A Multiple Value Business Model for Social Innovation and its Accelerators in Cities

Jurgen van der Heijden

• Introduction

The production of energy, food, health care, security and many other products is turning around more and more. Users themselves have solar panels, vegetable gardens and care foundations, or do neighbourhood watch. They create civic enterprises, and this is a social innovation in addition to the known supply of products and services by large central organizations. These are businesses, governments and social institutions, such as a foundation for care for the elderly. This production by users in civic enterprises is a form of social production, known already from social entrepreneurs who produce for the common good, often a special public interest, and sometimes for profit.

Social innovation can further the beneficial ways of production by civic and social entrepreneurs. Social accelerators can facilitate this, and can serve as incubators for this social innovation. In this paper the business model of these accelerators and incubators will follow from the business model of civic and social enterprise. First step is to distinguish civic enterprise from social enterprise, and second step is to describe social innovation accelerators, and distil their business model from that of civic and social enterprise. Final step is a short look at finance.

• Social production

The user supplies increasingly to himself, and others around him. It is striking he then mostly puts himself in the position of citizen. Users find one another and produce not only for themselves, but do so in an inclusive way, no one is excluded. They produce for themselves and for society as citizens, hence the term civic production. In a CE, Civic Enterprise, a community acts corporately as both entrepreneur and enterprise in pursuit of the common good. The CE operates in the service of the interests of the individuals concerned and their community in the short and long term.

Although there is considerable continuity, civic enterprises differ in some important respects from social enterprise. While both are need-driven, the citizen-controlled initiatives produce things in ways that differ from the ‘official’ economy, and the social economy has different origins from the civic enterprise. Their aim is to tackle social problems; the production of goods or services is a means to alleviate the plight of the disadvantaged. And although some social enterprises make a profit, this is not their main purpose. Mission trumps profit in the social economy. Civic enterprises on the other hand aim at producing social goods in an economically viable and democratic way.

Civic enterprises are founded for idealistic reasons; from a strong conviction that things should, and can be done differently. Their aim is to provide an essential good or service that the state or the private sector is not able or willing to provide in an economically or socially acceptable way. Another aim of civic enterprises is financial independence through profitability. It is probably for this reason that they do not shy away from forging productive links with businesses in their particular domain. Finally, civic enterprises more than social enterprises, are democratic associations. They consist of people who organize themselves to decide in democratic way how to improve their social or physical environment.

• Social Innovation Accelerators

Social Innovation Accelerators in Cities (SIAC’s) promote, guide and support civic and social entrepreneurship and social innovation for societal challenges. These challenges are interdependent and multi-layered like poverty, climate change and loneliness. Many experiments of social innovators – individuals, companies, associations – succeed in a creative way to handle these. Characteristic of their work is they always create value at two or more places at the same time and for various public and private parties. For example, a project in a public garden is beneficial for nature and also for the neighborhood, and perhaps for clients of care who work in the garden and thus get better therapy.

Because of the delivery of two or more values ​​at the same time, we speak of the ‘multiple business case’ that social innovators have in response to multi-layered social problems. The mission of SIAC’s in general is to stimulate this kind of social innovation. Thus they provide value for various public and private parties, and therefore the SIAC itself has a multiple business case. What values does the SIAC provide exactly so that it can earn money for this, and how could the SIAC get finance for that? We answer this question twice, because it helps to distinguish between social enterprise and civic enterprise.

We therefore have two questions:

• What is the multiple business model of the SIAC in supporting social enterprises?
• What is the multiple business model of the SIAC in supporting civic enterprise?

• The social enterprise

Each individual social enterprise can score on six points:

• Contribution to social justice by providing employment and purchasing power
• Contribution to the economy by providing transactions and cash flow
• Contribution to structure and cohesion within the community
• Contribution to democracy through ownership and control by employees and customers
• Contribution to sustainability and international solidarity and stability
• Contribution to innovation

Not every company scores on these six points. It is important however to compare between social enterprise and current mainstream companies, and see how social enterprise in general has a higher score. By getting a variety of social enterprises started the SIAC itself scores high on all six points, which is the multiple business case of the SIAC. It should therefore be possible for a SIAC to make clear that it creates value on all six points and therefore has its own multiple business case that is worthwhile. Before we do that, we first want to score civic enterprise.

