Businesses in developing countries are doubly vulnerable. They are vulnerable to shocks in the market, such as reduced consumer income or technological innovation rendering their services out of date. And they are vulnerable to shocks to the social market, such as government failure to invest in infrastructure, or NGOs starting up a similar service free of charge. Social businesses often combine commercial revenue streams from individual customers alongside public revenue streams such as government contracts – which may be withdrawn at short notice, or be paid late. Where low-income customers provide a major revenue stream, there is dangerous exposure to seemingly slight environmental variations – for example a small rise in the price of basic foods could seriously affect the ability of customers on $2 a day to afford health services.
Ziqitza Health Care is focussing on expanding its ‘dial 1298’ ambulance service in India. It is keen to ensure its financial viability through the self-sustaining, fee for service, cross-subsidy model before it takes on further state government contracts to provide free ‘dial 108’ emergency services. Experience has shown that government contracts often pay late, leading to operational difficulties in paying staff salaries on time. There is also concern that having too many government contracts may leave the organisation over-exposed when these contracts come up for re-tender. Sweta Mangal, Chief Executive, emphasised the importance of focussing on profitability. Although Ziqitza’s overall mission is to deliver social impact, the business model needs to be financially viable and sustainable for the organisation to survive and grow.
Diversification of income streams is important to social businesses to mitigate risk. The most successful social businesses interviewed continually experiment and explore alternative potential revenue streams to maximise income and protect against any one income source drying up. Often commercial services charged to patients are combined with state contracts for delivering services, state subsidy schemes for low-income clients, NGO and charity tie-ins and partnership schemes, and wider revenue streams such as advertising in high-volume patient areas.
Alive and Kicking (A&K), a social enterprise selling sports balls in Kenya, continually adapts its business model to maximise income and meet the challenges of its environment. Its original goal was to sell four sports balls to each of Kenya’s 20,000 state schools, each carrying health promotion messages on key issues such as HIV / AIDs and malaria.
In 2008/09, the global recession resulted in big cuts to CSR programmes. A&K formed a partnership with Nakumatt, one of Kenya’s leading supermarket chains. Nakumatt sells the balls at a 25% surcharge, half of which goes towards Nakumatt’s running costs and half of which is donated to a charity or CSR project of the supermarket’s choice. A&K also refocused sales to target NGOs, which buy the balls to promote their brand and key social messages.
Through diversifying its income streams, A&K stays profitable in a changing environment, whilst also ensuring social impact for every ball sold.
Combining these very different approaches to income generation requires a high degree of flexibility, innovation and opportunity scanning. This relentless focus on financial sustainability, delicately balanced against the imperative to deliver the maximum social benefit, is a driving force and tension at the heart of social business.