S O C I A L E N T E R P R I S E I N C U B AT O R

Module 2
Readings
2 HRS
O U R TA K E O N S O C I A L
ENTERPRISE MODELS
Acumen and the Global Social Benefit
Institute® (GSBI) are excited to partner to
bring you this course on business models for
social enterprises.
Acumen is an impact investing firm focused
on changing the way the world tackles
poverty. Each year our portfolio team looks
at hundreds of social enterprise models
from around the world to determine which
ones to invest in. We specifically look for
companies with a mission to deliver value
to the poor. Like traditional investing firms,
we’re also looking to source deals that have
high potential to generate revenues and
become profitable. We seek out companies
that demonstrate the potential for financial
sustainability within a 5–7 year period.
All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.
GSBI similarly serves social entrepreneurs
around the world who are developing
innovative solutions that provide a
sustainable path out of poverty. They
leverage the expertise of Silicon Valley
mentors to help social entrepreneurs
develop stronger business models and
emerge ready to receive investment and
+ACUMEN Social Enterprise Incubator
scale solutions for global impact.
Having studied hundreds of business models
for social enterprises over the years, Acumen
and GSBI are eager to share some of the
creative approaches and critical success
factors we’ve seen entrepreneurs use to
structure companies to create social impact
while generating value for customers and
investors.
2
O U R TA K E O N S O C I A L
ENTERPRISE MODELS

We know that getting a social enterprise “One of the biggest mistakes

model off the ground can be tricky. We’ve
an entrepreneur can face
seen social entrepreneurs fall into some of
the same traps again and again. Sometimes, early on is not being open
they start to scale a business before they’re enough to change. Be
profitable at the unit level. Or they don’t
receptive enough to modify

+ACUMEN Social Enterprise Incubator

adequately account for overhead costs. Or
they fail to consider how difficult it will
your business model based
be to find manufacturers or distributors on the data. What are you
within an emerging market. We’ve designed learning from your customers
this course to give you a roadmap for
about how you need to shift
developing your business model and to help
you steer clear of common pitfalls social your approach?”
entrepreneurs face as they build businesses. ­—Amon Anderson,
Associate Director of
That said, we believe that building a Portfolio at Acumen
business model is an iterative process, where
you have to keep talking to customers,
understanding the local context, and
gaining deep familiarity with the sector. As
you scale your company, you might pivot
towards new models.

In this course, we’ll borrow from the best

thinking and tools used by Silicon Valley
startups, but provide our own spin on how
you can tweak these models to deliver value
to the poor. Let’s get started by examining a
case study of one real social enterprise.

3
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CASE STUDY:
A R AV I N D

There are two patients lying on parallel
operating tables. A surgeon sits between
them. Her operating microscope hovers
over the first patient. She makes a precise
incision in his eye and removes the clouded
lens. Skillfully, she inserts a new acrylic
lens through the narrow slit.
If the idea of a hospital conjures up scenes
of chaos or desperation, you haven’t been
to Aravind. Based in south India, Aravind
Eye Care Hospital was founded in 1976 by
Dr. Venkataswamy, known more commonly
as “Dr. V.” After a long career working at the

+ACUMEN Social Enterprise Incubator

It is clear and bright. Then she
neatly sutures the incision
before quickly pivoting the
microscope to the next patient
and starting the procedure all
over again.

Meanwhile, a team of skilled

paraprofessionals bandages
the previous man and helps
him to a recovery room. They
assist a third patient onto the
operating table and the process
repeats itself. Their movements
are carefully choreographed
and routinized. Yet, for the
patients—who are day-laborers
living in rural villages—these
surgical routines are delivering
nothing short of a miracle. Their
cataracts are removed and they
are cured of treatable blindness.
For the first time in years, they
can see clearly. Their world—
and their futures—are literally
transformed.

