Earned Revenue Strategies for Early-Stage Social Enterprises
Capture Value Design of the Accelerate Impact Model Canvas
Early-stage social enterprises should embrace a viable earned revenue strategy as early as possible. As a healthcare startup CEO, I learned this lesson the hard way by missing an earned revenue opportunity. Focusing solely on the benefits to private-practice doctors and their patients, we overlooked our company’s significant value proposition in serving Medicare Advantage plans. Our failure to recognize the value of our proposition to health insurance companies until years after our launch ultimately led to our closure.
This article explores how to recognize and embrace earned revenue strategies. In particular, we explain lessons from our advisement projects on navigating customer segmentation, designing earned revenue streams, and developing innovative revenue engines. Furthermore, we examine the pivotal role of leadership in driving revenue generation and integrating these strategies into the broader social impact framework. Our goal is to chart the course for social enterprises to achieve financial sustainability while steadfastly advancing their social mission.
Create Value
Any enterprise’s sustainability and growth lie in its value proposition and the precise understanding of its customer segmentation. The value proposition is not merely a statement of the services or products offered; it is the crystallization of the enterprise’s ethos, the tangible expression of its mission, and the promise of value delivered to each customer segment.
The first step in this Create Value journey is meticulously identifying customer segments. A social enterprise must explore its potential customers’ demographics, psychographics, and behavioral patterns. This is not a process to be rushed; it requires a thoughtful and data-driven approach to discern who the customers are and their capacity and willingness to pay. This is where the enterprise’s social mission aligns with market dynamics. It is about understanding the nuances of affordability and the value that different segments place on the enterprise’s offerings.
For instance, an enterprise providing affordable solar lighting solutions must distinguish between rural households that can afford a one-time purchase and urban customers who may prefer a subscription model. Each segment has distinct needs and payment thresholds, and recognizing this allows for tailored value propositions that resonate with each group’s unique circumstances.
I always ask the question for every targeted customer: who also benefits when our enterprise delivers value to a core customer/user? In turn, always consider if these peripheral beneficiaries could become paying customers.
Once all primary customer segments and secondary beneficiaries are identified, the next step is to craft a value proposition that speaks directly to them. This is not about creating a generic message that tries to appeal to all; it is about honing a message that fits like a key into the lock of each segment’s needs and desires. The value proposition should articulate how the enterprise’s offerings alleviate pain points or create gains for the customer, making them an indispensable part of their lives or operations.
Aligning value proposition with customer segmentation is an iterative and strategic endeavor. It is about matching social mission with market needs and a viable revenue model. This is the foundation for achieving sustainable social impact for leaders of early-stage social enterprises.
Capture Value
Capturing the value your organization creates and generating net income within your enterprise model enables you to continue creating social impact. The cost of delivering value drives your business canvas cost structure in the capture value phase. However, the architecture of earned revenue streams within a social enterprise is a delicate balance between financial stability and social consciousness.
Designing your earned revenue plan is a creative endeavor that requires an intimate understanding of the enterprise’s social impact objectives and the economic realities of its beneficiaries. Particularly challenging is the scenario where the primary users — the focus of the social mission — cannot afford to pay or have limited means. This section will explore strategies and methods for navigating this challenge while ensuring the enterprise’s sustainability.
Consider the spectrum of revenue streams available to a social enterprise. These range from direct sales and usage fees to subscription models and licensing agreements. Each stream offers different advantages and suits different types of products or services. For example, a pay-as-you-go model might work well for a service that provides incremental benefits over time, while a licensing model could be more appropriate for a proprietary technology or methodology.
When the primary beneficiaries cannot pay, the design of revenue streams must be approached with innovation and empathy. The enterprise must look beyond its traditional customer base and consider alternative revenue sources to subsidize services for those in need. This could involve cross-subsidization, where revenue from one part of the enterprise supports another, or finding secondary customer segments that benefit indirectly from the enterprise’s services and are willing to pay for the value they receive.
For instance, a social enterprise providing educational content to underprivileged children might be unable to charge them or their families. However, they could develop educational products or services tailored to more affluent schools or institutions and use the revenue generated to subsidize the core mission-focused offerings.
Examples of Innovative Revenue Models in Action: Innovative social enterprises have successfully navigated this terrain. Consider the case of a mobile health clinic that serves low-income communities. The direct beneficiaries — patients receiving care — may be unable to pay for the services. The enterprise could partner with local businesses or government agencies interested in healthy communities and can pay for the clinic’s services through sponsorships or contracts. This creates a revenue stream that supports the mission without placing the financial burden on those least able to bear it.
