Why your startup should consider a social business model

Muhammad Yunus defines a social business as “cause — driven”. He clarifies that he is not opposed to businesses making profit so long as the profit stays with the company and the owners do not take a larger profit than the amount of their investment. The purpose of the investment is purely to achieve a social objective through the operation of the company. In this model no personal gain is desired or achieved by the investors.

Grameen Creative Labs have clearly demonstrated that this model has value:

They have done a phenomenal job of orienting their organization around identifying social problems while creating custom solutions that support a defined cause.

But, this model should not be adopted by all startups.

In 2018, 5,336 startups were either founded or received VC / Angel investment (Source: GeekWire 2018). By definition a startup is searching for a business model. While in this search, startups, especially those that are VC & angel funded, will not forgo profit collection less they get their funding rescinded. At that point the intentions of the organization become a moot point.

Social Entrepreneurship: A meeting point

I believe there is a meeting point between traditional for profit business and true social business; a point where businesses can be profitable while having a cause driven true north. When an enterprise establishes aligned goals with a cause, a synergistic relationship is created.

Mr. Yunis refutes this point by saying:

“When you mix profit and social benefit it gets complicated for the CEO. His thinking process gets clouded. He does not see clearly. More often this CEO will take decision in favour of profit, and exaggerate the social benefit.”

What I’m arguing is that businesses should strive to create a model where there is no trade off; where the relationship is so closely aligned that making the decision for profit means making the decision in favor of social cause as well. This business model will appeal to and attract the next generation of budding entrepreneurs.

Tom’s One For One Program has demonstrated the success of this model. The enterprise and the communities have a shared goal, creating a synergistic relationship.

Social businesses have a loyal customer base

A loyal customer base is a coveted asset across any organization. Loyal customers provide a low churn rate, a higher lifetime value and a very predictable revenue stream — which earns you an A+ from investors. Social business models provide brand loyal customers because competitors can’t compete on product; they need to compete on story to increase market share. Blake Mycoskie of Tom’s has proven that by aligning profit and cause; a CEO has no need to exaggerate social benefit. Tom’s has perfected the social model we’ve described in depth. So, when Sketcher’s created a product to compete with Tom’s they didn’t take any market share from Tom’s; because they couldn’t compete with the Tom’s story:

If you remove the branded tag, one wouldn’t k now the difference between the shoes. So why have the Sketchers product flopped while Tom’s has continued to scale its profitability? It’s because Tom’s represents a lifestyle of giving back. Buying from Tom’s means something.

Social business provides a viral engine of growth

The social business model tells a story. These businesses don’t compete on feature design or technology. They compete on their story; their brand and most importantly their following.

The viral engine of growth is the most sought after model because the product advertises itself. For example if your business has a viral coefficient of 10 then every customer will bring 10 friends. And each one of those friends will bring 10 of their friends. The upside of customer acquisition is clear; but the tricky part is that people have to care about your story to share it.

With that in mind, how do get people to care about your story? No one can answer this question definitively, of course. But you can strategically increase your chances of success by creating a social business model that:

• Solves a clearly defined problem within a customer segment
• Addresses a cause that your customer segment truly cares about and is trying to address themselves.

Naturally, if you can do those two things, people will tell their friends about it.

If you have — or are thinking about creating s social business model I would love to hear about it. You can always drop me a note at: richamazzola@gmail.com.