6301/$ - see front matter  2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.lrp.2009.12.005 68 percent of the families of Grameen Bank borrowers have crossed the poverty line. Motivation towards repayment is high, with rates currently running at 98.4 percent, and the bank has been profitable in every year of its existence except 1983, 1991 and 1992. The socially-oriented organizations in the Grameen Group now range from the country’s largest phone company to one supplying affordable healthcare. The Group’s on-going experience (over almost 30 years) of building firms whose purpose is to alleviate poverty has led to the emergence of the concept of ‘social business’, which can be viewed as still being under construction.
Established multinational companies (MNC) have recently shown some interest in the Grameen experience and in its fight against poverty as part of a more general emphasis on corporate social responsibility (CSR). However shareholder value maximization remains the rule in the capitalist system, and e clearly e the reconciliation of this with social objectives is often problematic.
Thus, although advocates of CSR like to propose that companies should be measured by a ‘triple bottom line’ of financial, social and environmental benefits, ultimately only one bottom line usually matters: financial profit.
However, research has shown that, if managed strategically, CSR projects can indeed pay off, both socially and financially.1 In the midst of the current financial and economic crisis, some companies have begun to question their role more fundamentally and seem to be awakening to social change issues. Some pioneering established companies have sought to implement more pro-active
CSR policies that anticipate social trends and go beyond the minimum required,2 and this impetus has led to the rise of the number of ‘social businesses’. Many of these have turned to Grameen to benefit from its experience to help them achieve these goals, and partnered with it in a range of social business ventures. We report on three of these as our case studies:
 Grameen Phone, a partnership with Telenor (the Norwegian telecommunications company), has become one of the largest tax payers in Bangladesh. The success is based on the Grameen
‘telephone ladies’, who provide a phone service in their villages by lending users a phone for just a couple of minutes e avoiding them having to make costly handset purchases;
 Grameen Veolia is a co-creation with Veolia Water (one of the world’s leading water service providers) designed to use simplified surface-water treatment systems to provide rural populations with affordable access to drinking water, distributed at village drinking fountains or via cans, using prepaid card systems;
 Grameen Danone is a collaboration with Danone (one of the world’s leading healthy food companies) that offers an affordable and easily available dairy product developed to fulfill the nutritional needs of Bangladeshi children. The yoghurt is produced locally and distributed door-to-door by Grameen ladies.
The story behind each of these ventures is of the gradual emergence of the social business concept: a self-sustaining company that sells goods or services and repays its owners’ investments, but whose primary purpose is to serve society and improve the lot of the poor. Building on these recent
Grameen experiments, our goal in this article is to delineate the lessons learned so as to provide detailed guidance for companies wishing to create social businesses. We analyze these cases (which are described in more detail in the Appendix) not in chronological order, but in the sequence that reconciling shareholder value maximization with social objectives is clearly problematic . despite CSR advocates proposing a ‘triple bottom line’, only one ultimately matters in the capitalist system
Long Range Planning, vol 43 2010 309 fits our main purpose e of studying the building of social business models. As the social business idea borrows some concepts from the capitalist economy, social business implementation can likewise borrow conventional business literature concepts. Our idea is to investigate whether the business model concept e and in particular the business model innovation literature e can help us propose a framework for setting up social businesses. The research into business model innovation, which considers business models as the locus of innovation (rather than products, processes or technologies), while it doesn’t always use the same terminology, has led to a growing body of academic literature over recent years.3 This literature suggests that business model innovation is facilitated by three major strategic moves: challenging conventional wisdom; setting up appropriate partnerships; and undertaking experimentation. We reviewed these recommendations with the
Grameen experience (see Appendix 2 for the research method), and found that they were also relevant for creating social business models. However, the case studies show that building social businesses also involves two additional requirements: the needs to involve socially-oriented shareholders and to state the intended social profit explicitly. Hence, overall, five lessons can be learned from the Grameen experience.