4
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CASE STUDY:
A R AV I N D
Government Medical College, Dr. V. hit the
mandatory age for retirement. Rather than
hang up his surgical coat, he decided to
became one of the world’s pioneering social
entrepreneurs. The goal he set for himself
was audacious: he wanted to end curable
blindness.
Dr. V rallied his siblings, who were also
trained as medical doctors, and they jointly
founded an 11-bed hospital powered only
by their own personal savings and a clear
mission: “to give sight for all” and “to see
all as one.” Aravind’s medical goals were
intertwined with a commitment to treating
even the poorest of customers with dignity.
Fast forward more than 40 years. Today
Aravind Eye Hospital is one of the most
successful social enterprise models in
the health sector. It is the world’s largest
and most productive eye care hospital,
having performed over 4 million surgeries.
The majority of these surgeries are either
completely free of charge or performed
at ultra-subsidized rates. In 2010, Aravind
performed the equivalent of half of the
ophthalmic surgeries performed across the
entire United Kingdom while spending less
than 1% of the 1.6 billion pounds expended
annually by the United Kingdom for eye care
delivery.
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The Early Days of Aravind
It is the late 1970s. Dr. V has set up an
11-bed hospital in his brother’s house. Five
beds are reserved for patients who will pay
for their cataract operations. The remaining
+ACUMEN Social Enterprise Incubator
six beds are for those who need free care.
They begin to market their free services in
local villages, hoping to recruit poor men
and women suffering from cataracts to
receive services in their clinic. But, despite
offering their services free of charge, the
beds are not always filled.
“What are we doing wrong? Where are
all the patients?” Dr. V. and his colleagues
ask. They decide to listen carefully to their
customers. Encountering a blind beggar
one day in the village, they ask why he
isn’t coming to the clinic. “You tell me your
service is free,” he says, “But to access it, I
need bus fare to the city, accommodation
once I am there, food, and return transport.
I am an 80 year old man. I will need my son
to accompany me and he will lose a day’s
wages. Your free service will cost me 100
rupees.” With this insight in mind, Dr. V and
his team realize that their model has to
change.
5
C A S E S T U D Y PA R T 2 :
T H E E A R LY D AY S O F A R AV I N D

They begin traveling to schools in rural

areas where they set up operating theaters
in classrooms. But, transporting all of
the surgeons and supplies is logistically
complicated and expensive. Furthermore,
the school buildings lack the same hygienic

+ACUMEN Social Enterprise Incubator

standards as a hospital facility. It is difficult
to provide further observation or follow-up
care. Clinical outcomes suffer.

Aravind was following a model of medical

outreach that many other doctors in rural
areas used, but they realized that it was not
we demonstrated the cost effectiveness.
the most effective. They decided that they
The quality was much better and a lot of
should repackage their activities so that
unplanned benefits happened because
initial vision screenings are performed in
the patients knew where to go if they had
villages, and only the most advanced cases
a problem. They didn’t have to wait for
requiring surgery are referred back to the
someone to go and find them.”
hospital.

Additionally, Dr. V. and his colleagues

They began to pioneer this “hub and
realized that data could be a powerful lever
spoke” organizational model, which is now
for affecting change. When they could prove
employed by many successful hospital
that patient outcomes improved with a hub
chains in the developing world. Quite
and spoke model, they could convince both
soon, the World Health Organization
their staff and the broader sector that this
(WHO) endorsed this model for healthcare
idea wasn’t so crazy after all. Furthermore,
outreach.
when they could validate that the model
could be faster and more cost-effective than
Thulsi Ravilla, Aravind’s current executive
the alternative, international organizations
director, noted that “In the initial days, our
like the WHO really started paying attention.
model was looked down upon. But over time

6
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C A S E S T U D Y PA R T 2 :
T H E E A R LY D AY S O F A R AV I N D

“Our values become increasingly clear when

we are able to use information and dat,” says
Thulsiraj Ravilla. “We can claim that we are
about eliminating blindness. We can say
that we need to provide the same clinical
outcomes to everyone. But when they just

+ACUMEN Social Enterprise Incubator

exist as abstract values, you don’t know if
it’s working or not. Nothing really happens.
Collecting data is a way of surfacing to
consciousness the values framework and
strengthening it.”