• Civic enterprise

Each individual civic enterprise can also score on the six points; in comparison to the social enterprise it does score somewhat different:

• Contribution to social justice by providing employment and purchasing power

• The citizens contribute to the affordability of services such as energy, care, transportation, housing, food and much more, and thus contribute to the preservation of purchasing power.

• Contribution to the economy by providing transactions and cash flow

• The civic enterprise especially takes care of keeping money in the local economy that otherwise will go to large national or international organizations, think of energy companies and supermarkets.

• Contribution to structure and cohesion within the community

• This is a quality par excellence of the civic enterprise, because it is of a community and governed on behalf of it. If this community is working on e.g. care or food, then it creates more structure and consistency within the community itself.

• Contribution to democracy through ownership and control by employees and customers

• This is also a quality par excellence of civic enterprise, because it is owned by the members who decide democratically. It thus brings democracy in the fields of energy and care where previously citizens never had a voice.

• Contribution to sustainability and international solidarity and stability

• This distinguishes civic enterprise not particularly from social enterprise, which also contributes to sustainability and international solidarity and stability.

• Contribution to innovation

• The distinction is that civic enterprise provokes innovations of products adapting these especially to local communities.

Supporting civic and social enterprises the SIAC also scores on these six points, and thus has a multiple business case itself. How can the SIAC demonstrate this value to customers and funders, public and private? To this end we walk through the six points again.

• The multiple business case of the Social Innovation Accelerator

• Contribution to social justice by providing employment and purchasing power

• Governments, employers and workers’ unions have an interest in upholding the purchasing power of families. They therefore finance numerous programs especially to generate employment. If the SIAC proves to have more impact than these programs, it has a business case. Funding for the SIAC can come from the budget of governments, employers and workers.

• Contribution to the economy by providing transactions and cash flow

• The SIAC assists civic and social enterprises. They have no money to pay the SIAC for this in the first instance, or maybe eventually they will. Then it is a business case, although the SIAC may prefer to not ask money from a number of companies and initiatives.
• By assisting civic and social enterprises the SIAC supports the local economy to grow. This is a goal on the agenda of government, employers and workers’ unions. Again, the SIAC has a business case for them, but this time can paid also from budget to stimulate the economy, and not only budget for employment or preserving purchasing power.

• Contribution to structure and cohesion within the community

• Strengthening communities is a goal for which governments and private foundations have money. Through supporting especially civic enterprises the SIAC demonstrably can strengthen communities, and thus has a business case for governments and funds.
• This goes a step further when the SIAC in the eyes of community members grows to a meeting point where they can exchange knowledge. That makes the business case stronger, because not only governments and funds are willing to pay, but also the communities themselves.

• Contribution to democracy through ownership and control by employees and customers

• A small business case can result from the added value mainly civic enterprises have for democracy. Again, governments and funds have money for this, but this business case can be much larger. If the SIAC in the eyes of many civic enterprises evolves to the representative of their interests, then they will be willing to pay perhaps. Think of a large group of members financing their collective interests together. That too is a business case.

• Contribution to sustainability and international solidarity and stability

• A growing number of private foundations support diverse social goals that also regularly are the goals served by the work of social enterprises and civic enterprises assisted by the SIAC. Thus, the SIAC has a business case for these funds, which may decide to fund the SIAC. These funds don’t always have to be private, since both the government and the EU have funds for social purposes. For these funds, the SIAC can have a business case also.

• Contribution to innovation

• Social enterprises regularly are innovative companies with new products that have a chance to be sold often, so they have a high market value. Civic enterprises add to this innovations of products adapted to local communities. By being the incubator of both the SIAC creates value for venture investors who wish to invest their money in these kinds of products. For this reason the SIAC has a business case that is worthwhile for venture investors, who for this reason may pay for the SIAC as an incubator.

