By Carol M. Tuite and Miki S. Noguchi
You might have the fix to end world hunger, but if you haven't figured out how to pay your bills, no one will ever hear about it.
Mission, Model, & Money
The perennial question for social entrepreneurs: How to build a business model that achieves the trifecta of social impact, financial viability, and growth. Passionate people everywhere have come up with excellent (and not-so-excellent) ideas for improving people’s lives. But successful social entrepreneurs have identified both a game-changing solution to a market gap and a solid business model. A unique idea, financing, and patience are needed to build a successful social business that can go the full distance.
Built to Fail
After a year or two of slogging through, many entrepreneurs finally allow themselves to fail. Social entrepreneurs take on the extra burden of thinking they’ve also let humanity down. Sometimes the failure is because great ideas ≠ business acumen, sometimes great ideas ≠ true market knowledge, and sometimes the funding runway ends too soon after too many pivots.
Warning: Pitfalls Ahead
The best learning comes not only from knowing what to do but also from knowing what not to do. 10 lessons from the trenches for the aspiring social entrepreneur:
- You can’t change the world… Be willing to work within the imperfect landscape that is reality, accept what you can and cannot change (in the short term), and plan for the long haul. “This is the hardest lesson of all, especially for committed social entrepreneurs driven by the glorious notion of “changing the world.”
- …But you can make it better. Focus on solving a real problem and be sure that your vision aligns with the expressed needs of a constituency you aim to serve. Continually collect and act on feedback to ensure your idea is viable, valuable, impactful, and necessary.
- Ego is a cement block around your neck. With social entrepreneurs’ strong call to service often comes an unshakeable belief in the good they can accomplish and an absolute faith in their ability to convince others of their vision. That unwavering faith can be like blinders on a one-man self-hype machine. “Instead of focusing on what you want to be or what you want to achieve, think about what it is that someone else truly needs.”
- Understand your customer. If your motivation is to improve lives, it can seem callous to think of the beneficiaries of your goods or services as “customers.” But tenets of customer service will remind you to put your target user’s needs, constraints, and resources at the center of what you’re building—your “product” must be something people actually want and need. So, do critical research on who your customers are, what they need, and how your “product” meets that need.
- Work hard and smart. While perfect work-life balance may not be the norm for any version of entrepreneur, long hours and weekends do not automatically equal results. While an ironclad work ethic is 100% required, those qualities alone won’t prevent failure. So, get smart—be curious, talk to everyone, listen to feedback, and then ask more questions.
- Remember your mission but change everything else. Everybody loses—face the defeat, then pivot. How many entrepreneurs offer redundant services or learn early that their hypothesis is flawed and then fail to adapt? Look failure in the face and say thanks—the market putting up a huge stop sign is a blessing in disguise if the end of the road is a deadly cliff. “Do the painful post mortem with vigor and intellectual curiosity, stuffing your bruised ego back inside.”
- Spoiler alert: the tortoise won. Changing or creating complex social systems takes time—impact investment is called “patient capital” for a reason. The social enterprise ecosystem can be more difficult than a typical business landscape: “Unlike writing an app or opening a new restaurant, social ventures take time to flower, to build support, to perfect their models, and reach for scale.” So, play the long game.
- Numbers don’t lie. It may be difficult and costly to get meaningful data, especially in emerging market contexts. But it’s worth the effort. Compelling data is not only something you need for investors (a.k.a., donors, funders, potential partners, and, in some way, employees), numbers help you make better decisions and spend your valuable resources—including your most valuable asset, your time—more effectively.
- Be flexible and (legally) creative with financing. “Markets, sales, margins, expenses, and a little thing called luck can be examined in terms of forecasts, but they cannot be predicted with total accuracy.” The good news is that sustainable investing has become the new normal and combining mission-driven financing like foundation and government grants with traditional ROI money can mean getting the best of both worlds.
- Hire A+ talent. There is no such thing as your people being “overqualified.” Yes, they will cost more, but many people are willing to sacrifice salary for meaningful work and other perks (e.g., flexible time, travel opportunity, field experience, second career). Hire top talent and empower them to help you scale: “If you want an A+ company, surround yourself with A+ people.” You will still have to invest in professional development, but your foundation will be stronger from the beginning.
The forecast for social enterprise has never been more favorable. Multinational companies are recognizing that “greenwashing” won’t cut it with ever more socially minded consumers. Environmental, social, and governance factors (ESG in corporate parlance) are increasingly important to institutional investors as their clients (We, the people!) demand that companies look beyond profit to the effects their activities have on communities. Finally, there is a growing level of commitment from private sector institutions and development organizations to create the necessary ecosystem to support for-purpose businesses. The landscape is still somewhat uncharted, but good ideas that hit the trifecta will always be welcome and get funded.
If you read only one thing about scaling up social enterprises, go for this Brookings Institution paper: Scaling up Social Enterprise Innovations: Approaches and Lessons.
And remember to RSVP for Sustainable Business Models for Mission-Driven Enterprises on Wed., Dec. 6th in NYC!