Social Business Model: A Comprehensive Analysis and Comparison

This essay provides a comprehensive analysis of the social business model, positioning it as a sustainable alternative to traditional NGOs. It begins by defining the core components of the social business model and contrasting them with those of NGOs, highlighting the increasing relevance of social businesses in addressing modern social issues. The essay then explores the reasons behind the shift from donor-funded NGOs to social business models, emphasizing the financial vulnerabilities of NGOs and the overall decrease in development funds. It outlines key steps for a successful transition, including focusing on core competencies, hiring consultants, and developing a robust business plan. Furthermore, the essay discusses the actualization of social business models, using examples like Rekindle in New Zealand, to illustrate how these models can effectively address societal challenges by reinvesting profits back into the community. The essay concludes by advocating for the adoption of social business models to achieve sustainable and scalable solutions to global issues.

Running head: SOCIAL BUSINESS MODEL 1
Social Business Model
Name
Institution

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Table of Contents
Introduction........................................................................................................................3
Describing the Components..............................................................................................4
General Analysis................................................................................................................6
Actualization.......................................................................................................................9
Discussion........................................................................................................................11
Recommendation.............................................................................................................13
Conclusion.......................................................................................................................14
References.......................................................................................................................16

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SOCIAL BUSINESS MODEL
Introduction
The social business model is not a new phenomenon. It has been in existence
for decades, taking different forms and with differing definitions, with some forms being
more effective than the others. For a long period, the social business model has been
considered an alternative to the NGO, a model that effectively streamlines the effects as
well as eliminates bureaucracy. On that note, from different perspectives, the social
business model is a model for the future. The model facilitates quick growth including
broader impact compared to the traditional NGO. By implementing the social business
model, it is not necessary for staffers to fundraise, work with the government, or engage
donors. As such, they are able to focus on work without having to undergo the pressure
to take the donors on site tours or having the burden of grant writing.
Casadesus and Zhu (2013) mentioned that in many ways, the social business
model functions as a for-profit business. However, since the primary purpose for this
business model is the social impact, all the profits that are obtained are reinvested into
the business, - the owners do not obtain any dividends- or they are used to establish a
new social business to enhance the organization’s impact. For a social business model,
profit involves not achieving the overall goal but rather the mission.
Understanding the sustainability of a model requires conducting analysis and
comparing it with another model. Hence, the sustainability of the social business model
can be determined by comparing it with the NGO and determining its pros and cons.
Hence, this is the rationale used to select the topic, - Social business the new aid

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model. The aim of this topic is to enhance understanding of how the social business
model solves social problems in a manner which is financially sustainable and learn the
differences that exist between it and the NGO. The essay is divided into the following
topics: describe the components of the topic and how they relate to the modern world,
general analysis, actualization, discussion, general recommendations, and conclusion.
Describing the Components
Wirtz, Pistoia, Ullrich and Göttel (2016) mentions that the increased
acknowledgment of Europe’s third sector including the widened interest in non-
conventional entrepreneurial dynamics that address current issues resulted in the new
concept “social business model”. In the United States, the social business model is
viewed as an innovative response to the funding issues associated with non-profit
companies. Such organizations are finding it increasingly hard to solicit foundation
grants, private donations, as well as government grants. The social business model is
also applied when highlighting the innovative side of specific types of projects along with
the financial risks taken by such organizations ("Social Entrepreneur's Quandary:
Nonprofit or For-Profit?" 2018). In the latter case, the social business concept entails a
wide spectrum of companies that range from for-profit businesses that are engaged in
activities that are socially beneficial, - corporate philanthropy- to non-profit organizations
that are involved in mission-supporting the commercial activities.
By definition, the social business model is a kind of business in which the
company mainly focuses on helping people rather than achieving their conventional
business goals that comprised of boosting the investors’ value and enhancing the rate

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of return. For instance, an organization that takes all of its after-tax profits and donates
the money for a charitable cause is an example of an organization that adopts the social
business model (Wells, 2013). Such kind of business mainly focuses on an
environmental or a social mission, ensuring that it continuously remain committed to the
mission. The social business model relates to the modern world because the
organizations’ social purpose is a crucial element of the entire business model, and as
such, it reflects on the commercial activity of the organization including affecting its
capital allocation (Barki, et al., 2015). The purpose is observed in all the aspects of the
organization and its Social Business Purpose specifically stresses its commitment to the
mission in all its marketing efforts.
However, in the case of an NGO, the case is different. Cent, Mertens &
Niedziałkowski (2013) defines an NGO as an association that comprises of groups
along with institutions that have got a primary co-operative and humanitarian aim rather
than commercial objectives and they are completely independent of government. The
NGOs support the development of local, national, as well as international policies, and
they also comprise of community associations, groups, independent cooperatives,
societies, including various associations. Specifically, the NGO work to uplift and better
the politically along with the socio-politically weaker section of a community aimed at
bringing them in the society’s mainstream ("rise and role of NGOs in sustainable
development," n.d.). Additionally, they ensure that society moves towards an improved
and developed way of existence and living. The NGO fulfills and provides particular
development-oriented activities, service, and has got objectives aimed at bringing about
the necessary positive changes in the society, situations, community, and areas. The