In summary, we come to the next multiple business case of the SIAC:

		Social entreprise	Government	Employers Employees	Funds	Community	Venture investors
1	Employment and purchasing power		Impact	Impact	Impact
2	Economy	Start up
			Impact	Impact	Impact
3	Community		Enhancing		Enhancing
						Meeting point
4	Democracy		Added value		Added value
						Representative
5	Sustainability		Start up
					Start up
6	Innovation		Change
							Incubator

According to this summary the multiple business case of the SIAC encompasses the creation of a total of 17 values ​​for six different types of paying customers. It is finally possible to add an extra value, and not the least: the very fact that the SIAC combines the creation of all these values, and gains knowledge and experience, creates considerable value. For example, this makes the SIAC an excellent incubator, or an excellent advocate, because so much knowledge and experience is bundled.

• Finance

We are seeing a growing understanding of the benefits of social and civic entrepreneurship to people and places across developed economies such as the UK, the US and continental Europe; increasingly it is being recognized how they are able to create collective solutions to pressing issues, and generate outcomes that neither the state nor the market, nor traditional foundations or trusts, have been able to achieve. At the heart of all of them is an understanding of deliberate multiple value-creation – generating social, environmental and/or community outcomes as well as financial sustainability or even profit. If sustainable and profitable then incubators like the SIAC can be also, since they further social and civic entrepreneurship.

Many social and civic ventures are now considering their next steps in becoming or staying independent and financially resilient. What we are struggling with is the development of finance models for such initiatives in ways that truly suit this increasingly diverse sector. Many social investors are still at an early stage of understanding their requirements for ‘blended return on investment’: social investment requires a mix of financial return and measurable impact– irrespective of whether the investment consists of equity owning, loans or revenue participation. How this balance between impact and financial return is to be struck will always differ per investor and investment opportunity. It’s up to the SIAC to both increase understanding of blended return, and build experience to get this message through to investors and financiers.

More fundamentally, it is not yet evident how new potential sources of investment can benefit the often small-scale, complex and emergent value creation models of social and civic entrepreneurs, as opposed to more business-like, scalable social enterprises. Better, then, to fund projects on the basis of their outcomes. The logic is increasingly compelling: projects that prevent or resolve not just the human but also the financial cost of various social issues from spiraling out of control, enable us to avoid large societal cost. In many cases we are still struggling to define exactly how these myriad social and civic initiatives could show their cumulative impact on people and places. And because of the difficulties in proving causal links and collective, systematic impact, we have trouble supporting and funding projects and initiatives at the very fine grain where it matters most. This is where the SIAC is most needed to build knowledge, experience, and also trust.

• Conclusion

Multiple value creation follows from the abandoning of the principle of maximizing shareholder value. In a profit-based firm everything that distracts from the primary production process detracts from shareholder value. In civic and social enterprises the aim is to be financially sustainable; all surplus value is ploughed back into the community. This allows the participants to engage in collective action, and for values such as environmental sustainability or social solidarity to be realized in practical enterprises. Investors could invest in the open-ended platform function of these enterprises. Blended finance involves two or more investors in one multiple-value business case. As ever, the entry of one investor enhances the confidence of the next potential investor; the ventures seeking investment do well to convince all investors by bringing them together. SIAC’s are the incubators and accelerators of this enterprise, investment and finance.

Literature

• Hendrik Wagenaar, Jurgen van der Heijden (2015), The Promise of Democracy? Civic Enterprise, Localism and the Transformation of Democratic Capitalism, in Simin Davoudi, Ali Madanipour, Reconsidering Localism, Taylor & Francis/Routledge, New York.
• Joost Beunderman and Jurgen van der Heijden (forthcoming), Investment dilemmas: Financing a flourishing commons, in Patsy Healey, Hendrik Wagenaar (Eds.) The transformative potential of civic enterprise, Interface, Taylor & Francis/Routledge, New York.