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Nature of Competition in Social Businesses

Nature of Competition in Social Businesses

Social business has emerged as a new class of business with a unique business model of delivering social good along with economic profit. This balancing act of managing both these diverse objectives is quite challenging and liberating at the same time. Educational institutions are perhaps the pioneers in this area where the fundamental objective has been delivering the social good. However, in the name of infrastructure and various other things, the education industry tends towards the traditional profit-making model. The marginalized remained as they were with no access to the latest infrastructure and qualified teachers. This is just a case in point to show how challenging this endeavour of running a social business can be.

Social businesses also face competition, but the competition comes in different shapes and forms, unlike the traditional market competition. Traditional businesses must ensure that they are able to attract and retain their target customers better than their competitors so that they can survive and grow. Apart from the direct competitors, they must manage the regulatory barriers. While this is easier said than done, traditional businesses need not divert their attention from customers, market, and government regulations.

This is not so for social businesses. Social businesses, unlike traditional businesses usually work with two major groups of stakeholders - paying customers and beneficiaries. The nature of the business is such that they can’t charge the beneficiaries the entire cost + profit margin for delivering the intended social good, as the target beneficiaries are usually poor and can’t afford to pay for the services. This does not mean that social business works like a non-profit. The whole concept of social business is embedded in their business model where the target beneficiaries and paying customers are often different and expect a certain ROI. The beneficiaries usually pay highly subsidized rates to make them feel invested and a part of the solution so that their active participation can be secured. At the same time, the paying customers either government agencies or corporates look for numbers and typical business metrics of beneficiaries served, and impact created.

This operational scenario creates an interesting competitive landscape. Here are a few prominent competitors for a social business.

Government:

Interestingly, in public opinion, the government is expected to deliver all social goods and services for free. It is also true that the government in most cases sets up institutions and tries to deliver those expected services whether it is education, healthcare, or waste management. The mere presence of these institutions, often defunct, creates an expectation of free service for the beneficiaries. When a social business approaches them with a pay-per-service model, it becomes a challenge for the beneficiaries to move away from the freebee and start paying for the same service, however small the payment may be. This creates a difficult situation where the social business ends up competing with the with government agencies whose work, they are doing.

Non-Profits:

Non-profits or NGOs are another interesting group of organizations that exist to deliver social goods and get paid through donations and grants. They compete with the social business in terms of attracting the target beneficiaries. Once an NGO starts delivering good services, it becomes an ongoing expectation, and the organization is held accountable for the same by the beneficiaries. In such a scenario, it becomes difficult for the social business to attract and retain the beneficiaries. It is also possible that the beneficiaries may extract the services from all possible agencies, reducing the impact per person per unit spent. The pay-per-service model also becomes a barrier as anything which is not free is rejected. While the sustainability of any non-profit model is debatable, people don’t tend to think long-term.

The attitude of Donors:

As a high net worth individual or a corporation keen to deliver societal benefits through their CSR programs, the interest is more to tick the checkbox than to invest in long-term programs. As investing in a social business does not become a tax exempted donation, the tendency is to give money to charity through a non-profit rather than a social business. As the demands of governance become equally challenging in any type of business, corporations tend to adopt a fire-and-forget approach rather than looking at building a system that can efficiently and sustainably deliver social goods.

The attitude of typical investors:

Any typical start-up investor looks for high-risk-high-return opportunities. Social businesses offer high-risk and moderate returns. This becomes a barrier and social businesses lose out when compared to conventional businesses. There are not many investors who indulge in impact investment and there the funds are low while the competition is high.

Considering all these factors, it makes sense for a social business to go slow first so that it can go fast later. They should work on a limited scope and deliver effectively in that space so that they build credibility among all stakeholders. Their track record and success story-driven business model will help them attract and retain beneficiaries, partners, and investors as well, as they mature.

About the Author

Flt.Lt. Sridhar Chakravarthi is an experienced organizational change coach and consultant with over 30 years of leadership experience in various industries. He believes in the possibility of exponential growth for individuals, start-ups and mature organizations. He empowers them to achieve exponential growth by bringing agility into their mindset, processes and behaviours. He is an authorized training partner for Enterprise Agility University, runs his company “Coach for Change” and lives in Bengaluru, India.