Collecting data also allowed Aravind to get
faster and more efficient. If you’re operating
in an environment of scarcity, you have to
get creative to figure out how every asset
and person can be used to their maximum
efficiency. In fact, Dr. V. was obsessed with
process innovation. He traveled to the
United States and became obsessed with
McDonald’s—not because he loved their
hamburgers, but because he admired how
they could create the same standardized
product at scale. He would follow caterers
around at a hotel to see how they efficiently
prepared food, or observe a janitor as he
cleaned toilets to see how he mastered a
repetitive task efficiently. Compiling these
insights, Dr. V. developed a standardized way
of performing cataract surgery that allowed
Aravind doctors to deliver quality outcomes,
with the same efficiency of a franchise
worker packaging Happy Meals.
It costs Aravind about $10 to perform a
cataract operation, while it costs hospitals
in the United States $1,650. By putting
multiple patients in an operating room at a
time, using paraprofessionals to efficiently
support the surgery, and standardizing all
elements of the operation, Aravind has
been able to dramatically cut costs and
increase the number of patients who can
pass through its doors. As Dr. V. built a social
business, he was diligent about seeking out
people solving related problems in different
industries and learning from them. Now,
we think that he’s built an incredible model
that other social entrepreneurs can learn
from too.

7
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W H AT I S A
SOCIAL ENTERPRISE?
So what exactly is a social enterprise?
People define it in many different ways. For
the purposes of this course, we will define a
social enterprise as:
Any enterprise that prioritizes
transformative social impact while
striving for financial sustainability.
Note that this definition does not specify
the type of governance structure that a
social enterprise needs to have (non-profit,
for-profit, hybrid). All of the companies
that Acumen invests in have a for-profit
structure, but we believe that a social
enterprise can be incorporated as a
non-profit if it strives to be financially
sustainable and support its own
operating costs.
All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.
This course will focus on market-based
approaches to tackling social issues and
help you think through how to structure a
business that can achieve your social goals.
You might be wondering if we think other
approaches to solving social problems are
+ACUMEN Social Enterprise Incubator
still necessary or valuable. Of course! We do
not think that social enterprises are the only
model, nor always the most appropriate one,
for tackling problems of poverty. You will
need to evaluate the context of the problem
you are trying to solve, the potential market
that could pay for solutions, and the
likelihood that your business could achieve
scale and sustainability to see if a social
enterprise model is the right choice. We’ll
help you assess some of these factors in this
course.
8
W H AT I S A
BUSINESS MODEL?

“A business model describes This means that you need to think through
the whole “story” of your business—from
the rationale for how an
how you will first interact with a customer,
organization creates, to how you’ll design or manufacture
delivers and captures products or services, to how you will deliver
those products to their doorstep or corner
value.”

+ACUMEN Social Enterprise Incubator

store. And, of course you’ll have to figure
—Alex Osterwalder
out the costs associated with doing business
so that you can set prices that enable you
In this course, we’ll hone in on one key
to be profitable and/or sustainable. We’ll
aspect of social enterprises: the business
use a tool called the business model canvas
model. When you hear the term “business
to help you think through the nine key
model,” what do you think of? You may
components that will comprise your social
associate it with a plan to make money.
enterprise.
That makes sense. Thinking about how
you’ll generate revenue is definitely a critical
thing to figure out when you are starting a
company. However, it’s not the only thing
you need to consider in the early days of
your enterprise, especially if you are building
a social enterprise. In this course we’ll
use an expansive definition of “business
model” proposed by Alex Osterwalder, a
leading strategist and startup consultant.
He defines a business model as a rationale
for how an organization does three things:
creates, delivers and captures value. Social
enterprises create two kinds of value:
business value and impact value.

