Before the dotcom boom, one never heard the question “what’s your business model?” Asking it would have marked you as dim. A few standard models had been around for a hundred years or so: extractive businesses and agriculture, manufacturing operations, service businesses, media companies, and financial intermediaries, each accommodating a few variations like franchising, piecework, door-to-door sales, temporary labor.
But the Net came along and spawned a Cambrian explosion — a whole new set of potentially viable business models. With the ’90s came e-commerce, community creation, social networking, sponsored search, open source software, crowdsourced information, online gaming with private virtual currencies. “What’s your business model?” became a clever question, as everyone wondered what would be next. The dotbust cleared away some of the chaff, but new ideas continue to arrive as capabilities expand — at the moment location-based services such as Foursquare and Scvngr are the new species on the block.
But an even more fundamental kind of business model innovation is also underway, as entrepreneurs of both the traditional and the social varieties experiment with the notion that an enterprise should produce a mix of value, not only financial.
In textbooks, we divide the economy into two sectors: business and government. Businesses take in revenues, provide goods and services, and make a profit. Governments receive taxes and fees, provide services, and in principle break even. It was a useful distinction, if always muddled by the fact that governments must purchase goods from the private sector to do their jobs — weapons, asphalt — and even take this to the point of outsourcing service provision to the private sector, so that for-profit businesses now operate many publicly-funded mental health agencies and prisons, and even some schools and armies. (Can you imagine combining these in an incarceration-themed conglomerate?)
The distinction became even more muddled, however, with the rise in recent decades of nongovernmental organizations — the so-called “third sector.” Because no government can do everything socially useful that at least some citizens believe should be done, NGOs have stepped in — using money from private sponsors to provide services for beneficiaries — in such numbers as to constitute another explosion.
So with some companies earning profits made up of tax revenues, and other organizations providing services that could be public using private funds, it turns out that the sectors of the economy are not so clear-cut and binary. Rather, we see a spectrum of arrangements between the two extremes, in which there are enterprises producing both financial and social value.
Here, then, is an interesting question: if the NGO falls between public and private, but sits closer to the public end of that spectrum, is it possible that another mixed-value type of organization could thrive at the equivalent spot on the other side of the spectrum? For parallelism with the nongovernmental organization, let’s call it a “noncorporate organization.” Is there a role for NCO’s?
It turns out that, indeed, they are appearing at a rate reminiscent of the bubble. Here’s an example from Israel: Shekulo Tov is a profit-making company selling decorative items through high-end retailers. That puts it squarely on the private side of the spectrum. But to produce those items, it hires rehab patients for whom the handiwork constitutes occupational therapy — and part of its revenue is the stipend the government pays per worker-day to provide that. And here’s another example, from India: Hindustan Latex, the world’s largest manufacturer of condoms, sells its products in the marketplace at prices that will cover its costs, but it is owned by the government — which sees the social value of population control. Recently the company also launched a for-profit chain of maternity hospitals. Again, there’s a public policy objective — lower infant mortality — but the model is even closer to the corporate mold.
Have the animals and plants been jointed by an archea-like new Kingdom? How would you classify a government-owned, nonprofit organization pursuing two public policy goals — and profits?
