Wilson & Post, 2013

Small Bus Econ (2013) 40:715737 DOI 10.
1007/s11187-011-9401-0
Business models for people, planet (& prots): exploring the phenomena of social business, a market-based approach to social value creation
Fiona Wilson James E. Post
Accepted: 30 November 2010 / Published online: 11 December 2011 Springer Science+Business Media, LLC. 2011
Abstract This article explores the hybrid phenomenon of social business, that is, both a form of organization and a practice that deliberately harnesses market dynamics to address deeply rooted social issues through the design and implementation of a core product or service. This new form of hybrid venture melds the social purpose traditionally associated with non-prot organizations with the economic purpose and market-based methods traditionally associated with for-prot rms. This exploratory research inductively explores the process by which social businesses are designed. The result suggests that clear intentionality around social purpose drives the design of these ventures and their associated missions and business models such that they can creatively synthesize competing paradigms (economic and social purpose) within one venture. The tight coupling of mission, method, and operationalization allows for the multistakeholder promise of the business model to be fullled.
Keywords Social entrepreneurship Social enterprise Social purpose business venture Social business Business models JEL Classications M10 M13 M14
1 Introduction Few can ignore the growth of critical social issues plaguing our society. Many experts and practitioners have begun to believe that the traditional approaches of government and the non-prot sector will not alonebe enough to solve these problems. One of the emerging options is a new form of entrepreneurial organization which joins the social purpose traditionally associated with the non-prot sector, and the economic rationality and market-based approaches traditionally associated with for-prot rms. Examples of these hybrid ventures are emerging around the world (Lepoutre et al. 2011), embodying a fundamentally different approach to addressing social issues. The scale and creativity of this activity is receiving widespread media attention. In his 2007 book, Creating a World Without Poverty, Muhammad Yunus proposed a new model of organizationthe social business. Yunus describes a marketbased business whose focus is on the pursuit of primarily social or environmental goals, rather than personal economic gain. He presents a powerful call to action:
F. Wilson (&) Whittemore School of Business & Economics, University of New Hampshire, McConnell Hall, 15 Academic Way, Durham, NH 03824, USA e-mail: ona.wilson@unh.edu J. E. Post School of Management, Boston University, 595 Commonwealth Avenue, Boston, MA 02215, USA e-mail: jepost@bu.edu
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To make the structure of capitalism complete, we need to introduce another kind of business If we describe our existing companies as prot maximizing businesses, this new kind of business might be called social business. Entrepreneurs will set up social businesses not to achieve limited personal gain but to pursue specic goals (Yunus 2007, p. 21). The central idea is thatunder the right circumstancesthe power of market-based approaches can be proactively and deliberately harnessed in order to address the worlds pervasive social problems. In organizational terms, the phenomenon is characterized by the design and formation of social businesses. In these hybrid organizations, social value is not merely a byproduct of entrepreneurial activity (Venkataraman 1997), but an intended primary outcome. One of the central premises of this paper is that social businesses are a distinct organizational phenomenon because they appear to deliberately and explicitly combine, from inception, characteristics of both sectors. Because social businesses represent an intermingling of the traditional values associated with both for-prot and non-prot activity within the same enterprises (Dees and Anderson 2003), they join concepts traditionally held as contradictory. Despite the emerging practice of social business, and its media attention, the phenomenon has been understudied in the academic literature, and the eld of entrepreneurship, and business strategy more broadly, with its inherent prot-maximizing assumptions, does not have theories which adequately help us understand this emergent phenomenon. This research addresses this gap, and explores social business, at a micro level, with the goal of laying the groundwork for an emergent eld of inquiry. Specically, this research explores how the hybridization occursin other words, how social businesses are designed such that they can effectively combine social and economic missions ideas which are traditionally held as paradoxical.
Corporate Social Responsibility (CSR), and Social Entrepreneurship (SE). Below we outline the key focus of each and their intersection. 2.1 Social entrepreneurship literature With its origins in the eld of non-prot activity, the Social Entrepreneurship (SE) literature focuses on questions of how entrepreneurial opportunities for social change are discovered and exploited in the form of social entrepreneurial ventures (Shane and Venkataraman 2000; Austin et al. 2006). Early literature examined the creation and scaling of new non-prot organizations, and an important sub-literature examined the eld of social enterprise, that is, non-prots supplementing their donated income with earned revenue strategies. More recently, the extended view of SE (Perrini 2006) sees an independent, extremely intersectoral eld of study and sector of activity (spanning nonprot, for prot, and the public sector) which leverages creativity and innovation (hallmarks of the mainstream entrepreneurial eld) but is specically targeted towards social change (Perrini 2006). The goal of SE in this expanded perspective is large-scale systematic social change (Drayton 2002), a new social equilibrium (Martin and Osberg 2007), pattern-breaking social change (Light 2008), catalytic change, and revolutionary breakthroughs in the way social value is created (Waddock and Post 1991). A small, emerging literature relates to the hybrid form of social business (Campbell 1998; Schaltegger 2002; Volery 2002; Mair and Noboa 2003; Clifford and Dixon 2006; Hockerts 2006a, b) which exists where an emerging social innovation is also seen as a viable business opportunity and turned into a commercial for-prot business creating, in the process, new market space while also simultaneously attaining a social objective (Hockerts 2006a, b, p. 145). These organizations have been variously referred to as hybrids (Dees 1998; Alter 2007), social purpose business ventures (SPBVs) (Hockerts 2006a, b), for-benet companies (Sabeti 2008), social businesses (Yunus 2007), for-prot social ventures (Clark and Ucak 2006), and low-prot organizations (Wolk 2008). The social business is seen as inherently and explicitly social in its mission and purpose (Thompson et al. 2000; Dees 2001; Alter 2006; Austin et al. 2006; Austin 2006; Haugh 2006; Mair and Marti 2006; Nicholls 2006; Peredo and McLean 2006; Mair and
2 Theoretical foundations The following section outlines the academic literature relevant to the concept of social business, but also identies the gaps in this literature. Broadly, there are two main streams of literature which relate conceptually to this phenomenon: Stakeholder Theory and
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Schoen 2007; Meyskens et al. 2008). Unlike a classic non-prot however, social businesses fundamentally repurpose business methods and approaches to solve the worlds social problems in an efcient and sustainable manner (Haugh 2006; Rauch 2007). Although some previous literature has focused on dening hybrid forms of organization, less work has focused on specifying exactly how hybrid activity occurs. While previous research (mostly conceptual) has tantalizingly suggested that economic sustainability is possible for social and environmentally focused organizations (Clifford and Dixon 2006), and that rather than hindering the process, idealistic values can be translated into valuable economic assets (Clifford and Dixon 2006), it has also been noted that: The existence of social purpose business ventures is puzzling from a purely economic point of view. SPBVs purport to exist primarily to create a public good. However, while the benets they create are public they are nonetheless incurring private costs. How can they manage to do so? Putting social welfare rst and still being a protable business is counterintuitive. Management research has no theoretical explanation for these phenomena (Hockerts 2006a, b, p. 143) Indeed, the idea of merging social and economic value creationwithin the same organizational structure goes beyond trade-offs or balancing acts. Rather, this merging involves fundamentally innovative and entrepreneurial approaches which can explicitly create both social and economic value in ways that are mutually reinforcing (Mair and Schoen 2007). Issues associated with developing an organization are amplied in hybrid organizations because of the double (social and economic) nature of the organizations objectives (Imperatori and Ruta 2006). Social businesses combine social mission and market methods, concepts that are traditionally held as paradoxical. As noted above, the process by which this synthesis of social goals and market-based approaches can be achieved has been understudied. Indeed, researchers have noted that the simultaneous creation of social and economic value makes more stringent and complex demands on the organization (Leeuw 1999; Fowler 2000), and it has been stressed that the concrete processes by which economic and social value is created needs to be examined more closely (Harding 2004; Mair and Schoen 2007).
Previous conceptual research has suggested that the centrality of the Social Value Proposition (SVP) is an important integrating attribute of hybrid ventures because it allows focus to remain on the intended social impact rather than organizational interests (Austin et al. 2006). In a similar fashion, other conceptual research sees the business plan as a mosaic of perspectives which allows the entrepreneur to motivate the various interests (stakeholders) towards a common social goal in a hybrid venture (Perrini and Marino 2006). Hybrid ventures require a reordering of priorities versus a traditional entrepreneurial venture, with greater focus on employees as stakeholders, as well as the latent needs of the customer (Perrini and Marino 2006). Successful hybrid ventures are holistic in their approach to value creation (social, environmental and economic) and that the various dimensions of value creation are highly interwoven (Mair and Seelos 2006). In summary, the existing SE literature offers little grounded analysis and theory of the social business form. Existing work on social business is largely conceptual, based on anecdotal evidence and practitioner insights, or limited case studies, and would benet from a more rigorous approach. 2.2 Stakeholder theory and the corporate social responsibility (CSR) literature The CSR eld considers the effects of for-prot business on society, beyond the traditional role of seeking to maximize prots (Crane et al. 2008a, b). CSR occurs when a business rm consciously and deliberately acts to enhance the social well-being of those whose lives are affected by the rms economic operations (Frederick 2008, p. 522). Almost a century ago early thought leaders stressed the interconnectedness of owners with other constituents in society (Follett 1918). Modern CSR can be classied into four stages of development (Frederick 2008). The rst, corporate social stewardship (1950s1960s), focused on voluntary philanthropy, in the form of allocating a portion of company funds to support worthy causes (Bowen 1953). The second stage, corporate social responsiveness (1960s 1970s), focused on the idea that corporations should respond to legitimate social demands (Frederick 2008). In this era, a stakeholder approach to management was proposed (Andrews 1971; Preston and Post
