Organizations that aim for impact first encounter certain challenges when making their solutions more sustainable. The complexity of social innovation is that: the beneficiary cannot always be the customer† Usually, when a for-profit company has found a way to create value for a customer, it has found its source of income: the customer pays for the value created.
This is not always the case in the “impact” sector. Very often, when a social enterprise or an association has found a way to create value for a beneficiary (for example, to fight discrimination or 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 costs of the proposed solution… which often complicates the management of an “impact” organization, and the issue of the economic model particularly complex . you have to consider two different value propositions – that of the beneficiary/user and that of the customer/donor – and manage both the operations to create impact and the operations that make it possible to finance these activities.
Formulate economic model and mission
How to reconcile economic objectives and social objectives? How to avoid the risk of “mission drift” by trying to develop a solid economic model that is supposed to serve the mission better? Here’s a typology* with three main options to think about this question.
– The aligned business model : economic activities and impact activities are the same, moreover they are the only real activities of the organization. Impact activities generate revenue and revenue-generating activities generate impact. In other words, the more impact the organization has, the more revenue it has; the more income it has, the more impact it has.
– The integrated business model : Economic activities and impact activities have some connection, even if they are not confused.
– The external economic model : economic activities finance impact activities. The former have no influence as such. Their vocation is to generate money to donate it to the social mission. Economic activities and impact activities are thus distinguished and impact activities do not generate any income.
Three sources of income
Here are the top three ways to fund an impact project.
– On turnover : Revenue corresponds to the sale of products or services to customers, whether 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 social impact.
– Through sponsorship : Patronage corresponds to donations from individuals, foundations, endowments, or companies. Its main purpose is to support a project of public interest and that is why it is done free of charge. In practice, the donor may be compensated with a “clear disproportionality” (ie with a value limited to 25% of the amount of the donation).
– Through subsidies : a grant is a financial support granted by a public actor to an activity of general interest (or, in specific cases, to companies to encourage in particular the creation of companies). These are becoming rarer and giving way to new forms of government intervention: government subsidies have fallen by 17% in six yearswhile public procurement increased by 73% over the same period.
* according to the typology proposed by Sutia Kim Alter.
Matthieu Dardaillon is the initiator and co-founder of Ticket for Change. This text is from his book “Activate your talents, they can change the world!” », published by Alisio editions, 2019, 480 pages, 25 euros.