9
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THE THREE COMPONENTS
OF A BUSINESS MODEL

Here is a bit more detail on what we mean by creating value, delivering value and capturing
value. These themes will structure the next three modules in the course.

CREATE

+ACUMEN Social Enterprise Incubator

VALUE
How does a company create
products, services, or platforms that
solve problems or create benefits for
customers?

CAPTURE DELIVER
VALUE VALUE
How does a company generate What systems and partnerships

revenue from the product, service, or does a company have in place to

platform it offers? deliver that product, service, or

platform to customers?

10
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INTRODUCING THE
B U S I N E S S M O D E L C A N VA S
Below is a copy of the business model
canvas developed by Alex Osterwalder. The
business model canvas is a tool that breaks
an enterprise down into 9 building blocks
that describe how the company will create,
deliver, and capture value. Your canvas
should be a working document that you
use to jot down hypotheses and then “get
out of the building” to test them with real
customers. It’s also a tool you can use to
map out several different business models
that you want to test in order to find the one
that might work best.
DELIVER
VALUE
CAPTURE VALUE
All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.
Note that the four boxes on the top right
of the canvas relate to how your company
will create value. The three boxes on the
lefthand side relate to how you will deliver
value and the two boxes at the bottom
pertain to how you will capture value.
+ACUMEN Social Enterprise Incubator
As you go through this course, you’ll use
the business model canvas to record your
hypotheses about your venture. If you don’t
have a venture that you’re working on, you
can use Aravind as an example case.
CREATE VALUE
11
 SOCIAL
Designed for: Designed by: Date: Version:
The Business Model Canvas ENTERPRISE
MISSION
Key Partners Key Activities Value Propositions Customer Relationships Customer Segments S TAT E M E N T

Key Resources Channels

A S S O C I AT E D
I M PA C T
METRIC

Cost Structure Revenue Streams

This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit:
http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

DesigneD by: Strategyzer AG

The makers of Business Model Generation and Strategyzer strategyzer.com
9 BUILDING BLOCKS
OF BUSINESS MODELS

CREATE VALUE WHAT IT MEANS

1. Customer The sets of customers with similar characteristics who you

segments want to reach.

Social enterprises should reach customer segments that stand to gain

+ACUMEN Social Enterprise Incubator

the greatest impact or benefit from their products or services.

2. Value proposition Describes the bundle of products and services that a company will
offer to create value for customers. A value proposition is the reason
why customers choose one company over another.

Social enterprises should have a value proposition that prioritizes

both business value and impact value; it should reflect the value that
will be provided to an individual customer, and the impact that a
company will have on a sector or problem as a whole.

3. Channels The ways that value propositions are delivered to customers through
communication, distribution and sales.

Social enterprises should create channels that enable access to

critical goods and services for people living in poverty or other
conditions of disadvantage.

4. Customer The ways that a company establishes and maintains relationships

Relationships with each customer segment.

Social enterprises should pursue relationships with customers in

ways premised on trust and dignity, particularly because these might
be historically underserved customers.

13
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9 BUILDING BLOCKS OF
THE BUSINESS MODEL

CREATE VALUE WHAT IT MEANS

5. Key partnerships The people or organizations you will work with to deliver your value
proposition. In all companies, some activities will be outsourced and
some resources acquired from 3rd parties.

+ACUMEN Social Enterprise Incubator

Social enterprises must cultivate many partnerships, including
partnerhips with stakeholders who are trying to solve the same social
problem. These might include the government, NGOs, and other
social enterprises. When operating in emerging markets, establishing
trusted partnerships at all stages of the value chain is critical.

6. Key activities The key things that a business will have to do in order to deliver its
value proposition to customers. These are things like production,
problem-solving, and platform management.

Social enterprises should ensure that the activities performed at all

stages of their value chain are aligned with their intended impact.