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1975; Freeman 1984), centering on the strategic importance and legitimacy of groups and individuals beyond a rms shareholders. This stage moved beyond a voluntary, individual manager approach, to a rm-level strategic necessity for long run viability (Preston and Post 1975). The third and fourth stages were business ethics (1980s1990s) focusing on creating and maintaining an ethical corporate culture, driven in part by human rights concerns, and corporate global citizenship (2000s) where the guiding principle is focused on companies taking responsibility for their global impact (Frederick 2008). Freeman challenged the contemporary notion of CSR because it was merely an add-on to business as usual, and forced a conceptual split between prots and social responsibility (Freeman 1984). Yet ultimately in both the mainstream business strategy literature and in contemporary, for-prot rm practice, CSR remains a grafting of secondary (social) goals, always subservient to the primary economic goal. 2.3 The intersection of the literature Since the rise of the modern corporation at the dawn of the 20th century, for-prot businesses have predominantly been concerned with the creation of economic value, to carry on business for a prot (Post et al. 2002). The corporations predominant legal framework is the ownership model whereby shareholder interests have primacy (Post et al. 2002). The prevalent conception of the for-prot business and the capitalist system is largely based on the views of those such as Milton Friedman (1962, 1970) who stated that the only legitimate social responsibility of the rm is to increase shareholder prot. Other stakeholders such as the environment, employees, customers, and the community have less, or no, direct consideration. As such, the ownership model has become conated with the prot maximization concept. Originally the basis for explanation of behavior in the economics literature, it has become a normative goal for for-prot rms (Post et al. 2002). The CSR literature described above challenges the predominance of the ownership and prot maximization models. At the same time, the extended view embodied by the SE literature (and by practice in the eld) considers social innovation outside of the traditional non-prot framework. In the conventional framework, the organizational landscape is bifurcated. Organizations are
categorized as either for-prot ventures with a focus on economic value creation, accountable only to their owners or shareholders, or as non-prot entities with a focus on social value creation, accountable to their stakeholders (Alter 2007). Fundamental shifts have occurred in this dichotomy in recent years, with each of the various sectors undergoing changes which are blurring these previously distinct lines, and changing views of the proper places for economic and social value creation (Phills 2005). Figure 1 (adapted from Sabeti 2008) provides a conceptual model of this evolving organizational landscape. This blurred space, where the literature intersects, has relevance for the phenomena of Social Business. Greg Dees has made several important contributions in this regard, with the creation of an organizational spectrum from purely philanthropic to purely commercial, based on the motives, goals, and methods of the venture (Dees 1998). A new form of hybrid enterprise sits in the center, demonstrating their intermingling of missions, motives, and methods. Others have noted that the distinction in primary purpose is not dichotomous, but a continuum ranging from purely social value creation to purely economic (Austin et al. 2006). Others have challenged the prevailing assumption that organizations must choose between social or economic value creation, that they must either create nancial returns at the expense of social value, or be more socially inclined at the expense of economic value creation. (Emerson 2003). Although CSR practices and beliefs are not yet universally embraced by the mainstream business strategy literature, there is an increasing trend for social themes to become part of mainstream business practice. It has been noted that, in some cases, this activity has begun to transcend basic social responsibility, and, rather, reects more proactive aspirations about the private sectors potential to make substantial contributions to the quality of life in the communities in which they operate (Phills 2005; Sisodia et al. 2007). Similarly, for-prot businesses CSR efforts are counter-productive because they pit the pursuit of prot against the pursuit of social good, when they are actually interdependent. Firms are advised to focus more on crafting social initiatives which are more intrinsic to their businesses strategies (Porter and Kramer 2006). In many ways, both the CSR and social entrepreneurship literature can be viewed as starting to
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Business models for people Fig. 1 Blurring organizational landscape
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Adapted from http://www.fourthsector.net
redene common assumptions about the market-based system and its uses. Yunus (2007) explicitly states, unfettered markets in their current form are not meant to solve social problems (5) and surely capitalism is amenable to improvements (21). Similarly, the purpose of the business is not simply to make a prot, but to be of service to society through its actions (Williamson 2008). Others have proposed that, under the right conditions, it is possible to fulll shareholder obligation to build shareholder wealth, and make the company an instrument of service to society (Sisodia et al. 2007). Although we are witnessing a blurring of purpose and methods, all of the literature described above inherently embodies the prevailing assumptions about the traditional sectors of activity. Each was developed within the mindset of the for-prot or the non-prot world. This literature attempts to adapt to the emergence of a new breed of hybrid activity, when what is needed is literature which is developed for this new phenomenon. Although the existing literature provides a strong foundation for beginning to understand the phenomena of social business, there remains an insufcient focus and depth on the particular form and organizational practice. Important contributions to both scholarship and practice can be made by comprehensively describing, analyzing, and generating
theory about the hybrid form and practice of social business.
3 Research strategy This section outlines the research objectives, the rationale for an inductive approach, and the detailed research strategy, including sample selection, interview protocols used for data generation, and analysis approach (Pratt 2009). The goal of this research study was to describe and analyze the phenomenon of the social business, laying the foundations for the development of process theory related to how the form and practice of these hybrid organizations occurs through their design and key structural decisions. Special attention was paid to the paradox inherent in using a market-based system to create social value, and to developing understanding about the unique attributes of social business approachesapproaches which go beyond simple trade-offs between social and economic goals. Business strategy theories concerning for-prot rms, assume prot maximization for owners. Non-prot strategies assume maximization of social value creation. What are the unique challenges faced by social businesses that aim to create social value through
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market-based for-prot businesses, and how do they solve this paradox? 3.1 Overall research strategy The research design focused on the social business as the unit of analysis, and followed a multiple case approach (Eisenhardt 1989; Eisenhardt and Graebner 2007). An inductive research approach is called for due to the emergent nature of the phenomenon, and the suggestion that SE research should consider how the phenomenon brings to light practices, themes, and concepts where existing theories do not explain what we see on the ground (Robinson 2006). Beginning with a set of specic observations to allow for the discovery of patterns that represents some degree of order among given events (Babbie 2002), inductive research is appropriate to exploratory research when no theory exists from which to deduce hypotheses, or when knowledge of a topic is sufciently slim that the relevant variables are unclear (Sullivan 2001). Because of the difculty of adequately understanding previously understudied phenomena with a structured set of questions, qualitative methods (a classic inductive tradition) are suitable when the task is to explore new issues (Schutt 2004). In this study, eld research, in the form of case studies, was used in an attempt to understand the dynamics present within single settings (Eisenhardt 1989). Case studies are rich, empirical descriptions of particular instances of a phenomenon that are typically based on a variety of data sources (Eisenhardt and Graebner 2007; Yin 1984). The approach is especially appropriate in new topic areas such as this, because the theory developed is emergent in the sense that it is situated in and developed by recognizing patterns of relationships within and across case studies (Eisenhardt 1989; Eisenhardt and Graebner 2007). One key benet of eld research is that it can help develop a comprehensive and nuanced perspective. The observation of behaviors as completely as possible is especially helpful to phenomena which defy simple quantication (Babbie 2002, p. 281). The multiple-case approach was used (Yin 1984) as replication logic is seen to be central to building theory from case studies because it typically provides a stronger basis for the theory building through better grounding in a larger set of empirical evidence, the opportunity to more broadly explore the research questions, and ultimately