Another example is a social enterprise that provides clean water in developing countries. The beneficiaries, rural communities, may not have the means to pay for the water infrastructure. The enterprise could then implement a tiered pricing model where commercial entities, such as hotels or businesses in the area, pay a premium for water services, subsidizing the community’s cost.
Designing these revenue streams is not without its challenges. There is a risk of mission drift if the enterprise becomes too focused on the revenue-generating aspects of its operations. There is also the potential for complexity in managing different customer relationships and ensuring that the cross-subsidization is transparent and equitable.
To mitigate these challenges, social enterprise leaders should:
- Focus on the mission and regularly review activities to ensure they align with the core objectives.
- Model the flow of funds and potential cross-subsidization mechanisms.
- Engage with stakeholders, including beneficiaries and paying customers, to build trust and ensure the value proposition is clear and compelling for all parties.
- Monitor the impact of revenue streams on the enterprise’s financial health and social impact outcomes.
Designing earned revenue streams in the context of limited beneficiaries' ability to pay is complex but not impossible. It requires creativity, strategic thinking, and a steadfast commitment to the social mission. By drawing on the innovative examples set by trailblazing social enterprises and adhering to a systematic approach, leaders can forge a path to financial sustainability that amplifies their social impact.
Another strategy is to study the revenue models developed by business design firms such as the Board of Innovation. Their revenue tools, flowcharts, revenue cards, and brainstorm templates are very useful in providing enterprise teams with fresh perspectives on potential new revenue models.
Revenue Strategies for Diverse Customer Bases
For social enterprises, seeking a diverse customer base is not merely a business complexity; it reflects the multifaceted nature of societal needs and the opportunities to address them.
Mapping global system actors and social forces is the critical first step in the Accelerate Impact Model (AIM) of discovering opportunities to accelerate social enterprise organizations’ impact by serving diverse customer bases.
Our firm has designed customized maps to explore and monitor the strategic context of Accelerate Impact Leadership, Food Distribution Solutions, Health Equity, Inclusion ESL, Mental Health Equity, Recycled Food Innovation, Reducing Diabetes Burden of Illness, and Care at Home Innovation. These systems maps drive strategic conversations among our clients, readers of Accelerate Impact Playbook, and my students in social entrepreneurship at the University of Denver.
In addition to providing strategic insights, a collaborative team process for creating actor maps offers the added benefit of team empowerment. Live actor mapping sessions empower teams through the collective process of exploring current ecosystem relationships and setting the groundwork for activating future customer and partner discovery.
Crafting revenue strategies for these diverse customer bases demands a nuanced understanding of a systems model, market segmentation, and a commitment to inclusivity. Strategies for business-to-business (B2B) and business-to-consumer (B2C) models can focus on cross-subsidization and partnership leverage to advance earned income.
The B2C model in social enterprises should seek a deep understanding of the needs, preferences, and behaviors of the diverse populations it serves. This involves conducting thorough market research, including surveys, focus groups, and community engagement, to gather insights directly from target consumers. Ensure that your products or services are culturally sensitive and relevant. This includes considering local customs, languages, and preferences in product design, marketing, and customer service. Utilize technology to increase accessibility. This could involve mobile platforms for service delivery, online marketplaces for product sales, or digital payment systems accessible to people without access to traditional banking. Form partnerships with local organizations, NGOs, or community groups to help distribute products or services more effectively. These partners can provide valuable insights into the community and help tailor the approach to local needs.
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The B2B model offers several strategies to partner with businesses to create social value and earned revenue for the social enterprise:
- Supply Chain Integration: Social enterprises can integrate into the supply chains of larger businesses. For example, a social enterprise that employs marginalized communities to produce eco-friendly packaging can partner with businesses looking to enhance their sustainability practices.
- Corporate Social Responsibility (CSR) Partnerships: Social enterprises can align with the CSR objectives of larger corporations. For instance, a social enterprise focusing on education can partner with corporations seeking to invest in educational initiatives as part of their CSR strategy.
- Joint Ventures for Social Innovation: Social enterprises can partner with businesses to co-create products or services that have a social impact. This collaboration can leverage the strengths of both entities to achieve greater social impact.
- Technology and Innovation Collaborations: Technology-driven social enterprises can collaborate with more prominent tech companies to develop solutions that address social issues, such as creating accessible technology for people with disabilities.
- Licensing and Certification: Social enterprises can develop certification programs or licensing models that businesses can adopt to demonstrate their commitment to social or environmental causes.