WHAT’S MISSING FROM THE BUSINESS MODEL CANVAS?

You might notice that there is no section on the business model canvas to note sociopolitical
factors or externalities. However, we know that political and cultural factors often play a big role
in determining whether a social enterprise will succeed. In addition to partnerships, it might be
helpful to identify all of the stakeholders or even potential opponents who might stand in the
way of your disruptive idea. You’ll want to consider whether these opponents will affect your
costs and/or the likelihood of your customers adopting your product, service, or platform.

14
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9 BUILDING BLOCKS OF
THE BUSINESS MODEL

CREATE VALUE WHAT IT MEANS

7. Key resources Assets required to offer and deliver the value proposition to
customers.

Social enterprises should think of their “resources” as synonymous

+ACUMEN Social Enterprise Incubator

with their “inputs” in a theory of change. That is, what will be the
necessary resources to create both impact and business value?

8. Revenue streams The money a company gets from doing business with each
customer segment.

Social enterprises need to take into account how much customers

in their target markets will be willing or able to pay for a product
or service. If customers are not able to pay directly, you might be
able to find another company, organization, government, or third
party to be the customer. This will determine whether your
company is structured as business-to-business (B2B) or
business-to-consumer (B2C).

9. Cost structure The elements of your business model come together to become your
cost structure. Your cost structure can be cost-driven (meaning that
you focus on keeping things as low-cost as possible) or value-driven
(meaning that your prioritize value or quality).

Social enterprises should take into account that costs can be covered
by a mix of philanthropic and market capital, depending on how they
are structured.

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I N T E G R AT I N G Y O U R I M PA C T
AND BUSINESS MODEL

How does you social impact model fit

together with your business model? Good
BUSINESS IMPACT
question. Virtue Ventures, a consulting firm,
MODEL MODEL
classifies social enterprises based on the
level of integration between their social
impact activities and their business model.

+ACUMEN Social Enterprise Incubator

They identify embedded, integrated, and Integrated social enterprises are ones

external social enterprises. where the company runs related services

or programs to fund its social enterprise
work. For example, Aravind Eyecare is a an
integrated social enterprise. They offer vision
IMPACT services to low-income and high-income
MODEL customers. Revenues from higher-end
customers cross-subsidize the treatment
costs of their lower-income clients. In
BUSINESS
this case, the social impact activities and
MODEL
the business model are not embedded,
but related. The enterprise leverages its

Embedded social enterprises are ones core assets such as technical expertise,

where the social impact activities directly reputation, relationships, and machinery/

create revenue for the business. For infrastructure to serve multiple customer

example, BURN Manufacturing is an segments, earning necessary profits from

embedded social enterprise model. BURN some and creating social impact for others.

creates low-cost, highly energy-efficient Keeping the business and impact models

cookstoves for Kenya’s urban poor. With tied together helps them maintain a core

each cookstove sold, they help improve focus, rather than diverting crucial resources

the lives of the poor by reducing smoke and attention to side revenue streams.

inhalation and helping them save costs

on charcoal. Sales of their products are
therefore directly tied to their intended
social impact. Their impact model and
business model are embedded.