providing more generalizable data (Eisenhardt and Graebner 2007; Yin 1984). Multiple cases allow the researcher to determine whether an emergent nding is idiosyncratic to a single case or more broadly replicated by several cases (Eisenhardt and Graebner 2007). 3.2 Pilot phase Although most concepts should and do emerge from the data in inductive research, early sources of ideas are helpful in developing the initial research questions, shaping the research strategy, developing coherence, early guidance on relevant categories, and developing eld instruments (Eisenhardt 1989). Eight pilot interviews were conducted with founders and leaders of social businesses in the spring of 2008, each lasting 3575 min. This was supplemented by attending conferences and observing the list-serves of several relevant membership associations, and immersion in the literature and business media about social business-related concepts. 3.3 Case selection and data sources Although there is no ideal number of cases, four to ten cases is suggested to work well, stopping when theoretical saturation has been reached, i.e., the point where each additional case adds minimal incremental learning (Eisenhardt 1989). Seven social businesses comprised the nal sample. Table 1 describes the organizations. Within the overall approach of theoretical sampling consistent with theory building from cases (Eisenhardt 1989), purposeful sampling was employed in order to generate the most clear cut examples of social businesses, and were selected purposefully to permit inquiry into and understanding of a phenomenon in depth (Quinn Patton 2002, p. 46). Intensity sampling was the primary strategy, dened as information-rich cases that manifest the phenomenon of interest intensely (but not extremely) (Quinn Patton 2002, p. 234). While the nal selection of social businesses in the sample was determined by the willingness to participate in this research, all were required to be representative of the phenomenon in that they address a primary social purpose with a market-based approach. Maximum variation sampling was also used to capture and describe central themes which cut across variation by variables such as current revenues and age of rm.
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Business models for people Table 1 Overview of organizations studied Venture Year founded 2002 2002 1986 1982 1996 1998 1973 Legal form of incorporation Employees (2008) 200 Revenues
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Better World Books Coastal Enterprises Capital Management (CCML) Equal Exchange Greyston Bakery Preserve Products Pura Vida Coffee ShoreBank Corporation
For-prot
[$30 m (2008 estimated) $3.5 m $29 m (2007) $34 m (2008 estimate) $7 m (2008) $5 m (2008) $4 m $4.2 m (2007)
For-prot subsidiary of non-prot (501c3) parent \25 For-prot, worker-owned cooperative For-prot subsidiary of non prot (501c3) parent For-prot For-prot with non-prot (501c3) foundation For-prot 100 65 16 \25 578
On average two leaders were interviewed for each social business, but in some cases as many as ve leaders were interviewed for an individual business, as outlined in Table 2. Interviews were conducted in late 2008/early 2009, and averaged 90 min. In total, 34 h of interviews per enterprise were conducted. Limiting bias of the interview subjects is important, and hence we interviewed multiple informants from each organization (Eisenhardt and Graebner 2007). The founder was seen to be important for his perspective on the founding mission and intention, but the founder is conditioned in some ways to tell a story and other key current decision makers were included to get a more nuanced and complete perspective. Interview data was supplemented by extensive company-authored materials and websites. 3.4 Instruments and protocols An initial interview protocol was developed based on categories and themes resulting from pilot interviews, and it was used in all interviews to provide consistency, but was rened during the process of the research as new concepts emerged (outlined in Fig. 2.) This exible data collection, overlapping data collection and analysis, is valuable because it allows the probing of emergent themes and is legitimate because the goal is to understand each case in as much depth as possible (Eisenhardt 1989). The critical incident technique (Ronan and Latham 1974) was used in each interview. Interviewees were encouraged to recount salient past experiences surrounding the simultaneous process of managing economic and social value creation, and describe issues where trade-offs arose. Clarifying questions were used to illuminate the explicit and
Table 2 Overview of enterprise members interviewed Organization Title/function of enterprise members interviewed Co-Founder CEO Board Member, Principal, Good Capital Coastal Enterprises Capital Management Founder, CEO of parent organization Managing Director Executive Investment Ofcer Board member Senior Investment Ofcer Equal Exchange Greyston Bakery Preserve Products Pura Vida Coffee ShoreBank Corporation Co-Founder, Co-Executive Director Co-Executive Director Founder CEO Founder, CEO Director of Marketing Co-Founder Co-Founder, Chairman Co-Founder, President
Better World Books
implicit assumptions and solutions involved, and additional probes pushed for areas of alignment and misalignment with previous statements. Discussion of rupture points reveal the underlying structures, processes, and strategies which are often taken for granted and only emerge explicitly at critical junctures. 3.5 Analysis strategy Interviews were recorded and transcribed. Each set of interviews and materials was then synthesized
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Organizational Mission and Strategy Your mission/social problem being addressed Why is the social problem compelling? Strategy and approach/model How/why did you choose to approach the social problem in this way? (why not tradit n/p or f/p?) Whats unique about the approach? What specific role(s) does earned income play in the model? How important is break-even/selfsufficiency? Who do you see as the stakeholders for your organization and how does your mission and model address them? Were there any barriers you had to overcome in developing this model? What resources allowed you to develop this model?
Operating Policies and Decisions How does your chosen mission and approach affect your key design and operating decisions Governance/legal form Financing Marketing and Sales/Business development Operations/Supply Chain HR/Employees
Outcomes/Results Social Economic What +ve/-ve have there been of the model?
What tensions does your approach of combining social mission with business method unavoidably create? Critical incident technique/specific examples: what were they? How did you resolve them? What conflicts does your mission and model create among your various stakeholder groups and how do you deal with them? Attitudes to competition?
Vision Vision of the organization in 3/5/10 years Wish for the ultimate role of your organization
according to the common categories of the interview protocol, and developed as a detailed case study for each organization, following a common format, systematically exploring the same facets of each social business in turn. This within-case strategy helped synthesize large volumes of data on each case, and allowed the researchers to become intimately familiar with each case as a stand-alone entity, and to allow the unique patterns of each case to emerge before looking for generalizable patterns across cases (Eisenhardt 1989). Detailed cross-case analysis was then performed to identify similarities and differences, and to identify patterns. The data was looked at in as many ways as possible (through the construction of multiple tables), to allow the researchers to go beyond initial impressions (Eisenhardt 1989). From the cross-case analysis, tentative propositions emerged and were constantly compared against the data, and the literature, allowing the iteration towards theoretical propositions which closely t the data (Eisenhardt 1989).
social mission with market-based approaches. With the goal of maintaining an appropriate balance between telling a rich story and presenting credible and wellgrounded theory, the overarching organizing frame for this section is the theoretical propositions that emerged from the cross-case analysis. Each main emergent proposition is supported by empirical evidence, but since space constraints mean it is not feasible to include empirical evidence from every case in the body text, additional empirical evidence is provided in table form (Eisenhardt and Graebner 2007). Power quotes and evidence from one case study (Equal Exchange, referred to as EE) are used within the body text, and additional evidence and proof quotes from other case studies are shown in Appendix 1 (Pratt 2009). Also consistent with an inductive approach, the discussion of the emergent theory in the context of the literature is interwoven throughout this section. 4.1 Social mission as the driving design principle for the social business In each case, a clear social purpose was the driving force for the inception of the enterprise, resulting in a social mission that is integral, not tangential to, the enterprise. The social mission of each is, in itself, multi-faceted, often encompassing many types of social impact areas and multiple stakeholders,
4 Cross-case analysis and emergent propositions In this section, the analysis of the empirical evidence is presented, together with the emergent theory regarding the process by which social businesses are designed such that they can effectively meld paradoxical ideas
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including environmental concerns. For example, the stated mission of Equal Exchange (EE), the rst company to bring a Fair Trade to market in the United States, is: To build long-term trade partnerships that are economically just and environmentally sound, to foster mutually benecial relationships between farmers and consumers and to demonstrate, through our success, the contribution of worker co-operatives and Fair Trade to a more equitable, democratic and sustainable world. Motivated to create social change for the small farmers who grow the food eaten by U.S. consumers (farmers who often earn below-livable wages) and to reform ad reverse the worst extremes of the corporate consolidation of the food system, Co-Executive Director and Co-Founder Rink Dickinson explains that the farmer is their clear primary mission focus: Were going to put our resources, were going to put our money, were going to put our entire being into trying to get as close to that farmer, and give them a more fair price, much more direct access, \an[ ongoing process to get more access, to get more power, to get the chance to be at the table. Additional descriptions of the case organizations missions are outlined in Table 3.
4.2 Multiple rationales support the deliberate choice to address social missions through a market-based approach The data analysis suggests an appreciation for the power of the market system, and the recognition of its limits and aws. Intrinsic to the deliberate decision to use a market-based approach is that the system can, and should, be made to work for positive social outcomes. A market-based approach to social mission is chosen for three distinct, but interrelated, reasons. First, the data suggests that the market-based approach is viewed by all the organizations studied as an economically selfsustaining way to achieve their social change agenda, and therefore a more reliable approach than the traditional donation-model in the non-prot sector, relying on prots rather than philanthropy.