The structure of this article follows our research path. First, we present the social business model concept, and highlight how building social businesses resembles business model innovation. We then describe the five lessons learned through the Grameen experience noted above. This leads us to develop a specific social business model framework conceived to help managers seeking to set up businesses conceived to fulfill a social goal.
What is a social business?
In the capitalist system, two extreme types of corporate bodies can be distinguished. On the one hand, companies can be seen as profit-maximizing businesses, whose purpose is to create shareholder value. On the other, non-profit organizations exist to fulfill social objectives. Figure 1 shows how a social business borrows from both these entities: it has to cover its full costs from its operations, and its owners are entitled to recover their invested money, but it is more causethan profit-driven. Its position in the lower right quadrant shows that it has both the potential to act as a change agent for the world, and sufficient business-like characteristics to ensure it survives to do so.
In organizational structure, this new form of business is basically the same as profit-maximizing businesses: it is not a charity, but a business in every sense. The managerial mindset must be the same as in a business: when you are running a social business, you think and work differently than if you were running a charity, even though your objective is different from a profit-maximizing company. At the same time as trying to achieve their social objective, social businesses need to recover their full costs so they can be self-sustainable. Their owners never intend to make profits for themselves (there are no dividends), but they are entitled to get their money back if they wish.
Rather than being passed on to investors, surpluses generated by the social business are reinvested
Financial profit maximization
Social profit maximization
Repayment of invested capital
(self sustainability)
No recovery of invested capital
Profitmaximizing
businesses
Not-for-profit
organizations
SOCIAL
BUSINESSES
N/A
Figure 1. Social business vs. Profit maximizing business and not-for-profit organisations
310 Building Social Business Models: the Grameen Experience in the business, and thus, ultimately, passed on to the target group of beneficiaries in such forms as lower prices, better service or greater accessibility. Thus, a social business is designed and operated just like a ‘regular’ business enterprise, with products, services, customers, markets, expenses and revenues. It is a no-loss, no-dividend, self-sustaining company that sells goods or services and repays investments to its owners, but whose primary purpose is to serve society and improve the lot of the poor. Here it differs from NGOs, most of which are not designed to recover their total costs from their operations, and are therefore obliged to devote part of their time and energy to raising money. As it seeks self-sustainability, a social business only relies on its investors at the beginning of a development project.
This is close to the concept of ‘social entrepreneurship’, defined by Mair and Marti as ‘a process involving the innovative use and combination of resources to pursue opportunities to catalyze social change and/or address social needs’. Social businesses can be seen as a subset of social entrepreneurship, which includes both profit and not-for-profit initiatives, and which can be distinguished from conventional entrepreneurship through the ‘relative priority given to social wealth creation vs. economic wealth creation. In business entrepreneurship, social wealth is a by-product of the economic value created’.4 All those who design and run social businesses are social entrepreneurs - but not all social entrepreneurs are engaged in social businesses (some models, for instance, still include conventional dividend payments to profit oriented shareholders).5
Hence, a social business is a new form of business that can be located somewhere between a profit-maximizing and a non-profit organization. But why might investors put money into such a business? The many billions of dollars that people around the world donated to charitable causes every year demonstrate that people want to give money in a way that benefits other human beings. However, as noted above, investing in a social business is different from philanthropy in several ways e the social business is self-sustaining and investors get their money back: people who donate to charity do not. The investor also remains the owner of the company and can thus decide its future course of action, so that e as well as a chance to provide money e the social business offers businesspeople an exciting opportunity to leverage their own business skills and creativity to solve social problems.
Social business as business model innovation
The business model concept is currently attracting much attention from researchers, and seems useful in offering guidance as how to create social businesses. However, despite ever-growing literature on the business model concept, there is no consensus as to its definition. An in-depth analysis of business model components in academic literature shows that, among the plethora of definitions, three elements are usually distinguished: the product/service proposed to customers, the way the company is organized so as to deliver this product and service to its customers, and the revenue model. Some authors, however, focus on just some of these components: Chesbrough and
Rosembloom, for example, focus on the revenue model, whereas Zott and Amit focus on transactions between the firm and its external constituents.6 We suggest that a business model has three components, as shown in Figure 2.