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NGOs assist and support individuals for their powers as well as their legal rights in the
society. NGOs relate to the modern because they support and govern the activities of
government organizations, agencies, ministries, authorities, and agencies in
accordance with the law and with the involvement of people to ensure that the common
interest is attained. They are managed by funds, resources, and other types of desirable
support from governments, support communities, funding agencies, help from people
and business groups, including support from agencies ("Building a Business Model to
Help Solve Social Issues," 2017). As a religious and charitable association, an NGO
helps in managing private funds that are used for development, distributing food,
medicines, and equipment among other things.
General Analysis
Ronfeldt (2005) mentioned that development leaders, as well as aid
organizations, are concerned with changing the donor models, changing the business
models, adopting new technology, enhancing operational efficiency, and improving the
value for money. The international development and aid sector are making main
changes necessitating several companies to update and adapt their way of working.
Most of the leaders are focused on changing their business model from the traditional
non-governmental organization that is donor-funded, towards a more sustainable social
business model. However, there is a need to ask what are the reasons necessitating the
evolution and how the transition is to take place.

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Reasons for Change
Kiron, Palmer, Phillips and Berkman (2013) mentions that some of the reasons
why organizations are changing include: first, there is an increased dependency on few
donors thus making the NGOs to financially vulnerable. As a result, this changes the
manner in which the NGOs operate and their culture ("From NGO to social business:
Why and how," 2014). As put across by Henri van Eeghen, Cordaid Chief Operations
Officer, “When the majority of funding comes solely from a few government donors,
organizations take the colors of a civil service authority, - slow, bureaucratic and
unresponsive.” Having a broader source of funds makes a company more secure,
nimbler, and responsive.
Second, the overall decrease in development funds, as well as foreign aid,
creates the need for diversity to add to the existing funding base. As a result of high
competition between the NGOs and the non-NGOs for government funds, it is hard for
the government to fund all the NGOs and the non-NGOs. Hence, this shows that a
funding strategy that is dependent on government funding has minimal chances of
rendering financial sustainability (Comini, Barki & de Aguiar, 2012). Nonetheless, there
is increased awareness that the model whereby tax money from the “global north” was
invested into programs being implemented in the “global south” through the NGOs no
longer works as efficiently as it did in the past decades.
How to Change
A good transition process should be implemented within a set timeframe and it
should be cost-efficient. The following points are crucial for a successful transition from

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NGO to social a business model: First, the organizations should bare essentials, -
identifying what the organization is good at and eliminate the rest. For instance, as of
2012, Cordaid, Netherlands largest NGO was responsible for approximately over 2,000
projects. Aimed at winding these projects, by the end of 2012, an approximate of 1,000
of the total projects had been put on hold and transferred to a specially created unit.
According to Van Eeeghen, he considered this a critical step in transiting from an NGO
to a social business model “It cut down complexity, clarified priorities and committed
everyone in the organization to make the project a success…Everyone was certain that
this is not tinkering with processes or systems anymore: we meant business!”
Also, Kwong, Thompson and Cheung (2012) mentions that an organization
should obtain assistance by hiring good consultants to help in providing perspective.
Since consultants do not have any career aspirations in the company, they are very
helpful if they are used to promote difficult decisions. Additionally, the organization
should formulate a business plan that seeks to answer questions such as: What are the
activities to be continued and which ones will be not? Which operational policies need to
be changed? What is expected from each grade of staff? The business plan should be
capable of addressing these operational areas; HR, activities, communication, Finance,
structure, and support infrastructure ("How Social Entrepreneurship is Changing the
Way Business is done," n.d.). Nonetheless, when transiting from NGO to a social
business model, organizations should accept the casualties, give profit-and-loss skill as
well as responsibility, along with moving towards ‘open development’.