Second, the market-based approach is implicitly seen by some of these enterprises as having value in giving a hand-up as opposed to hand-out. In this sense, the model aims to create conditions for self-sufciency and self-reliance for traditionally marginalized stakeholders, and a leveling of the playing eld. By developing the capacities and conditions for individuals who have been traditionally exploited or disadvantaged to be self-reliant (versus giving them charity), the belief is that the social change can be tackled on a much larger scale, and can be permanent. For example, explicit to the business model of EE is that the overall economic and social conditions of farmers can be improved signicantly and permanently through more equitable compensation and fair treatment for their profession by the industry, reducing their reliance over time on social welfare programs. Third, for several of the organizations studied, the data suggests that participation and success in the broad-based market is seen by these enterprises as a way to create a powerful base of inuence, a lever or a megaphone for social change. More specically, the participation and market success of these enterprises with social change agendas creates pressures for the traditional market participants to change their practices and approaches, and creates the conditions for the economic benets of the market-based system to be redistributed. For example, the EE founders explain how achieving their social mission of greater equity for farmers would best be achieved through participation in the market. Co-Executive Director Rob Everts states for ten years, we were one hundred percent of the fair trade industry in coffee in the United States like, we were it and explains how their ongoing commitment over a decade nally led to the outcomes they were hoping for. Dickinson explains that: We believe that we were one of the drivers to kind of shift power dynamics in a very, very powerful way fair-trade coffee, \now[ its everywhere, that just didnt happen randomly; that happened because a pretty small group of organizations were completely focused on that for a pretty long period of time. The data also suggests the creation of these enterprises as an act of positive protest. Rather than demonstrating or advocating for what they are against, they nd a
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724 Table 3 Organization analysis Organization Better World Books Mission To promote literacy by capitalizing on the value of the book to fund and support literacy initiatives locally, nationally, and globally Environmental mission to promote reuse and to avoid discarded books being sent to landlls Business model Created scalable engine to monetize the value of unwanted used books Extensive use of partnerships with colleges and libraries to collect used books (leading to very cost-competitive costs of goods sold) Large technology investment to handle complex logistics Leverages 3rd part marketplaces to sell books online, plus created own online branded retail site Deep partnerships with non-prot literacy organizations, who help collect books, and receive % of value of book (also have equity in the company) CCML To help create economically and environmentally healthy communities in which all people, especially those of low incomes, can reach their full potential Uses the vehicle of the Federal Govt. New Market Tax Credit program to encourage private capital to provide needed (and affordable) project nancing in low income/high unemployment areas Tax credits leveraged with private capital source partners Provides hub function to coordinate interests of multiple stakeholders in deal Rigorous, triple-bottom line investment criteria, creative ways to embed more social mission in deals Equal Exchange To create more economic and social equity for small farmers by more closely connecting consumers with the food they eat First company in US to bring Fair Trade product to market Recreation of coffee value chain through disintermediation, removal of layers of middle men, creating more direct connection between farmer and consumer Redistribution of economic benet (normally taken by middle men) to farmers Deep alliances and partnerships integral to new value chain at all points Greyston Bakery To use the structure of a bakery to serve as a vehicle for personal transformation and economic community renewal by providing jobs for chronically underemployed groups Creation of a bakery with singular goal of job creation for long-term unemployed and unemployable Provide product as inclusions in other products (Ben & Jerrys ice cream, and own branded retail brownie line) Provides training an additional support services for employees to help them succeed
Financing/capital structure Bootstrapped by founders in early days Bank debt for scaling Major equity investment from social investment fund in 2008
Initial set-up costs funded by parent non-prot Financially self-sustaining by year 1
Founders own money, and $100,000 friends and family money for initial start-up Approx. 300 outside investors (over $3 m) with class B stock, with no voting rights and annual dividend targeted at 5% Focus on investors with shared values, and core interest in social mission
Initial funding from non-prot parent Bank debt
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Business models for people Table 3 continued Organization Pura Vida Coffee Mission To use the vehicle of the business to empower producers, motivate consumers, inspire business leaders, and serve the poor Generate funds for social causes without philanthropy Business model Sells organic, shade-grown, fair trade coffee through their branded Pura Vida Coffee cafes, and to institutional customers, mostly in the education and non-prot sectors Returns after-tax prots to social causes in the coffee growing regions from where its products are sourced Pioneered new production methodology to produce consumer-safe products from #5 recycled plastics Developed value chain through deep partnerships with both suppliers of raw materials (e.g. off-cuts from Stonyeld Farm yogurt cups and returned Brita water lters) and with manufacturers First and leading community economic development bank in US Leveraging the mechanism of a bank enables a signicantly higher volume of lending (versus a non-prot) Creation of FDIC regulated bank with purpose of lending only in areas in need of regeneration (low income, high unemployment) and which are underserved or ignored by banking mainstream System developed over time which could protably convert customer deposits into development credits in high need areas Structure of bank holding company to allow for afliated non-prots and forprots to work with FDIC in the same local markets, to provide supplemental but vital higher risk lending and support services Friends and family Financing/capital structure
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Founders personal resources $2 m from outside investors with strong mission alignment
Preserve Products
To create a company which reuses earths resources through the use of recycled materials in the design and manufacture of consumer products
ShoreBank
To revitalize economically disadvantaged communities through the mechanism of a federally regulated bank, and associated afliates
$800,000 of equity from very small group of private investors, churches and foundations plus $2.5 m loan for initial purchase of bank Closely held by approximately 70 shareholders (religious organizations, non-prots, other corporations and private individuals) with strong alignment that primary purpose is community development not maximum nancial return
way to demonstrate that what they are for is viable in the context of the market-based system. The EE leaders describe a mission to create a vehicle which could demonstrate an alternative business model and to be a catalyst for change in the marketplace; what they refer to as a social change organization. Everts describes his desire to be part of creating a positive example of what could be possible if approaches to the food system were fundamentally rethought: What were trying to do is reform capitalism and show that you can actually be in business, you know, be in the marketplace, trading goods and
services and be responsible and fair and not exploit. Figure 3 illustrates the market-based rationale for each venture. One of the emergent themes in this research, which would need to be explored in future research using longitudinal, quantitative data, is that the scale of possible social impact increase with the rationale employed. Related to rationale #3, the enterprises studied in this research see competition in ways which are fundamentally different to other market-based businesses. At many levels their mission compels them to
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encourage their competition, not ght it. Everts explains he sees competition as the goal. Dickinson states: all-in-all, Im happy and I love it when people are buying, supporting Dunkin Donuts or Starbucks fair-trade \coffee[ because theres a lot of social benets owing, right? This suggests that models of strategy designed for for-prot organizations may not be sufcient to explain hybrid approaches. For example, the basic idea in one of the most prominent views of strategy is that any rm is in a ght with its competitors (in the broadest sense to include customers, suppliers, new entrants and substitutes) for a share of the prots available in the industry. The goal for the focal rm is to avoid having prot be bargained away by customers, suppliers and others (Porter 2008). These social businesses inherently reect the duality of a prominent social mission coupled with a market-based method. These enterprises have made conscious, intentional design choices about the market-based business model, surrounded by a context of intention pervading all other design decisions. This is consistent with the literature which suggests that the centrality of social mission is important because it affects how social entrepreneurs perceive and assess opportunities, and the degree to which mission-related impact, not wealth creation, becomes the central criterion (Dees 2001).
4.3 Deliberately for-prot but deliberately not prot-maximizing The deliberate choice of the for-prot form of incorporation is tightly linked to the principle of the market-based approach. For example, Everts refers to the importance of having to survive on the power of the idea as manifested through your ability to sell the idea and literally sell the product. In some cases, the for-prot form was also driven by the anticipated need for signicant growth capital, and the understanding that capital on that scale would most likely be possible through equity investments, not possible within a nonprot structure. These enterprises push the bounds of the commonly accepted interpretation of the for-prot business form. Indeed, the co-operative form used by EE is a special form of for-prot structure dating back to the 19th century, not currently widely used in the United States, which requires the members to work towards a common good. Everts explains, I wouldnt want to structure \EE[ as a non-prot, because then you lose the purpose of building change in the marketplace. It has been stated that the eld of social entrepreneurship is reaching a point where choice of legal form is no longer considered a dening characteristicwith all of the traditional non-prot or for-prot
