example, think about the problem of poverty among youth. One way to go about addressing it is to start a drop-in program where you provide outreach services, employment training and financial literacy help. That creates a solution that addresses an unmet need and solves a problem — what’s known as your social purpose or mission. However, you can’t charge impoverished youth to take part in your program — it would undermine your goal to increase their finances and it’s highly unlikely they could afford to pay for your services anyway. So using a typical business model where impoverished youth are customers who pay for the value of the services they receive won’t work — in fact it would probably cause your idea to fail.
Traditionally, this kind of service would take the form of a charity, where external funders subsidize the cost of supporting these youth. Once mission-driven organizations figure out their social purpose, they typically move to focusing on raising the funding to execute it. However, for a social entrepreneur, that’s only stage one.
Once the social mission is established, social enterprises need to step back and think about how to create a business model to power it.
The most successful and efficient social enterprises find a way to leverage the social value they create for their beneficiaries to produce a market ready product for their customers.
Going back to our example, through their programming the organization has developed an expertise in understanding the unique financial challenges faced by young people. Now is the time to ask yourself, “who else might be interested in this expertise?” What about banks? Accounting firms? Schools? All of these groups may find value in what the organization is doing and could be potential customers. There is an opportunity for the organization to take their expertise and turn it into a product by providing consulting services to firms or licensing their financial literacy training program to educators.
The revenue generated from these activities would help sustain the drop-in program, reducing their dependence on funders. Because the potential customers have the resources to pay for the services, charging them as customers does not undermine the organization’s social mission. And since the value proposition of their business model is built off of their social mission, they create a mutually reinforcing relationship where one helps propel the other.
Yes, this process is a little more tricky than a traditional business or non-profit approach. There are more moving parts and more stakeholders to serve. But if you can get it right, it is a far more sustainable and impactful way to do business. And it’s an approach to business that resonates with a generation of socially conscious entrepreneurs who know business can do better for the world and aren’t afraid to try.
Written by AJ Tibando, CEO and CoFounder of SoJo. Learn more at www.mysojo.co