3 possible business models and sources of income, Cash management

Organizations aiming for impact first face particular challenges in making their solutions sustainable. The complexity of social innovation is the recipient may not always be the client. When a for-profit company has found a way to create value for a customer, it has usually found its source of revenue: the customer pays for the value that is created.

This is not always the case in the “impact” sector. Very often, when a social enterprise or association has found a way to create value for a beneficiary (for example, to fight discrimination or to save an endangered species), it has not yet identified its model. This is a separate step, simply because the beneficiary does not always have the means to pay the cost of the proposed solution… which makes the management of an “impact organization” often more complicated, and the question of economic model, especially complex. You must consider two different value propositions – the recipient’s/user’s and the client’s/donor’s – and manage both the operation to create an effect and the one that makes it possible to finance these activities.

Articulate financial model and mission

How do you align financial goals with societal goals? How does one avoid the risk of “mission drift” by seeking to develop a solid economic model that would better serve the mission? Here is a typology* of three main ways to think about this question.

– The adapted business model : economic activities and impact activities are the same, moreover, they are the organization’s only activities. Impact activities generate income, and income-generating activities generate impact. In other words, the more influence the organization has, the more turnover it has; the more income it has, the more impact it has.

– The integrated business model : economic activities and impact activities have some connection, although they are not confused.

– The external economic model : economic activities finance impact activities. The former has no influence as such. Their vocation is to generate money to donate it to the social mission. Economic activities and impact activities are thus separate, and impact activities do not generate income.

Three sources of income

Here are the three most important ways to finance an impact project.

– After turnover : revenue corresponds to the sale of products or services to customers, who may be public or private, individuals or organizations. The activity itself generates its own income: this is called self-financing. The challenge for impact organizations is to find business activities that serve the desired societal impact.

– Through sponsorship : Patronage corresponds to donations from individuals, foundations, endowment funds or companies. Its main purpose is to support a project of general interest, which is why it is carried out free of charge. In practice, consideration may be given to the donor with a “significant disproportion” (ie of a value limited to 25% of the gift amount).

– In the case of subsidies : a subsidy is a financial aid provided by a public actor for an activity of general interest (or in special cases to companies to promote the creation of companies in particular). These are becoming more rare and give way to new forms of intervention by the public authorities: public subsidies have fallen by 17% in six yearswhile public procurement increased in the same period by 73%.

* according to the typology proposed by Sutia Kim Alter.

Matthieu Dardaillon is a specialist in impact entrepreneurship.
– DR

The author:

Matthieu Dardaillon is the initiator and co-founder of Ticket for Change. This text is taken from his book “Activate your talents, they can change the world!” », published by Alisio editions, 2019, 480 pages, 25 euros.

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