[While] its primary purpose is to serve society, a social business has products, services, customers, markets, expenses and revenues like a ‘regular’ enterprise .It is a no-loss, no-dividend, self-sustaining company that repays its owners’ investments
Long Range Planning, vol 43 2010 311
 a value proposition, that is, the answer to the question: ‘Who are our customers and what do we offer to them that they value?’;
 a value constellation,7 that is, the answer to the question: ‘How do we deliver this offer to our customers?’ This involves not only the company’s own value chain but also its value network with its suppliers and partners.
These two components need to fit together like pieces of a puzzle in order to generate:
 a positive profit equation, which is the financial translation of the other two, and includes how value is captured from the revenues generated through the value proposition, and how costs are structured and capital employed in the value constellation.
The business model concept offers a consistent and integrated picture of a company and the way it generates revenues and profit. But, as noted in our cases, Grameen’s creation of social businesses in
Bangladesh could not be based on simply replicating conventional for-profit business models. New value propositions and new value constellations had to be created so as to match into a positive profit equation, as illustrated in Table 1: in effect, building social businesses requires building new business models. How to build social business models
Business model innovation is about generating new sources of profit by finding novel value proposition/ value constellation combinations. Hence, we wondered what the literature on this phenomenon offers to our understanding of building social businesses. As mentioned before, five lessons can be learned about the Grameen experiences: three are similar to those involved in conventional business model innovation; two are more specific, as highlighted by Table 2.
Similarities between social and conventional business model innovation
Lesson 1: Challenging conventional wisdom
Most research on business model innovation underlines the radicalism of this type of innovation, which is defined as the capacity to create new strategies which modify the rules of the competitive game in an industry. This represents a major challenge for companies, as it entails questioning the models that have previously led them to success. This in turn requires revisiting a number of basic assumptions, and resembles what Argyris and Scho¨n have described as ‘double loop’ learning.8 In contrast to ‘single loop’ learning e which confines itself to changing strategies within an existing framework e double-loop learning forces the organization to transform its fundamental references and adopt new ones. The creation of Grameen Bank offers an insightful illustration as to how conventional wisdom can be challenged: indeed, the questioning of the current rules of the game was at the very heart of the bank’s foundation.
Value Proposition
• Customers
• Product/service
Value Constellation
• Internal value chain
• External value chain
Profit Equation
• Sales revenues
• Cost structure
• Capital employed
Figure 2. The three components of a conventional business model
. questioning the current rules of the game was at the very heart of
Grameen Bank’s foundation.
312 Building Social Business Models: the Grameen Experience
Table 1. Conventional social business model vs. social business model for Telenor, Veolia and Danone
Grameen Partner
& sector
Conventional business model (predominantly in developed countries) Social business model
Value proposition Value constellation Value proposition Value constellation
Telenor, telecom  Sale of a monthly package
(phone + air time) to individual consumers  Construction of a wireless network  Sale of package through retail
 Caller borrows a phone when needed and pays per minute
 Construction of a wireless network  Grameen ladies own the phones, buy discounted air time in bulk and sell minutes to users as needed Veolia, water services  Maximum water quality
 Distributing water through taps located inside people’s homes
 Water treatment factories with a high level of technology, recycling and purifying water
 Water quality that meets World
Health Organization standards
(rather than US or European standards)  Village water fountains
 Prepaid card payment system
 Construction of a simplified water plant to recycle surface water
 Construction of the water supply network towards the fountains
 New distribution channel for isolated locations: rickshaws driven by ‘Grameen Boys’
Danone, dairy products  High-end products
 Emphasis on lifestyle
 Strong brand name through advertisement  Centralized purchasing and production (economies of scale)
 Logistics towards distribution platforms  Sales through food retailers
 Storage by end consumers
 Low price
 Fulfillment of basic nutritional needs  Grameen brand image
 Local supply of raw products
 Local production
 Direct door-to-door sales by
‘Grameen ladies’
 Limited storage by end-consumers Long Range Planning, vol 43 2010 313
It was Sufiya Begum, a woman from a village called Jobra, who taught Yunus (then an economics professor) about the problem she encountered. Like many others in her village, she relied on the local moneylender for the cash she needed to buy the bamboo for the stools she crafted. But he would only give her the money if she agreed to sell him all she produced, and at a price he would decide e which was ridiculously low. Thus, though hardworking, she was trapped in poverty e altogether forty-two people in the village, who had borrowed a total amount of less than $27 from the moneylender, faced the same desperate situation. They could not borrow money from conventional bankers since they had no credit histories and no collateral to offer, and could not even fill out the necessary paperwork because they were illiterate. In the event Yunus lent them the $27 from his own pocket: he recovered it e within a week. But despite evidence provided by several other similar experiences, conventional bankers continued to be reluctant to consider poor people as potential customers. They found it impossible to challenge their conventional wisdom e that loans could not be granted without collateral: so a dedicated bank had to be set up.
