The Importance of Business Models and Value Chains

To deliver on our promise and satisfy the market, we should look at our own value chains and business models. This can be challenging for social enterprises because the paying customer isn't always the social enterprise's primary customer. Gregory Dees defined the primary customer as the one who benefits from the work of the social enterprise. It is therefore important for social entrepreneurs to have a framework for value creation for its multiple stakeholders. 

One framework we've found useful when talking about business models is the business model canvas developed and promoted by the people behind Business Model Generation www.businessmodelgeneration.com. According to the authors of the book, a business model "describes the rationale of how an organization creates, delivers, and captures value."

Below is an illustrated version of the canvas and below it is a blank canvas. By using this tool, social entrepreneurs can think through each of the building blocks of a business model and clearly identify the value proposition for customer segments. Thinking through revenue streams ensures that value is captured for social entrepreneurs to be able to sustainably provide value to its target beneficiaries.

For more information or to purchase the book, please visit the business model generation website.

Once the business model has been thought through, social entrepreneurs must look at their value chains to ensure that the primary activities and the support activities support the value proposition. Value propositions are the unique offering of the social enterprise to its market. Value propositions can include innovative products e.g. appropriate technology for smallholder farmers; speedy and efficient service delivery e.g. treatment at the Aravind Eye Center; or affordably priced products e.g. off-grid lighting solutions. 

The primary activities ensure that there is value-added in the transformation process, that the enterprise finds its market and provides customer service. The support activities on the other hand ensure that operations support the value proposition i.e. does the organization have the correct manpower, is the organization able to leverage IT, does the organization take advantage of the benefits of procuring in bulk.

The Gifts and Graces value chain involves partner identification, capacity building, design, and marketing. Our primary market/beneficiaries are the craftsmen and micro-entrepreneurs we support. Our secondary market that makes our work possible are the corporations and individuals who purchase our fair trade products.

Our business model and value chain has been tweaked over the years. This is expected of social enterprises as well as we have to be flexible so as to provide the most value to our target beneficiaries. 

For more information, please don't hesitate to leave a comment or email us.