Businesses create value, and then sell that value to customers.
Social enterprises operate the same way: they create value, and then sell the value.
Styrofoam Value Chain Innovation
Traditional businesses produce styrofoam at the cheapest cost and then sell those styrofoam cups to a coffee shop or grocery store for a profit. The business creates value by creating the styrofoam cups, and then sells the value to the coffee shop and grocery store who then sells it to you.
The value chain might look something like this:
- Styrofoam Cup Maker -> Styrofoam Cup Seller -> Grocery Store/Coffee Shop
The above value chain says that if you buy a cup of coffee from that coffee shop or buy a stack of cups from the grocery store you create profits for at least two different businesses: (1) the business you directly hand your money to, and (2) the business who sold the cups to them.
What if those styrofoam cups, however, kill the planet and cause human extinction? If this is true, then we have a social problem on our hands. Social entrepreneur to the rescue!
Social Enterpreneur Squashes Styrofoam
A social entrepreneur looks at this problem to figure out how she can meet your unmet need to have a cup while doing it in a way that does not cause human extinction.
To do this, she first thinks through potential obstacles existing in the current situation:
- how will she find a replacement for styrofoam with an incredibly low price?
- how will she compete with large corporations for the coffee shop’s business?
- how will she change the customer’s mindset to care enough about not using styrofoam?
She quickly realizes that she may have a difficult time solving the problem if she tries to play the game using the same model as the existing businesses involved in the equation. Meaning, she will not likely have the ability to go head to head with a major styrofoam-producing corporation.
How might she solve this social problem?
Value Chain Innovation
This brilliant social entrepreneur looks at the value chain of where the cup starts and where it ends:
- Styrofoam Cup Maker -> Styrofoam Cup Seller -> Grocery Store/Coffee Shop
Eureka! Perhaps she does not have to compete with the styrofoam corporation for the coffee shop or grocery store’s business. Instead of selling the cups to the coffee shop or grocery store, the social entrepreneur will sell her new awesome cup directly to consumers. To recap, our social entrepreneur is doing the following:
- creates an awesomely hip replacement cup that is much cooler than styrofoam
- innovates the value chain by creating value that the consumer is in need of
- generates revenue by selling the cups to the consumer
- reduces overhead by using a free online e-commerce store to set up shop
Are you interested in building a new and innovative business that solves a social problem? Here are a few steps to get started.
- Identify the unmet needs of your local community members – interview them, listen to them, observe them, help them, and before long you will understand their unique needs
- Create value to meet the unmet needs
- Attach a business model to your value creation
In case you are interested, we are growing social entrepreneurs over at Action Horizon Institute.