Grameen Bank’s business model reinvented the rules of the game. First, the value proposition of the bank aims at lifting the poor out of poverty by making small loans sufficient to finance incomegenerating businesses e rice-husking, machine repairing, purchasing rickshaws, buying milk cows, goats, cloth, pottery and so on. Except in very extreme circumstances, interest is charged on all loans. Second, the value constellation breaks away from bureaucratic control. Local Grameen branch managers (a branch, typically, covers 15 to 22 villages) first visit the villages and identify the prospective clientele, who are dealt with in groups of five. Only if the first two borrowers in a group begin to repay the principal plus interest within six weeks do the other group members become eligible for loans. Group support, peer pressure, self-interest and the motivation of borrowers ensure that repayment rates on Grameen Bank loans remain high.
Grameen Bank’s business model therefore challenges several standard banking assumptions, including the beliefs that loans cannot be granted without collateral and that ‘entrepreneurship’ is a rare quality among the poor. Conventional banks were unable to enter the double loop learning process involved in adopting new frames of reference e but it is challenge that awaits all MNC’s wanting to set up social businesses.
Lessons 2: Finding complementary partners
The second step in building social business models is to leverage expertise and resources by setting up partnerships. Again, the need to be open to other players in the industry, and to players in other industries, is covered in the business model innovation literature. The ideas developed by
Chesbrough e who called for businesses in technological environments to open up their own business models to partner companies so as to benefit from new resources e can be applied to the context of poverty.9 On a theoretical level, in contrast to the competitive paradigm, the cooperative paradigm places most of its emphasis on collaboration,10 which allows organizations to gain access to new resources they would otherwise have needed to either develop alone or purchase. The main advantage of collaborative agreements lies in the pooling of resources and knowledge leveraged by the partners,
11 which may in turn lead to the development of a broader portfolio of resources for firms in the network. Cooperation is considered as a major factor of success for pro-active CSR strategies,12 and research stresses the importance of long-term relationships among such actors.
Table 2. Five lessons in building social businesses
Similarities with conventional business model innovation
1. Challenging conventional wisdom and basic assumptions
2. Finding complementary partners
3. Undertaking a continuous experimentation process
Specificities of social business models
4. Favoring social profit-oriented shareholders
5. Clearly specifying the social profit objective
314 Building Social Business Models: the Grameen Experience
As the specific literature on business model innovation which aims at social benefits has already shown,13 the Telenor example illustrates how setting up a collaborative partnership is a major step in building social business models. The advantages are clear: Grameen had no experience in building a wireless phone network, while, for its part, Telenor had no experience of developing world markets. Telenor benefited from Grameen’s knowledge of the country and the network of people the bank had already built. This created a strong barrier against new entrants. The combination of the two partners’ resources and skills led this successful venture, which offered a useful value proposition to customers while also helping poor people become entrepreneurs and lift themselves out of poverty.