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values implicit in each corporate formbut a strategic decision or even a matter of convenience (Mosher-Williams 2006). However, the enterprises studied in this research made deliberate and conscious decisions about being a for-prot, and in this way it is very much not a matter of convenience. The data analysis suggests that the primary social purpose of the enterprise dictates that the desired goal is not a difference in net prots, but a net difference in total value creation. In each case operating protably and creating an equitable (moderate, but not excessive) share of economic benet for investors, owners and employees, is seen as an enabler of the social mission, the means to the end and not an end in itself. Rather, these enterprises harness the market system and meld it to serve a broad group of stakeholder beyond shareholders and owners. EEs website states We are not in this to get rich! and Dickinson explains: I think \traditional[ business implies for the most part, maximizing \economic[ value I dont believe thats an organizing principal of EE at all Its to survive and be effective out there in the marketplace and to make a series of choices about what were trying to do and why and, therefore, be disciplined by the market . EE typically pays more for the product under the Fair Trade pricing agreements than mainstream companies, and also extends affordable credit to their farmers. At the same time, they have chosen not to pass on the added costs associated with Fair Trade to the consumer, therefore lowering their margins relative to comparable companies. Dickinson explains how the company decided it was more of an imperative to get in the game rather than selling small volumes and capturing the margin internally. We could do things that didnt necessarily make total economic sense; certainly, that we could do things that almost no one else in their right mind would do. We could invest in them for a medium-amount of time, we could begin to get results, and then because of our mission and our structure, we could share that benet in a way that a basic capitalist business would not ever want to. Everts concurs that: Its all about what or who are the prots accountable to, like where do they go, who has, you know,
the jurisdiction, the authority, right, to make that decision, and what do you do with them? 4.4 Requirement for business model and value chain invention (or reinvention) From the outset, the enterprises have created models from scratch, or have radically redesigned the business models and value chains in their respective industries for social ends. The enterprises describe careful and intentional consideration of multiple stakeholders and their interestsat the point of inceptionsuch that they are broadly and deeply imbedded in the fabric of the business model. For example, the model designed by EE involved a signicant redesign of the coffee value chain. To address their social mission of helping small-scale family farms to get a greater and more equal share of economic value of the product, EE developed a different path to the market which can deliver more of the purchase price to coffee growing communities. To do this, they sought to remove layers in the value chain, cutting out the multiple middle men, the layers of distribution characteristic to the larger agribusiness and food companies, and instead sourcing directly from small, worker-owned grower cooperatives, and distributing directly to smaller, consumer-owned food cooperatives and independent natural food stores. Other ventures studied have similarly undertaken the creation of new business models or radically redesigned existing ones, in their respective industries. The social businesses studied experience some ongoing tensions, or challenges inherent to the models they created. However, the design philosophy largely mediates tensions between mission and method, and the data suggests that the tensions are mostly at the operational, rather than the strategic level. There are always trade-offs, but that they are conscious trade-offs rather than deep conicts of interest. For example, co-executive director of Equal Exchange, Rink Dickinson, explains that tensions around balancing social mission and economic missions dont really exist because the enterprise is so singularly aligned around missionabout the pretty strong vision that this is a ght worth taking on. The data analysis suggests that it is the fundamental process of the design (or redesign) of the business model and the value chain that makes the achievement of a social mission through a market-based model
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possible. The tight coupling of all three elementsthe social mission, the market-based approach, and the business model inherent in the implementationis integral to the creation of social value, by allowing the reallocation of benets (normally reserved for shareholders) to multiple stakeholders. The inherent recognition of the interconnectedness of these stakeholder interests drives the design of their business models such that the creation of valueof all typesis effectively (and often in highly creative ways) baked in at inception through the delivery of the core products or services. This approach represents thinking that is the opposite of zero sum game, and rather it embodies the idea that every design decision is an opportunity to engineer in more value creation. This is consistent with the literature which suggested that social purpose businesses can capitalize on opportunities that non-prot, activist organizations often ignore by nding ways to benet both the intended beneciary and the end consumer simultaneously (Hockerts 2006a, b). Similarly, previous research has suggested that by integrating the intended beneciary group into the value chain at a very early point, the group assumes a vital role in the value creation process and, at the same time, is able to capture a signicant portion of this value created (Mair and Schoen 2007, p. 66). Recent CSR literature has tantalizing hinted at the possibility that, counter to conventional wisdom, economic and social value creation are interdependent rather than mutually exclusive (Emerson 2003; Porter and Kramer 2006) but has not specied the ways in which this occurs. Some suggest that rms of this type are able to effectively align the interests of all stakeholders at the point of design in a way that conicts are avoided and such that all receive an appropriate share of the benet (Sisodia et al. 2007). The social businesses studied in this paper have created business models which do not see the creation of economic wealth and social wealth as incompatible. Rather, they see it not only as desirable, but possible. In effect, they succeeded in the act of making money being consistent with the act of creating value (both economic and social) for a broad range of stakeholders. In other words, they made adjustments to the market system to allow value of all types to be created for a range of stakeholders. Figure 4, specically line ABC, demonstrates what might be referred to as traditional either or thinking where enterprises inherently see trade-offs being more protable requires a compromise in terms
of the amount of social value which can be created, and vice versa. Traditional thinking suggests that nancial return and social impact are dichotomous, involved in a zero sum game, where giving to one unavoidably takes away from the other. The creation of economic wealth is incompatible with the creation of social wealth. Figure 5, and specically Arc D, demonstrates social business thinking whereby hybrid enterprises are designed, from inception, to avoid these trade-offs. As such, social businesses move into a new efcient frontier, nding ways to make investments in social impact that realize nancial returns on investment, and nancial investments that achieve social returns on investment. A New York Times article on social business posed the question: as you grow, will the economics of your business work in favor of your \social[ mission or will they work against it (Alboher 2009)? The enterprises studied in this research suggest that the answer is afrmative to the extent that the social mission is built into the DNA of the business model. 4.5 Social business design and renement takes patience and time Each venture took considerable time for the pre-startup design phase of assembling resources and for the implementation and the achievement of results. The founders describe the challenges of attracting support and resources for radical new approaches to a social mission, and of having no blue print to follow. Each describes a long process of continual adaptation and renement to make a market mechanism a viable and reliable vehicle for social change. The data suggest that both time and patience are important elements in the design and implementation of their enterprise. It would appear that approaching complex social problems with radically new approaches is no quick x. Everts of EE explains that the goal is to build a market with real integrity \and[ so that slows it down. The deliberate and slow approach adopted by these enterprises appears to put the intention around the social mission front and center. 4.6 Mission-aligned capital and governance structures Each of the enterprises studied has remained privately held (even including the oldest ventures in the sample)
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Business models for people Fig. 4 Traditional thinking
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Fig. 5 Social business thinking
and describes a deliberate and careful approach to both their capital and governance structures. Of their investors, Everts says that they have always sold themselves primarily on the social, not nancial returns. He shares: thats never been how weve sold ourselves this is who we are. We want you to invest in the mission its a modest, but steady 5% return, and a huge social return. Selecting highly values-aligned investors frees and enables these enterprises to pursue their social mission and to avoid philosophical or strategic
conicts. The data also suggests that the capital structure allows for patience and consistency around the implementation of the social mission in the market-based approach. This careful alignment of the mission and method with the ventures capital and governance structure, and private ownership, avoids the distortion often imposed by the public capital markets, or traditional venture capitalists and private equity investors who judge investments by the singular criteria of nancial return.