- Impact Sourcing: This involves businesses outsourcing work to social enterprises that employ people from disadvantaged backgrounds. For example, a tech company might outsource coding work to a social enterprise that trains and employs at-risk youth.
- Consulting and Training Services: Social enterprises with expertise in sustainability or social impact measurement can offer consulting and training services to businesses looking to improve their social impact strategies.
- Product Development Partnerships: Collaborating with businesses to develop new products that address social issues, such as partnering with a food company to create nutritious, affordable food products for low-income communities.
- Research and Development Collaborations: Partnering with academic institutions or companies for R&D projects that have a social impact focus, such as developing renewable energy technologies or sustainable agricultural practices.
Cross-subsidization is a pivotal strategy for social enterprises, mainly when serving customer segments with varying abilities to pay. This involves offsetting costs for one part of the enterprise with profits from another, effectively allowing those who can afford to pay to support those who cannot. A classic example is Aravind Eye Hospital in India, which uses revenue from wealthier patients to subsidize care for the poor (Rangan, V. Kasturi, and Katharine Lee, “The Aravind Eye Hospital, Madurai, India: In Service for Sight,” Harvard Business School Case 593–098, 1993).
Three examples from the Aravind Eye Hospital Case Study
“Offer the same product to all customers, with differential pricing based on customer type or general ability to pay. Within development, Aravind Eye Hospital is perhaps the most widely recognized example of a cross-subsidy model that offers the same product — in this case, eye surgery and eye health services — to all customers, with payment based on income.”
“Offer a higher-priced upgraded product to cover the cost of providing discounted or free products. In the energy space, d.light is a social enterprise that offers upgraded products (solar-powered lights and power systems) to subsidize more basic products for BOP consumers.”
“Offer entirely different products and rely on one product to subsidize the other. This approach includes hybrid social enterprises, such as technology hubs in developing economies that offer for-profit tech services to subsidize activities such as providing free workspace to entrepreneurs.”
Transformational Partnerships can be a powerful tool for social enterprises to provide subsidized access to their services. Social enterprises can tap into new funding sources and distribution channels by collaborating with NGOs, government bodies, or corporations. For instance, the partnership between Grameen Bank and Danone brought nutritious food to malnourished children in Bangladesh, with Danone covering part of the costs (Yunus, Muhammad, “Creating a World Without Poverty: Social Business and the Future of Capitalism”). In transformational collaborations, partners agree on social issues relevant to them and intend to create an impact through transformative social innovation. ( see Board of Innovation example below)
Revenue strategies for diverse customer bases in social enterprises must be as dynamic and multifaceted as their customers. Whether through B2B or B2C models, cross-subsidization, or strategic partnerships, the goal remains to create sustainable revenue streams that support and amplify social impact. By drawing on the innovative practices of successful social enterprises and maintaining a clear focus on their mission, social entrepreneurs can navigate the complexities of diverse customer bases with confidence and efficacy.
Innovative Revenue Engines for Social Impact
The ability to generate sustainable income enables social enterprises to scale their impact. Innovative revenue engines fuel the mission and ensure the longevity and scalability of social enterprises, especially when serving populations with limited financial means.
Philanthropic subsidies represent a traditional yet evolving revenue engine for social enterprises. These subsidies often come from non-profit organizations, foundations, or corporate CSR initiatives that align with the enterprise's social goals. A strategic partnership with such entities can provide funding to kickstart or scale operations. For related examples, access venture philanthropy resources from the Organization for Economic Co-operation and Development (OECD)
Government contracts can offer a stable and significant source of revenue for social enterprises. Social enterprises can tap into public funding by securing contracts to provide public goods or services while contributing to community development. This model requires navigating the government procurement process and often involves rigorous impact measurement to demonstrate value for money. An example is Sanergy in Kenya, which provides sanitation services supported by government contracts, ensuring a steady revenue stream while addressing public health needs.
Advertising can be a viable revenue engine, especially when it is aligned with the enterprise’s values and its stakeholders' interests. Social enterprises can attract advertisers by offering access to specific demographics or providing value-aligned advertising opportunities. However, ethical considerations are paramount, as advertising should not compromise the enterprise’s mission or the trust of its beneficiaries.