Such partnerships between businesses and not-for-profit organizations can be highly productive and low in risk, as they take place between actors who are not in direct competition with each other.14 Having learned from past failures, the Grameen Group encourages partnerships with established and skilled companies whenever possible. For example, several years ago the Group had undertaken an experimental project to develop locally-produced weaning food to compete with imported baby food. The product e Cerevit e was trial-marketed at a much lower price than that of imported products, but did not succeed. One reason was that the project lacked the right kind of partners to make it happen, a type of problem that was overcome in the Grameen Danone case by partnering with an organization that could offer such knowledge.
Lesson 3: Undertaking continuous experimentation
Strategic experimentation is another recommendation from the business model innovation literature, where it is viewed as a specific type of knowledge acquisition.15 In effect, an existing firm implementing this type of innovation is forced to imagine and learn new ways of doing business e the changes need to be radical, and will question the firm’s conventional way of doing business. In the
‘classical’ strategic approach, most learning occurs in the preliminary phase of diagnosis through analyses and studies. However, the fundamental nature of business model innovation means that simple market studies or client surveys are inefficient and not very useful: the people surveyed are unable to project themselves into this ‘radical newness’.16 Strategic experimentation offers another route towards the required learning, and can be fundamental to solving problems where solutions are uncertain, or when critical information sources are non-existent or unavailable.
Launching a series of small experiments helps minimize risk and maximize the firm’s rate of learning, making it possible to identify a strategy’s potential for success most efficiently.17
Thus, as for conventional business model innovation, social business models can start small, be refined and then rolled out. Corporate world experts can provide the relevant tools for analyzing the market and finding new outcomes, but analysis alone is not sufficient: only experimentation can determine whether new business model will work out. Experimentation does not mean intuition, but involves the ability (and intention) to make changes if the path first chosen turns out unsuccessful. (This resembles the concept of ‘redirection’ noted in Thompson and MacMillan’s article in this issue on building business models for generating societal wealth.18) The development of the Veolia Grameen business model provides an interesting illustration. During the first stage of operation, the factory will supply water to approximately 25,000 people, and its facilities will be extended during a second stage, raising this figure to around 100,000, after which other factories will be built throughout Bangladesh. This social business model is still under construction, and e as with earlier Grameen trials e will need to be fine-tuned as it is implemented. a series of small experiments minimizes risk and maximizes learning,
[this is] not intuition, but involves the ability (and intention) to make changes if the first chosen path turns out unsuccessful
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Table 3 provides a summary analysis of our three cases which emphasizes the first three lessons from business model innovation: how conventional wisdom needs to be challenged, how partnerships pay off, and how experimentation helps create a good road map for rolling out the concept.
The story behind each of our cases is of the gradual emergence of the social business concept: a selfsustaining company that sells goods or services and repays its owners for their investments, but whose primary purpose is to serve society and improve the lot of the poor. Such lessons lead to the identification of the specificities of social business models.
Specific lessons for building social business models
Grameen Danone is considered to be the world’s first consciously-designed multinational social business e an international business with a social mission but run as a for-profit organization e so special lessons can be learned from this case. As noted earlier, building social business models relies on some of the same strategic moves as conventional business model innovation. However, the Grameen Danone example also illustrates the specificities of this type of business model: the need to take all stakeholders (not just shareholders) into account and the need to define the social profit expected from the social business.
Lesson 4: Favoring social profit-oriented shareholders
As noted above, more and more corporate managers are keen to launch CSR projects that seek to help developing countries. But they face the problem that, even if such projects are small in terms of the overall scale of the company, they still require resources. In the Danone case these resources included both asset expenditure (for the factory) and valuable top management time. Since business managers report to owners or shareholders, they must give profit the highest priority e reducing profits to promote social welfare might leave owners and/or shareholders feeling cheated. Corporate social responsibility could be viewed as corporate financial irresponsibility unless financial profitoriented shareholders can be shown that the incurred costs will turn into a positive cash flow in the medium or long term.