Social entrepreneurship is blowing up – in a good way. Although ‘social entrepreneurship’ is a loosely-defined term, and reliable statistics are hard to come by, anecdotal evidence points to an explosion in the social enterprise sector. The organization I work for, the social-enterprise-focused coworking space Centre for Social Innovation, has experienced spectacular growth over the past few years, opening 3 new locations in Toronto and New York and adding hundreds of members. [FYI… become a member, this place is awesome]
As Dean of Social Entrepreneurship at CSI, I advised and mentored dozens of social enterprise startups in their journey to profitability and sustainability.
Although there have been notable successes, sadly many of these startups fail.
They fail for various reasons: lack of access to capital, lack of drive, lack of savvy, and most typically, a dearth of customers.
What they rarely lack, however, is passion for their social mission.
Every social entrepreneur I’ve advised or mentored has had a deep, almost burning, belief in their social mission, a desire to right an injustice or change the world for the better in some meaningful, way.
A decade or two ago their path, typically, would have been to start a nonprofit or charity, hustle for donors and/or grants, and deliver programs from the funding they raise. Then hustle again when the money runs out, and rinse and repeat.
These days, they’re more likely to seek the social enterprise path, using market-based models to earn revenue from selling products or services while furthering the social mission.
[fyi… although there are many definitions for the term ‘social enterprise’, I typically take it to mean a for-profit business that seeks to achieve a social mission while making a profit – this for-profit business can be owned individually or by partners, by shareholders, or by a nonprofit or charity. Nonprofits and charities that make revenue from a side business like merchandise or t-shirts are not really true social enterprises)
Whereas a traditional entrepreneur will measure ultimate performance in gross and net revenues, social entrepreneurs also seek a positive benefit to society. In the best-case scenario, the profit motive and social motive support each other and move in lockstep, but in many cases the two are often at odds: maximizing the financial profit comes at an expense to the social profit, and vice versa.
Sometimes the social benefit comes as a direct result of selling the product or service (a well-known example is Grameen Bank, a for-profit Bangladesh bank that provides credit to rural poor, particularly women); sometimes the social objective is an adjunct to the core business model (an example is Tom’s shoes, that donates a pair of shoes to a child in need for every pair of regular-priced shoes).
Social enterprises, as they exist in Canada, run the gamut from those whose social mission can be described as little more than corporate social responsibility, to those whose social mission is deeply ingrained in the very fabric of the business model, and integral to it.
In most cases, the entrepreneurs I’ve worked with have started with the social mission in mind, and then tried to create a viable business model around it. The social mission stays first and foremost, in a noble quest to stay ‘pure’ to their social objectives. Often they come to entrepreneurship with a negative bias against the ‘P’ word, profit (which makes running a profitable business challenging!).
This often means, sadly, that often not enough attention is paid to the actual business model. In many cases, they feel as though the social objective is enough to provide them a competitive advantage in the market. Sadly, this is almost never the case.
Years ago, I was mentoring a young woman through the process of starting up a social enterprise bakery. Because of her personal experiences, she wanted to open a bakery that hired and trained people with physical disabilities, in an effort to provide them with meaningful, dignified employment.
She spent a lot of time developing her branding and marketing materials based on this social objective, placing it front and centre, with little time devoted to the core elements of her business model: identifying her customer segment, value proposition, pricing strategy and market/industry positioning. In her opinion, customers would flock to her because they believed in her social mission and wanted to support it/her.
I finally told her that her social mission need to be placed on the back burner until she could get her core business model right. She needed to compete on the basis of a competitive business model, by offering a better bakery experience than her competitors and/or offering something that her target customer segment couldn’t get elsewhere.
I explained to her that people will only buy inferior muffins once (or maybe twice) in order to support her noble social goals, but they wouldn’t keep doing so if the product couldn’t compete on its own. In some cases, because of societal bias and prejudices, a social mission such as this may actually hinder the entrepreneur’s goals.
STRATEGIES FOR SOCIAL ENTERPRISES
Below are a few of the starting words of advice I give social entrepreneurs when they’re in the ideation and business model development phase:
1. Don’t assume your social mission gives you a competitive advantage.
All other things being equal, customers will probably choose you over a less socially responsible competitor, but that’s only if all other things are equal. If you can’t compete on quality, or price, or value, then social mission will rarely overcome an inferior product, or a competitor’s better-known brand.
2. Don’t ignore business model basics.
Every enterprise, social or otherwise, needs to figure out who their customer segments are, what problems their customers want solved, what their unique value proposition (or unique selling proposition) is, as well as their positioning and pricing strategy.
3. Get the business model right, then layer in the social mission.
Once you’ve developed a competitive business model, then figure out how you can achieve your social objectives in a way that doesn’t significantly compromise your business model’s viability.
In some rare cases, your social objective may provide a competitive advantage (for instance, if you have a social hiring policy and there are government hiring grants for certain marginalized groups that allow you to drastically reduce your payroll costs). In most cases, however, your social mission may negatively affect your business model viability and bottom line. If the effect is significant, it may impede your ability to sustain the business.
As I tell my students, don’t get blinded by your social mission – if your business fails, you’ll achieveno social benefit (or worse, negative social benefit when you find yourself unemployed and in debt). If you can develop a sustainable – and hopefully scalable – business model, then your profitability and capacity for growth will allow you to achieve social benefit at a much greater scale.