Credit: http://www.4lenses.org/setypology/integration
16
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I N T E G R AT I N G Y O U R I M PA C T
AND BUSINESS MODEL
BUSINESS IMPACT
MODEL MODEL
External social enterprises are ones where
the activities that generate money are
distinct froma the social impact activities.
For example, a hamburger shop or a hotel
could fund the operation of an orphanage
or a wildlife conservancy. 826 is a very
successful literacy enterprise which has
storefronts selling creative products
unrelated to its core literacy services. These
models can be interesting, but Acumen
and GSBI do not specialize in them and so
they will not be a focus of this course. In
general, we have found that these models
require a specific skill set to run because
you essentially have to operate two very
distinct enterprises: one is a traditional
small business, and the other is a more
traditional non-profit. Because the activities
are distinct, it can sometimes be difficult to
keep a significant percentage of your energy
focused on pursuing your social impact
mission.
All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.
Types of Business Models
Once you figure out whether your impact
and business models will be integrated,
embedded, or external, you’ll want to
determine your category of business model.
Classifying your business model can help
+ACUMEN Social Enterprise Incubator
you identify other companies using similar
models, even if they are working in different
sectors or with different products, so that
you can gain inspiration and best practices
from them, along with learning from
reasons why they might have failed.
The following page describes four types
of business models identified by Business
Model Zoo, a collaboration between Cass
Business School and Wharton Business
School to classify all types of companies, not
just social enterprises:
+ Product companies
+ Service companies
+ Platform companies
+ Market companies
The next reading for this course is a catalog
of these models, with many more examples
from the social sector. As you read through
the categories, think about whether you can
come up with any of your own examples for
each type of business model.
Credit: http://www.4lenses.org/setypology/integration
17
4 TYPES OF your
company
money

BUSINESS MODELS consumers products

other services
companies

Product companies
These are companies that capture value from a
product. They may be involved in just one stage of
B2C
the value chain, such as manufacturing or sale of the
product, or they could be involved in all stages. Product
companies will always involve two parties: a seller
B2B

+ACUMEN Social Enterprise Incubator

and a buyer. “Business to consumer” (B2C) companies
sell direct to consumers. “Business to business” (B2B)
companies sell to another company or organization,
that then might distribute the product to end users.

Service companies
These are companies that deliver services, like as
schools, hospitals, or microfinanciers. The services
B2C
they offer should be customized for each client. Service
companies will always involve two parties: a company
and a customer. Again, the customer could be an
B2B
individual end user, or another company/organization.

Platform companies
These are companies where the product or service
is offered to a customer for free, and the transaction
is ultimately paid for by a third party. Platform
companies will always involve at least 3 parties. The
most famous current example is Google, which offers
its search engine free to users, and collects revenue
from advertisers.

Market companies
These are companies that match a buyer and a seller,
and take a slice of the transaction. Market companies
will always involve at least three parties. Current
examples are Etsy, Airbnb, Kiva, or Uber.

18
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A NOTE ON BUSINESS
M O D E L I N N O VAT I O N
We are often asked, “What are the most
innovative business models that Acumen
or GSBI sees?” We’ve found that “Business
Model Innovation” is phrase that’s often
thrown around, but that no one really
understands.   The word “innovation” often
leads people to think that they have to
be incredibly inventive and come up with
something brand new.  But often when
trying to start a social enterprise just getting
the different pieces of the business model—
value creation, value delivery, and value
capture—in sync is a challenge in itself.   creative, and they can also be small and
This is especially true in the markets where
Acumen and GSBI work, where consumer
mindsets are not well-documented,
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basic infrastructure is under-developed,
governments and regulatory environments
are unstable, and things, in general, just
don’t work the way you’d expect/want them
too.  Thus, the “innovation” may come in
looking at all the different pieces of the
+ACUMEN Social Enterprise Incubator
business model and figuring out ways to
make them better, and how to make them
work in concert with the other pieces of the
model.
 
Innovations can be completely new and
simple.  We’ve highlighted some of the
various ways in which Acumen companies
have innovated on the next page.
 
19
I N N O VAT I O N S I N S O C I A L
ENTERPRISE MODELS

Create Value + Aravind Eyecare assumed

How does a company build innovative responsibility for manufacturing
benefits into a product, service, or platform all of its own lenses so that it
that meet a specific need for a customer could reduce costs and deliver
segment? eyeware to people in India at
much more affordable prices.