Monetizing user data is another potential revenue stream with significant ethical implications. Social enterprises must navigate this area cautiously, ensuring data privacy and protection while leveraging data insights responsibly. The key is to create a data monetization strategy that respects individuals' rights and contributes to the enterprise's overall mission. See the model below from Building Data Monetization Capabilities that Pay Off. Center for Information Systems Research Massachusetts Institute of Technology
Digital ecosystems can attract partners to create new business ventures that propel an enterprise’s social mission and revenue goals. The Accelerate Impact Model (AIM) domains engaged ecosystems, and digital practices can diagnose weaknesses and advance your organization’s capacity to build successful digital ecosystem platform businesses. These articles provide more targeted guidance to build data exchange pathways to support new social impact ventures. Your organization can become a successful information orchestrator in your industry sector by involving partners early, starting small, and scaling with proven technologies. With an engaged data ecosystem, your organization has the prerequisite digital partnership capacity to transform your data model into an earned-revenue platform business. Start with activating a five-step strategy for digital platform business design and access the Playbook channel for more platform-building resources.
Innovative revenue engines are critical for the success and impact of social enterprises. Social enterprises can create sustainable, high-social impact revenue streams by leveraging philanthropic subsidies, government contracts, and ethical advertising and data strategies.
However, navigating these avenues with a steadfast commitment to the mission and a deep understanding of the ethical landscape is crucial. With careful planning and strategic execution, these revenue engines can power social enterprises to new heights of impact and innovation.
Leadership Strategies for Revenue Generation
The generation of earned revenue within a social enterprise is not solely a function of market forces or business acumen; it is intrinsically linked to the strategic vision and execution capabilities of its leadership. The leaders of social enterprises must navigate the complex interplay between advancing a social mission and ensuring economic viability. This involves a mindset open to exploring new business models, revenue streams, and partnerships that can support and scale the social mission. Leaders must exemplify and promote an entrepreneurial spirit unafraid to take calculated risks in pursuit of sustainability and impact.
Creating a culture of financial innovation also means investing in team members' development and equipping them with the tools and knowledge to contribute to the enterprise’s financial strategy. This could involve regular training sessions, workshops, and brainstorming meetings focused on revenue generation and financial modeling. Team alignment among staff and stakeholders is a critical organizational capacity for venturing outside the comfort zone of traditional nonprofit revenue sources to create new earned revenue streams. Without team alignment, even the best innovation strategies for your organization are doomed to fail.
Influential leaders in social enterprises must be adept at strategic financial modeling, which enables them to forecast revenue streams, assess financial risks, and plan for sustainable growth. Ethical revenue management is another critical aspect of leadership. This means managing funds responsibly and ensuring revenue-generation activities do not compromise the enterprise’s social mission. Leaders must establish and enforce ethical guidelines for all revenue-related activities, from pricing strategies to partnership agreements.
Social enterprise leaders must serve as the stewards of the enterprise’s mission and financial health, ensuring that one supports the other. Leaders can guide their enterprises toward sustainable impact and long-term success by fostering a culture of innovation, developing strategic financial models, and managing revenue ethically.
Integrating Revenue Strategies into the Accelerate Impact Model
The Accelerate Impact Model serves as a strategic blueprint for social enterprise leadership. The ‘Build the Enterprise Phase’ is critical, focusing on establishing a solid operational foundation with robust revenue strategies. Revenue strategies integrated at this stage must be designed to support the enterprise’s core mission while ensuring financial health and resilience. This involves carefully analyzing the market, addressing the social problem, and the enterprise’s unique value proposition.
Leaders must ensure that revenue strategies are not afterthoughts but integral components of the enterprise’s design. This means that financial considerations are woven into the fabric of the enterprise from the outset, from product development to market entry strategies. Strategic planning must be dual-focused: it must map the path to financial sustainability and amplify social impact. Leaders must set clear financial targets and impact goals and develop strategies that advance both simultaneously.
This dual focus requires a balancing act, as decisions that favor financial growth must not undermine the social mission and vice versa. For instance, when considering a cross-subsidization revenue model, the enterprise must ensure that the subsidizing segment does not overshadow the needs of the subsidized segment. Strategic planning also involves scenario analysis to anticipate how changes in the market or funding landscape could affect the enterprise’s dual objectives.
Conclusion
Early-stage social enterprises should strategically integrate earned revenue generation into their social impact framework. Through the insights provided in this article, leaders can better understand their customer base, design revenue streams that cater to diverse markets, and innovate revenue engines that sustain and scale their impact. Look to the Accelerate Impact Playbook as your guide to reimagining the potential of social enterprise leadership that blends business rigor with the heart of social impact.
Examples of more recent publications that advance this model of social impact aligned earned revenue.
Additional resources and related case studies are available on request.