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Actualization
Wiguna and Ananda (2015) point out that if the same level of resources would be
invested in finding solutions to key societal problems, the same way organizations do
when enhancing the human resource system, the world be a much better place. The
reason behind this is that if the same amount of money, time and brain power were
applied to devising up solutions and innovating to solve social challenges, rather than
trying to improve software which ultimately aims to increase a company’s profit, the
society would be much better off (Veit, et al., 2014). Such a concept, - social business
model- does exist and there are in fact companies out there that spend all of their time,
resources and talent on trying to improve the world that we live in.
But what is the need of having a social business model when there is an array of
non-governmental organizations and governmental entities with decades of experience
already addressing societal challenges? It comes down to what Michael Porter, Harvard
Business School professor, calls the ‘awkward reality’. According to Porter, the awkward
reality is that whilst NGOs and social organizations are unique and important, and
indeed ‘enormous innovation, enormous energy, enormous talent now has been
mobilized through this structure to try to deal with all of these challenges’, the issue is
that progress is not happening fast enough at a large enough scale. And this comes
down to a lack of resources. Hence, it derives the need to confront the reality that these
resources lie in business because resources are overwhelmingly created by businesses
("Is Social Enterprise a viable alternative to international aid for development in Africa?,"
2017). And businesses aim to profit. So it makes sense to apply this strategy to social

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missions , - to generate as much profit as possible from a social cause so it can be
redistributed back into society.
Bornstein (2012) mentions that an example of a successful social enterprise is
Rekindle, based in New Zealand. The idea of Rekindle is to divert wood waste from
landfills and demolition sites, and turn it into New Zealand designed and crafted
furniture, whilst in the meantime using that process to equip disadvantaged youth with
skills and jobs. Nonetheless, the team behind Shanghai Young Bakers, who through
their social enterprise program offer bread and pastry catering, technical consulting, as
well as half-day bakery classes (Spieth, Schneckenberg & Ricart, 2014). The purpose of
their business is to provide fully-sponsored French bakery and pastry training to
underprivileged youth from rural areas in China, in order to provide them with the skills
needed to find qualified jobs or to start their own businesses. The more successful
these enterprises become, the more profit they make, and the larger the impact they
can make in society. Now imagine if a social enterprise could become as big as, say,
Coca-Cola? Imagine how big of an impact that could make.
Thus, according to Hilde Schwab, - chairperson and co-founder of the Schwab
Foundation for Social Entrepreneurship- ‘Social business model combines the financial
discipline of market capitalism with the passion and compassion required to create a
more fair and just world’ (Smith, Gonin & Besharov, 2013). As such, collaboration is the
key to making the world better. It is not only a collaboration of a traditional business
approach with social aims but ensuring that existing businesses collaborate with
organizations implementing the social business model if big changes are to happen.

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Discussion
Pros and Cons of Social Business
Wilson and Post (2013 mentioned that socially businesses are slowly making
their way both in the local and the global marketplace. Advantages associated with the
social business model comprise of diversity: revolutionaries, as well as business
aficionados, are aware of the benefits of having an edge. Today, most of the social
business benefit from their unique selling point of being social and impactful (Weinberg,
et al., 2013). A study carried out Unilever shows that 33% of consumers are preferring
to purchase products from brands that they entrust to produce social and environmental
goods. Additionally, the model ensures that society blossoms because it works
specifically to solve social problems along with improving individuals’ opportunities. The
social business model also strengthens community relationships because working in
collaboration with right-minded individuals in society effectively develops business
sustainability and a person’s resilience ("What social enterprises can teach big
business," 2011). Nonetheless, the social business sector is currently receiving a lot of
support from the government, philanthropic companies, and commercial organizations.
However, social business is faced with several challenges. First, to run any sort
of business efficiently, it requires compliance and auditing regardless of the sector, and
the social business is no exception. Some of the social businesses also have got
additional reporting requirements (Sheppard, 2018). Nonetheless, despite the type of
staff the organization has, it is not always possible to recruit for a specific technical

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requirement. Also, there is also need that the social businesses continuously monitor
their market because the audience and the community keep on varying.
Pros and Cons of NGO
Baden and Mangematin (2013) mention that some of the advantages that are
associated with businesses that qualify as NGOs include being eligible for a federal tax
exemption, - corporate income tax. Once they exempted such a tax, the NGOs are
usually exempted from similar local and state taxes. In addition, the NGOs are eligible
for private and public grants. Nonetheless, NGOs exists as legal entities in their own
right and they are distinct from their founders. As such, incorporation puts the NGOs’
structure and mission above the personal interest of people associated with it. NGOs
also have got limited liability (Petrella & Richez, 2014). The law limits the courts and the
creditors to the NGOs’ assets. The directors, employees, founders, as well as the
members, are not personally liable for the NGOs’ debts. Regardless there are
exceptions whereby, in no instance can a person use the organization to shield their
illegal or irresponsible acts.
The disadvantages associated with NGOs include: first, since the NGO is a
nonprofit organization, it is a requirement that it maintains detailed records, including
submitting annual filings to the IRS as well as to the state within the agreed deadline if it
is to maintain its exempt status and activities. Also, it takes time, money, and effort to
create an NGO (Lecy, Schmitz & Swedlund, 2012). A lot of money is involved in
applying for tax exemption and incorporation. Although the founders of NGOs shape
and control the organization, they have limited personal control. An NGO is subject to