Combining ModelsCombining Models
Social enterprises combine operational models to capture opportunities in both commercial markets and social sectors. Combining is a strategy to maximize social impact as well as diversify income by reaching new markets or creating new enterprises. In practice, most experienced social enterprises combine models--few social enterprise operational models exist in their pure form. Operational models are like building blocks that can be arranged to best achieve an organization’s financial and social objectives.
Social enterprise models are combined to:
- facilitate enterprise or social program growth;
- increase revenues by entering new markets or businesses;
- augment breath or depth of social impact by reaching more people in need or new target populations.
Complex ModelComplex Model
A complex model of social enterprise combines two or more operational models. Complex models are flexible; virtually any number or type of operational models can be combined into one social enterprise.
Models are combined to achieve desired impact and revenue objectives. For example, operational models that fall into integrated or external social enterprise categories may yield greater financial benefit, whereas embedded social enterprises offer higher social return, thus models are combined to achieve the dual objectives of the social enterprise. If appropriate for an organization's target population, the employment model is often combined with one of the other models to add social value--i.e. employment and organizational support model (as illustrated). Operational models are often combined as part of a natural diversification and growth strategy as the social enterprise matures.
Theoretical example: an African horticulture cooperative runs a social enterprise that links local growers to buyers in European markets. The services it provides to small producer clients include: horticulture technical assistance, quality control, contractual relations with flower importers and freight. This social enterprise earns income by charging European companies a commission on each sale, thereby covering the costs of its client services. After some years of operating their market linkage social enterprise, cooperative managers saw a lucrative opportunity to expand their business by entering the horticulture industry as a producer. To avoid competing with their clients, they choose to grow hybrid roses, a market whose infrastructure and costs bar small producers from entering. Hybrid roses are fickle, requiring constant care, which provided the cooperative an opportunity to create employment for a large number of low-income and unskilled people in the community. Profits from the rose business support the parent organization’s hard-to-fund operating costs, as well as funding the startup of a new social enterprise, a horticulture school. This example of a complex model combines: market linkage, organizational support and employment operating models.
Cambiando Vidas, an example of Complex Model
In 1999 a new paved highway opened along Mexico's formally isolated coastal fishing villages in Nayarit State to tourists, and consequently, to large developers. The result was a dramatic shift in the local economy from fishing and agriculture to tourism and infrastructure development. The shift displaced local residents, most of whom are poorly educated peasants and lack the know-how and capital to capture the changing market.
In response, Cambiando Vidas--"Changing Lives," an educational organization, launched a comprehensive, multifaceted rural development program with complementary enterprise and social service components to preserve the local community and provide new livelihoods for its residents.
Cambiando Vidas built a "tool lending library" where residents can borrow hand and power tools and use them as implements in economic activities tied to tourism and construction. The second social component is a vocational training program that teaches construction skills--masonry, electric, plumbing, and carpentry--to unemployed youth and adults in the community. The library supplies tools for the vocational training program.
On the enterprise side, Cambiando Vidas has initiated a B&B project and built (so far) six comfortable tourist rooms above residents' homes. Income from room rental is divided between owners as family income and a revolving loan fund to build more B&B rooms. Apprentices from the vocational training program provide the labor to build the B&Bs and gain work experience in the process.
Next, Cambiando Vidas will create local employment by launching a construction business and bidding directly on small building contracts, where it has identified a viable niche, as well as subcontracting to large developers. Profit from the construction business will be used to fund the secondary education and vocational training program.
Mixed ModelMixed Model
Many nonprofit organizations run multi-unit (mixed) operations, each with different social programs, financial objectives, market opportunities and funding structures. Each unit within the mixed model may be related vis-à-vis target population, social sector, mission, markets, or core competencies. A museum for example, in addition to educational art exhibits, might have both a for-profit catalogue business and highly subsidized research and acquisition operation.1
Nonprofits employing a mixed model combine social and business entities; subsidiaries owned by the parent organization or departments (cost or profit centers) within it to diversify their social services and capitalize on new business and social market opportunities. Like all social enterprises, mixed models come in a variety of forms depending on the organization's age, sector, social and financial objectives and opportunities. The diagram is representative of complexity, not conformity of organizational form.
Mixed models are often a product of an organization’s maturity and social enterprise experience. This model is common among large multi-sector organizations that establish separate departments or subsidiaries for each technical area--i.e. education, health, economic development, etc. and new business ventures. In nonprofits with mature social enterprises, mixed models are the convention, not the exception, a result of expansion and diversification.
Council of Community Clinics, an example of Mixed Model
Council of Community Clinics (CCC) is a San Diego-based nonprofit membership organization comprised of community clinics serving the uninsured and underinsured poor through three linked but separate entities.
The first entity is a nonprofit advocacy organization, Council of Community Clinics (CCC) that lobbies to change legislation to strengthen the health safety net for at-risk populations. The second entity, Community Clinic Health Network (CCHN), is a nonprofit subsidiary of CCC that provides technical assistance services to build capacity of community clinics in several areas of healthcare and management. The third structure is a for-profit, Council Connections is a wholly owned subsidiary of CCC.
Council Connections is a group purchasing business that buys bulk pharmaceuticals, office supplies, medical surgical supplies, and laboratory services at a discounted volume-based prices, then sells them to community clinics at a mark-up, but at substantially cheaper prices than retail.
- 1Dees, Gregory, Enterprising Nonprofits, Harvard Business Review, January-February 1998