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5 Contributions This study makes contributions in three areas. First, the research makes empirical contributions by provided a needed starting point for the future academic study of social business by offering rigorous qualitative data which explores the phenomenon at a micro level. The empirical evidence in this research has provided a deeper and more nuanced understanding of this complex and multidimensional phenomenon, by taking a deeper dive looking in depth, allowing for clarication and nuance, of both why and how social businesses do what they do. Second, this research makes preliminary theoretical contributions by developing propositions about precisely how the form and practice of social business can occur. The eld of for-prot strategy has theories and models of how economic value is maximized. The non-prot eld also has theories of how social value is created. The research presented here suggests that we do not have an adequate theory for social businesses, and shows that while elements of theories in both elds are valid, there are some unique aspects to how these hybrid enterprises are both designed and operate. Future research can build on the work in this paper, to develop a more elaborated process theory of social business design. Theories of these types (as opposed to variance theories) are important because they help us understand how something comes about (Mohr 1982) and deal with a sequence of events, and they often involve multiple levels and units of analysis, whose boundaries are ambiguous (Langley 1999). Lastly, this research makes a number of important contributions to practice. Muhammad Yunus laments the lack of a direct mechanism for business to apply its practices to the goal of addressing the worlds social issues (Yunus 2007). Indeed, as with any emergent eld, there are signicant associated challenges with operating in uncharted territory. The development of theory, and practical applications of that theory, will therefore provide aspiring leaders of hybrid enterprises a map for navigating these rough seas to increase chances of success.
new collaborations and competitive opportunities, and the emergence of hybrid and entirely new institutional forms (Drayton 2002). Social businesses demonstrate that the creation of social and economic value does not have to be seen as inconsistent and incompatible. The clear intentionality around social purpose drives the creation and design of these ventures such that they creatively synthesize competing paradigms within one venture. The marriage of antithetical ideas embodied by social businesses leads to a different way of doing business. The harnessing of market dynamics to explicitly address deeply rooted social environmental issues is the essence behind the potential power of social businessbecause the nature of the social change is embedded in, and happens as a result of the core product or service. The way in which social businesses are designed is complex, explicitly connected to their founding mission, their design, their legal and capital structures, their strategies and operational principles. Through their business models designed for people, planet, (and prots), social businesses therefore appear to potentially offer powerful, sustainable solutions to some of the worlds most pressing problems. As Ko Annan, former UN Secretary-General stated at the World Economic Forum, in Davos in 1999: Let us choose to unite the power of markets with the strength of universal ideals. Let us choose to reconcile the creative forces of private entrepreneurship with the needs of the disadvantaged and the requirements of future generations.
Acknowledgments We gratefully acknowledge the founders and current leaders of the social businesses who so generously gave their time, but most especially so generously, honestly, and thoughtfully shared their experiences and perspectives for this research. We also gratefully acknowledge Tim Hall and C.B. Bhattacharya for their guidance when this research was in its formative stages, and to Jill Avery and Paul Myers for their invaluable support and feedback on earlier versions of this manuscript. We also thank the two anonymous reviewers for their very constructive insights.
6 Conclusions Appendix It has been said that the convergence of the business and social halves of society would result in a host of See Table 4.
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Business models for people Table 4 Additional proof quotes Emergent proposition Social mission Proof quotes
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ShoreBank Invests in people and their communities to create economic equity and a healthy environment. We strive to meet three objectives simultaneously: building wealth for all in economically integrated communities, promoting environmental health and operating protably. To focus on markets, communities, and individuals that have historically been economically underinvested. To use all of the banks resources to bring about redevelopment \in an[ almost totally minority neighborhood \with[ all of the symptoms of deterioration. Better World Books We understand the importance of running a protable enterprise. But while most businesses answer only to their shareholders, we answer equally to all of our key stakeholders: our employees, our customers, our literacy partners, our investors and the environment. Preserve Products A company which reused earths resources \through the use of recycled materials in the design and manufacture of consumer products[ to make a lighter impact on the environment. We like to think that \Preserve is[ reversing the harm caused by the industrial revolution All companies need to reverse the harm that weve caused on this earth by the industrial revolution We need to break a lot of the things were doing now and go back and return and reverse a lot of the processes to bring us back to where we need to be. We want consumers to start thinking about not just why is there so much packaging on a product or what they do with it when they are nished with it, but to really back up a little bit and say where do the materials come from that went in it? Where was it all manufactured? CCML Create economically and environmentally healthy communities in which all people, especially those with low incomes, can reach their full potential. To eliminate the gulf between rich and poor to keep leveling the playing eld. To be a nancial intermediary \to create a[ bridge between those with \nancial resources[ and those without.
Market method rationale #1
ShoreBank We got here by saying to ourselves that there is too much competition for \grant and philanthropic money for community development[ and were going to try to make it work with private sector money that we to some extent can control. Better World Books I didnt like the idea of going out, cap in hand, for grants. It just didnt feel to me like something I would be good at, and its not something I can control. I can control how efcient we are at collecting books, I can control how well we do our customer care, but I cant control whether some federal agency or some foundation is going to write me a check or not. So you become completely in hock to that kind of grant making process. I really dont think thats a very good way to go.
Market method rational #2
ShoreBank ShoreBanks credits are intended to fuel economic opportunity that ultimately benets the owner, the employee, or (in the case of housing) the tenant, as well as enhance economic development and prevent physical deterioration of the community. Greyston Bakery Avoid recreating a welfare system For any individual employed by Greyston to become self-sufcient, or at least try if they fail, they fail but to learn what it is to be involved that way \in a business[. My feeling is that in order to help people, you also have to help them to become self-sufcient and that by recreating a welfare model for them, \that[ teaches them that the way to make it is to get some help from the government, from somebody else, you know?
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CCML Capital was an essential lever for social justice I just became aware right away that Maine was challenged then and it was going to be challenged probably for my whole lifetime to economically and business wise to have opportunities for people who live here and make a living and have a decent life you dont have a culture, you dont have a fabric of anything thats viable unless youve got real businesses that can exist and prosper and theres economic activity and money owing and changing hands. I am sort of a believer in our system, but I also recognize the reality which is that our system doesnt work for everybody as they say it takes money to make money, and if you dont have access to capital, or to education, or to the other sort of ingredients of success in our system, then it is just not going to work. I think people feel a lot better when they can engage in our system and work, and feel \more[ successful than if they are receiving a voucher for food or for housing. Market method rationale #3 ShoreBank Trying to proselytize for the model of a bank holding company that could do this kind of work at greater scale than a not for prot could. In those days of ofcially sanctioned discrimination on the basis of race and income, ShoreBank was created to demonstrate that a regulated bank could be instrumental in revitalizing the communities being avoided by other nancial institutions. \A FDIC insured bank gives[ great credibility in a marketplace and customers \who[ believe that theyre going to be treated fairly when they walk in the door. One of the important things about a commercial bank . is that its just the volume of lending that were able to do. A very large number in terms of how capital is utilized when you compare it to a \traditional[ not-for-prot organization. Better World Books Leading a movement to more sustainable business Serve as an example or as a touchstone Ideally there will be a conscious substitute just like Whole Foods is a substitute for Safeway that we may be a conscious substitute for Amazon, and hopefully that will inspire other people to kind of create these more conscious alternatives. Harnesses \ing[ the power of capitalism to bring literacy and opportunity to people around the world. The ability to shift resources from the literate, well educated part of the world in order to support and promote literacy in the most adverse communities around the world. Preserve Products To break ground, disrupt things if you will, change the model, do things our own way, the right way, the way we think is right. Not \to[ listen to sort of the disciplines of other corporate ideology. So from day one I think Ive . wanted to mark a new path, wanted to break a rule if you will. We think its really important for businesses to demonstrate that they can be successful in the sense that they can make money . and also make sure that in every step of the production process and the product delivery, theyre focused on a low impact \on the environment[ strategy we want to demonstrate that the kind of groundbreaking revolutionary \environmental[ thinking 1015 years ago can become something that is a core discipline of all companies. I think its a revolutionary thought thats brewing these days very much on the outskirts. That we should stop being so concerned about competition. That being concerned about competition, and growing better than somebody else, and taking away from someone else, is going to lead to our demise I think that we need to nd some leaders in business that can demonstrate that they can be a very successful company by giving, by offering what they do to others, and helping others to improve and be successful offering their products in a light way, chiey a light way on the environment.
