For-purpose business and social enterprise is catching on. Customers want it. Employees are excited about it. Investors are backing it. And the world needs it.

So what’s the next step in making for-purpose business simply “business as usual”? We have to go to the heart of strategy and understand business model design.

In this four part blog series, we unpack the what and how of for-purpose and social enterprise business models, taking the lessons from our new internationally recognised for-purpose business model workbook.

In part one of the series we explored the need to build and strengthen for-purpose businesses. In part two we cover how to design your strategic architecture with your impact model and strategy all on one page. Get your copy of the workbook.

The eight steps in for-purpose business model design

Every for-purpose business leader should be able to answer the eight core questions relating to the eight steps in for-purpose business model design:

1. What social impact will you create for which beneficiaries (what’s your theory of change, what’s your corporate strategy, and how do they link)?
2. Who are your customers and what do they want?
3. What products and services will you offer?
4. Who are your collaborators and what are the market dynamics?
5. What is your for-purpose business type/s?
6. How will you finance the model and design your pricing?
7. How will you organise your resources and design your operating model?
8. Is your portfolio streamlined and balanced?

 Let’s start by exploring step one – your impact model.

A changed theory of change

The tool we have developed in this step combines a traditional theory of change with traditional corporate strategy – leading to one “strategic architecture” for the business.

First up, what’s a theory of change?

The theory of change tool originated in the discipline of theoretical and applied development in the evaluation field in the 1950s. It was the 1955 US-based Aspen Institute’s Roundtable on Community Change that led to the publication of New Approaches to Evaluating Comprehensive Community Initiatives. In that book, Caroline Weiss popularised the term “theory of change” as a way to describe the set of assumptions that explain both the mini-steps that lead to a long-term goal and the connections between program activities and outcomes that occur at each step of the way.

Fast forward 65 years or so, and the use of a theory of change is common, especially in the international development context, the broader for-purpose sector and more recently the impact investing sector.

A theory of change is essential for the for-purpose sector because it forces you to articulate your hypothesis of how your activity will lead to the social impact that you want to achieve. This is the key area where a for-purpose business model differs from a corporate business model.

A corporate business model has three elements:

• The product/service offered to customers (value proposition).
• The way the company is organised to deliver this product and service to its customers (operational model).
• The revenue model to generate a profit (value capture mechanism).

For-purpose business models have a fundamentally different starting point to their corporate business model cousins. Rather than a focus on the customer to generate profit and maximise value for the business owners, they have a clear intentionality around a social purpose for a beneficiary (people and planet).

The intent (or purpose) of a for-purpose business model must be social/environmental impact, and have identified beneficiaries. “Beneficiary” is a broad term referring to who or what you want to impact. That could include the environment, and it could be businesses (B2B) as well as individuals (B2C).

A theory of change is the anchor for a for-purpose business model. The importance of a clear theory of change can’t be underestimated. It should become the key strategic framework for the organisation, and guide all decision-making across the business. It must be organisation-wide, rather than having separate theories of change for separate products or services.

When it’s well operationalised, your theory of change keeps your business focused on your vision and provides a safeguard against mission drift.

Why our theory of change tool is different

1. Directly integrating vision and mission

Often a theory of change is developed alongside the mission and vision and is articulated in a different way. A whole range of new words are used, which may or may not be a similar way to express what’s already in your vision and mission. This is a mistake. The mission and vision should be fundamental to the model. If the impact you’re aiming for isn’t what’s written in your vision statement, and your mission isn’t designed to directly influence the impact areas that need to change to realise your vision, something doesn’t add up. At best, you’ll be creating tangents to your vision and mission that confuse your team and make it hard to prioritise. At worst, you’ll be directing your resources away from your ultimate vision.

2. Directly integrating (and informing) organisational strategy

Too often we’ve seen a theory of change designed in isolation of business strategy. Theory of change “purists” will say that it’s important that the theory of change is stand-alone. In this situation, the strategic plan and theory of change become separate documents that don’t always speak to each other. This again causes confusion amongst staff and difficulty prioritising (what’s driving decisions, the theory of change, or the strategy?).

3. Building the theory of change from the top down

We’ve often seen attempts to develop a theory of change from the bottom up (particularly in existing for-purpose businesses that already have a range of activities in place). Similarly, we’ve seen attempts to develop a theory of change where it’s created from the top down, but existing activities are simply retrofitted into the model. This leads to missed opportunities to focus on the activities with the highest impact.

What we need is a ‘strategic architecture’ (combining theory of change and traditional corporate strategy frameworks)

To solve the problems of integrating theory of change and strategy, we’ve created a template that combines them – a strategic architecture.

It involves six steps:

• Step one – vision: What problem are you solving and what will the world look like when you’re done?
• Step two – impact areas: What changes will have occurred in the world as a result of your unique work?
• Step three – mission: How will you generate the change identified in your impact areas? What unique role do you play?
• Step four – outcomes: What needs to happen through delivery of your mission, and what changes will beneficiaries experience through your work?
• Step five – outputs (strategic goals): What are your organisational strategic goals (that will generate the outcomes you identified)?
• Step six – activities: What are the most important activities you will deliver under each strategic goal?

Note the activities here may change as your work through development of your business model, and may also change over time.

Once the strategic architecture is completed it provides an overview of the “purpose” in your for-purpose business model, and how to get there.

Tip: You’ll need to revisit your strategic architecture as you work through your business model to check back on your activities and outputs.

If you’re ready to get started, get your copy of the for-purpose business model workbook.