Social entrepreneurs — Here's how to choose your revenue model - Generocity Philly

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Jan. 13, 2016 10:45 am

Social entrepreneurs — Here’s how to choose your revenue model

Many social entrepreneurs are shy about talking about revenue. Don't do that.

Wash Cycle Laundry uses a straightforward revenue model with mission attached.

Courtesy photo

As a social entrepreneur, you’ll need to balance impact with profit, and you’ll need to get comfortable talking about it.

So, how do you go about choosing a revenue model?

The movement here is one that suggests it’s not good enough to want to have impact and expect some foundation or large funder to cover the cost. You can be more creative to support your mission. A good way to think about this is to think of there being two pathways:

  1. 1. If someone who directly uses my product or service will pay for it, can I find a way for others to benefit? 
  2. 2. If those who directly use my product or service can’t or won’t pay entirely for it, can I find others to support who indirectly benefits to pay for it?

For an example of the first, look at Wash Cycle Laundry, which was able to expand to Austin and Washington D.C. in four years. The laundry service is eco-friendly, making it attractive to sustainability fans, and also hires from vulnerable populations with the help of city partnerships. They’re selling a fairly straightforward service but doing so with a real mission.

Four years after first launching, the company had about 100 small business and several hundred individuals using its service, including institutions like Thomas Jefferson University Hospital and University of Pennsylvania. But they were able to raise venture capital while also patching together grants and loans to support an expansion that founder Gabriel Mandujano aims will come to profitability.

For an example of the second, talk to Nic Esposito, founder of The Head & the Hand Press. He’s aimed to “achieve our fiscal sustainability while upholding our other sustainable ideas” by way of a mix of support and funding.

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The Head & the Hand Press uses both paying customers and foundation funding while mixing in volunteer labor support. Its writers’ workshop program has nonprofit status, allowing the company to accept foundation grants for work done within the program. This way, profits from the Press’s book sales don’t need to go to the workshop, which wasn’t making enough money to be sustainable on its own. Esposito has found a mission-related portion of his organization that can attract revenue, while subsidizing it with mission work that attracts funders that have supplementary goals — like seeing a growing creative community and giving experience to aspiring publishers.

Beyond selling a product, social entrepreneurs can also seek out opportunities that can financially benefit their company in other ways — such as the Project Liberty Digital Incubator, which offers free office space in the Philadelphia Media Network offices to digital media startups. My Milkcrate, which created an app that promotes sustainable economies by connecting users to local, socially conscious businesses, participated in the incubator last year.

Foundation funding does exist for for-profits in the form of program-related investments — loans or investments with a mission attached. 

Your Checklist:

  • Know the difference between startup costs and revenue. If you are trying to launch your organization or add a new product or service, you may need an outlay of initial capital to fund that work. In addition to bank lending, creative foundation approaches to low-interest loans and donor funding, consider applying to be housed in an incubator or set up a crowdfunding campaign, both of which are often to used to test models. That should be seen in distinction to what your long term sustainability plans are — recurring revenue from customers or  on-going client support.
  • Define who benefits from your product or service: Will they and can they pay for its use? If you’re trying to serve a vulnerable population, it might not be realistic to ask them to pay, which means that funding will have to be found elsewhere. Or, you could offer the product or service at a discounted rate and supplement the cost with outside funding.
  • Consider diversifying your revenue: If you do need to find outside funding, look into classifying one arm of your business as a 501(c)3 — as long as that arm is mission-minded — so you’re able to apply for grants. Alternately, are there nonprofits with which you can partner, perhaps in a fiscal agency relationship? Brainstorm seven to 10 ways you could bring in revenue, in addition to the traditional mission pathway of donors and grant funding.
  • Befriend others in the marketplace, then learn from them: How are other socially minded organizations doing similar work to yours making money? Search out some local businesses that are serving similar populations. Consider whether their revenue model could be applied to your venture.
  • Test the marketplace: Put your ideas into action. Find small tests for what you hope to be a model of bringing in revenue. No survey or business plan can beat trying to sell a product, service or funding opportunity.
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