+ACUMEN Social Enterprise Incubator

+ Biolite offers a solar lantern that
is also equipped with a charging
Capture Value
station.
How does a company innovate in terms
+ Ziqitza Healthcare, Ltd. provides of its revenue engines, pricing, and cost
free emergency transport to structure to make a product, service, or
hospitals in ambulances, a service platform more affordable?
which the poor in India previously
did not have access to. + BURN partners with a bank
to offer financing options to
customers.
Deliver Value
How does a company innovate in its + Juhudi Kilimo offers loans to
value chain or distribution systems to smallholder farmers so that they
make a product, service, or platform more can purchase large agricultural
accessible? assets, like cows or farm
machinery.
+ Siembra Viva is an e-commerce
platform in Colombia that
eliminates middlemen and
streamlines logistics in supply
chains, enabling more value to
be transferred to smallholder
farmers.

20
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THE NEED FOR A
LEAN APPROACH

This course will focus on providing an overview of the concepts that should inform your
business model. However, keep in mind that we see development of a business model as fitting
into the Lean Startup approach. That is, once you document initial hypotheses, you should
continuously “get out of the building,” as Steve Blank says, and test those hypotheses with real
customers. Below is a quick overview of the Build-Measure-Learn loop, which forms the core
of the Lean Startup approach. You can learn more about how to apply this methodology to the
social sector in our +Acumen Lean Startup Principles for Social Impact course.

+ACUMEN Social Enterprise Incubator

1. Identify clear hypotheses
+ Who are your target customers?
+ What pains do they have? What problems
do they need to solve?
+ What solution could you create to meet
their needs?

6. LEARN use your data to refine 2. Conduct customer discovery

your business model + Get out of the building & talk to your
+ Use the data you’ve collected to refine the customers/clients to figure out what they
model for your program, product or service. really want or need.

+ Decide to persevere with your existing

BUILD,
model or “pivot” to a new one.

MEASURE,
LEARN,
5. Conduct rapid experiments &
MEASURE the results
LOOP 3. Formulate a value proposition
+ Based on what you know about your
+ Design tests to conduct with your customers customers, what product or service could
to see if your hypotheses are accurate. you create that would alleviate their pains
or create valuable gains for them?
+ Define clear metrics to see if your
hypotheses hold true.

4. BUILD a “minimum viable

product” to test your value
proposition
+ Based on insights from customers, develop
a product that has just the minimum
number of features needed to test
your key hypotheses