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This is my goal to get more cooperation and sharing, improvement into our systems . Its more opening up, and sharing and giving the information that we use to make our products as light on the environment as possible. And demonstrating that its a lot like open source in technology demonstrating that we will share with you. You can come to us. You can see everything were doing. CCML The basic premise which is not only to bring federal dollars to local needs to help economic development, but also to help leverage those limited dollars with the much larger pool of private capital access to the large conventional private capital market is the opportunity to create real change. It gets you to larger sums of capital to have more an impact on communities and people helps you build alternative economic systems. I like to think that our system can work, but in order for it to work for everybody there has to be a way to address the distribution at the low end, those who are left behind by our system. Work with literally the global capital market, take some subsidy that is provided through a tax credit, and then move this capital into these low income areas that we work in and, hopefully, come out with not just a sustainable business, from an economic perspective, but something that also enhanced the community. Its that analogy of a rising tide oats all ships. Leveraging probably a billion dollars in capital and the money is going into targeted designated low-income areas . funding businesses and creating jobs that otherwise would not have been created. For-prot but not prot maximizing Equal Exchange We denitely looked at non-prot, we denitely looked at for-prot, and we denitely looked at co-op, and very much argued for those things and in my mind, as a founder, I believe we really have a hybrid of those. I dont consider us a pure anything. \It[ feels like we sit astride four, ve, or six different worlds, but dont entirely t into any of them. Better World Books Our original intention was number one, to be credible and number two, to be fair. I think a lot of this stuff does come down to intention. If youre approaching every business problem with the intention of improving your social mission, I think youll just look at it in different ways and youll seek out different partners. As a for prot social enterprise we do make money on the books we collect and sell. And we are OK with that fact, because we believe there is value in the service we provide Our model proves that it is possible to do good and do well at the same time. To date, every dollar of prot the company has ever made has been reinvested in the company. There has never been an economic distribution/dividend of any kind to any of the owners or employees of Better World Books. Wont be as prot maximizing as some other companies out there. ShoreBank At many points along the way we are preferring a moderate return to a maximum return because the purpose of the place is to produce mission results. Theres just a supreme realization that one is making a tradeoff \between mission and nancial returns.[ \But[ never making a tradeoff that has to do with really subnormal nancial performance. Ask if the loan \application is[ good for the long term health of the community, and not just ask is it a protable asset to the bank. And if the answer \is[ that it was good for the long term health of the community, then they \are[ asked by us to go to extra lengths to nd a way to structure the deal so that it was bankable, and thats a very different attitude towards how you screen credit \in a traditional bank.[ Preserve products We are a social venture But I guess I feel like its more something we live and breathe naturally than sort of systematically, if you will. Its just raw. Its what we came from. Its what we started this organization as. Its not lets get our social discipline \after the fact[.
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To use the bank holding company structure to create specialized non-bank subsidiaries and afliates that would be focused on community development. The vision is that both the bank and the not-for-prot are working in the same market, they work with different customers, they work with the same customers, sometimes they work together. But in general we have a variety of products or tools that are of use to entrepreneurs in our market. There were nothing but barriers. At the beginning we didnt know what it was going to look like. It was a real issue we thought somebody else had already invented it, all we had to do was go nd it but that proved to not be the case. Better World Books Ultimately, were an engine that collects books, transports them and turns them into money. So the extent that we can share that money \with the non-prot literacy partners[ depends a lot on how efciently we do that, how efciently we turn the books into money. Were not a traditional company with an add-on cause component. Social and environmental responsibility is at the core of our business. You could say its in our DNA. When you bake the cost of doing good into your equation, its your cost of doing business. Its interesting because once you set that you know we dont really think about it again. We knew there was some number between zero and a hundred, the revenue that we could share with our nonprot partners, and if we share too much, we go out of business, and if we share too little, it doesnt produce signicant returns for them, and were not that credible. I think in some businesses you really have to stretch to nd a way to produce social good, or you really have to reinvent the business model, but with this one the non-prots were critical because theyre the ones that motivate students to give books. The non-prots are the ones who produce \social[ impact for us on contract if you want to think of it that way ..were raising this money and getting \it[ into their hands their job is to take it and use it and make a big positive impact in the world. We think our model of actually making the non-prots part of the supply chain is a lot more credible because what were essentially doing is buying the books from them So thats built into the cost of goods sold. It makes sure we can maintain good gross margins and that theres really no conict of interest there. Its a very interesting and innovative way to engage our non-prot partners at that broader deeper level of commitment and they know going forward that any future stock options are going to be based on not only their work with us . are they keeping their end of the bargain? but were also going to make any future grants to be dependent too on how theyre doing as an organization in the ght against illiteracy. CCML Came to realize that capital could, and should, be invested alternatively in ways which would be more benecial to people, and communities and that capital should have embedded in it, or explicit to it, a social purpose. Capital is like water, and it will ow to worthy ideas, wherever they are but there are real barriers to the water owing capital sources dont typically look for projects in low income areas so the incentive of the tax credit provides lubrication to get the water (or in this case the capital) owing to the needed places. Pushing the system in the right direction. \The CCML model[ creates a vehicle for business leaders who want to do the right thing but who are driven by somewhat more narrower day-to-day imperatives. To utilize this allocation to meet the mission of the program, and then use our expertise to create value for whos ever involved, whether its a community, the lenders, or the investors with these new markets. The but for test to my mind protects the taxpayers as a stakeholder, and it protects the Department of the Treasury, the program, as a stakeholder. We are working to protect their interests by making sure that these credits are allocated where they were intended to be allocated and used for the purposes they were intended. Being in a center with spokes going out to each one of those \stakeholders[ this approach is one of the key ways we add value to the process, by coordinating the interests of the multiple stakeholders.
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Our board has always been highly mission focused there are not people on the board who pound on the table and say you cant do that because youre sacricing a nancial return. The board always wants to make the choice which is the mission choice. Better World Books The attitude of the typical venture capitalist, it just didnt t. It didnt t with the values and we didnt really want someone like that sitting on our board, bearing over us, and demanding that we exit in three years and sell to Barnes and Noble. Its just notthat wasnt our intention. Preserve Products We talked with some of the really big \VC[ funds, and it was very amicable on both sides, but it became really clear that they would want to plug us into a formula that worked for them, for how they approach a consumer products deal, and the kind of growth that they would need to make it work. And that kind of growth is just a lot faster than we wanted to grow we just have wanted to be able to control the relationships that weve been a part of. CCML Because philosophically the CCML organization is very much aligned with the CEI boarder organization, the board is not critical in terms of dening the overall mission . but the board serves more of a practical purpose, specically the separate CCML board creates a vehicle by which the subsidiary can be managed as a self-sustaining entity. J. Mair, J. Robinson & K. Hockerts (Eds.), Social entrepreneurship (pp. 214234). Basingstoke: Palgrave MacMillan. Crane, A., McWilliams A. et al. (2008). The corporate social responsibility agenda. In A. Crane, A. McWilliams, D. Matten, J. Moon, & D. Siegel (Eds.), The oxford handbook of corporate social responsibility. Oxford: Oxford University Press. Crane, A., McWilliams, A., et al. (2008). The Oxford handbook of corporate social responsibility. Oxford University Press: Oxford. Dees, J. G. (1998). Enterprising nonprots. Harvard Business Review, 76(1), 5566. Dees, J. G. (2001). The meaning of social entrepreneurship. Retrieved February 7, 2008. http://www.caseatduke.org/ documents/dees_sedef.pdf. Dees, J. G., & Anderson, B. B. (2003). Sector-bending: Blurring the lines between nonprot and for-prot. Society, 40(4), 1627. Drayton, B. (2002). The citizen sector: Becoming as entrepreneurial and competitive as business. California Management Review, 44(3), 20132. Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532550. Eisenhardt, K. M., & Graebner, M. E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1), 2532. Emerson, J. (2003). The blended value proposition: Integrating social and nancial returns. California Management Review, 45(4), 3551. Follett, M. P. (1918). The new state. University Park: Pennsylvania State University Press.
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Small Bus Econ (2013) 40:715737 DOI 10.

Business models for people

Business models for people Fig. 1 Blurring organizational landscape

Adapted from http://www.fourthsector.net

theory about the hybrid form and practice of social business.

Better World Books

722 Fig. 2 Interview protocol

Business models for people

Initial set-up costs funded by parent non-prot Financially self-sustaining by year 1

Initial funding from non-prot parent Bank debt

726 Fig. 3 Market-based approach rationale

Business models for people

Business models for people Fig. 4 Traditional thinking

Fig. 5 Social business thinking

Market method rationale #1

Market method rational #2

732 Table 4 continued Emergent proposition Proof quotes

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Wilson &amp; Post, 2013

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Wilson &amp; Post, 2013

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Small Bus Econ (2013) 40:715737 DOI 10.

Business models for people

Business models for people Fig. 1 Blurring organizational landscape

Adapted from http://www.fourthsector.net

theory about the hybrid form and practice of social business.

Better World Books

722 Fig. 2 Interview protocol

Business models for people

Initial set-up costs funded by parent non-prot Financially self-sustaining by year 1

Initial funding from non-prot parent Bank debt

726 Fig. 3 Market-based approach rationale

Business models for people

Business models for people Fig. 4 Traditional thinking

Fig. 5 Social business thinking

Market method rationale #1

Market method rational #2

732 Table 4 continued Emergent proposition Proof quotes

You might also like

Wilson & Post, 2013

Wilson & Post, 2013