21
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BONUS: WHERE SOCIAL
ENTREPRENEURS GO WRONG
Karuna Jain is a portfolio manager
overseeing Acumen’s investments focused
on healthcare in India. This means she
examines and evaluates many, many social
enterprise models every year. Here are
some of the most common pitfalls she sees
among social entrepreneurs who are trying
their hand at building business models for
the first time:
1. Social entrepreneurs need to
prioritize impact first.
When assessing a social enterprise model,
Acumen’s first step is always to evaluate
the company’s potential social impact.
How will the company change the lives of
bottom of the pyramid (BoP) customers
in a transformative way? How many BoP
customers could this business model
reach? And will it reach the poorest of the
poor? Each investor you approach will have
different priorities, but you should be clear
about how they will assess “impact” and
how your company will measure up.
2. Social entrepreneurs underestimate
how different micro-markets will react,
and how to difficult it will be to scale a
business.
Scaling a social enterprise model is never
straightforward. When you introduce an
innovative product or service to a new
customer segment, you have to deeply
understand your local market and context.
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Many social entrepreneurs approaching
Acumen for investment might have proven
a business concept in one market, but when
they try to scale their approach to new
markets, they encounter complexity and
challenges they did not adequately plan for.
+ACUMEN Social Enterprise Incubator
Karuna has seen healthcare companies,
particularly hospital chains, struggle to
enter new markets in a country as large
and diverse as India. Because communities
in India have differing viewpoints on
institutionalized medical care, even clinics
that might have successfully entered one
state, could face rocky adoption when they
enter another region. Entrepreneurs need
to adequately appreciate the challenges
of entering new markets when making
financial projections and planning for the
expansion of their business model. This is
why it is important to get out of the building
and talk to prospective customers; find
local partners; and hire the right people to
serve as your frontline employees. None
of this is easy, but as you start to think
through potential customer segments in
your business model canvas and size your
market, you should consider these factors
carefully.
3. Social entrepreneurs do not adequately
account for overhead expenses.
Efficiencies of scale are an excellent thing to
strive for. Once you set up several clinics or
22
BONUS: WHERE SOCIAL
ENTREPRENEURS GO WRONG
offices or schools, you can aggregate some
functions of a business like accounting and
HR to a central office. But these central
offices still cost money to operate, and
some social enterprises forget to account
for these expenses as they build their
business model. They can create businesses
that are profitable at the unit level (i.e.
one individual hospital or one individual
school is profitable), but they do not build
in adequate profit margins to support the
head office. This spells trouble. Social
enterprises should carefully consider the
geographic spread over which their various
business units (schools, clinics, offices, etc)
will be dispersed and determine the optimal
number of head offices needed to support
business units.
4. Social entrepreneurs underestimate
the continuous need to fund research
and development.
Did you develop a hit product? Amazing.
But your work is not done. Your solar
lantern, pharmaceutical drug, mobile
application, or microdrip irrigation system
might be selling like hotcakes today, but
if you don’t think ahead to how you will
continue to innovate and stay ahead of the
competition, you risk ending up with an
outdated product that becomes yesterday’s
news. Blockbuster might have been a
market leader in movie rentals at one point,
but it has quickly been overtaken by Netflix
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because new video streaming products and
services emerged. This is why companies
need to invest in research & development
(and self-reflection!) at all stages of growth.
5. Social entrepreneurs underestimate
capital requirements for starting a
business.
+ACUMEN Social Enterprise Incubator
You can spend hours plotting out all aspects
of a business model on paper and complete
50 different versions of the business model
canvas. That helps, but guess what? There
will always be things that do not go as
planned. That is part of entrepreneurship,
and especially entrepreneurship in emerging
markets. “In 100% of cases,” Karuna says,
“things do not go according to plan.” You
should estimate the capital requirements
for your business accordingly. Build those
contingency costs into your plans.
6. Social entrepreneurs underestimate how
much they matter to the business.
Your business model is important, but the
person behind the company matters hugely
too. Investors assess not just the soundness
of your value chain, cost structure, and
revenue streams, but also your willingness
to learn, listen, pivot, marshal through
challenges, work in resource-constrained
environments, and retain a commitment
to the poor. Don’t get so focused on your
business model that you deemphasize
personal resiliency and your own potential.
23
FINAL
NOTES

We’ve covered a lot in this first reading. You + A company can have multiple
should now understand: business models within it (we’ll
+ how we define a “business model” talk more about this in Module 3
on Value Chains)
+ the 9 essential building blocks of
a business model, and how we + You should keep assessing other
define them for social enterprises business models that other social

+ACUMEN Social Enterprise Incubator

enterprises have used to both
+ how social enterprises can
learn how they’ve been successful,
connect their impact model to
or why/how they have failed.
their business model
+ When working on the early stage
+ the 4 basic categories of business
plans for a social enterprise, it’s
models of all companies
important to remain optimistic,
+ the ways innovations appear in but also realistic. Enlist advisors
social enterprise business models and keep talking to customers
to validate whether your ideas
We hope you can use the rest of this are on track. The authors of the
course to begin thinking about how to best Social Entrepreneur’s Playbook call
structure a business model for your own these periodic check-ins with your
social enterprise idea. If you don’t want advisors “tough love tests.” Keep
to work on your own venture, you are also being tough and validating your
welcome to use Aravind as an example case. ideas, so that you don’t waste
valuable time and energy pursuing
A few final reminders as you move forward: things that won’t ultimately work.

+ Business models should be

iterative. You should keep talking
to real customers to assess how
the hypotheses you jot down in
the 9 boxes of the business model
canvas will play out in real life.

24
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