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Nov 5, 2014

Social Entrepreneurs Must Answer Different Questions

The Center for Social Enterprise Development just finished up its inaugural 2014 programming season with a “practice pitch” session.  This wasn’t the typical pitch event where one is competing for a prize or for investors.  Rather its intent was to expose budding social entrepreneurs to the perspective and focus of investors as contrasted with grant-makers.

One of the benefits of pursuing a social enterprise idea is the exposure to a different set of questions than nonprofits and socially-focused individuals usually confront.  Typically the questions regard the merits of the idea and the extent and value of the social impact.  Grant-supported ideas usually are projects with a fixed timeline and a well-defined set of tasks or deliverables.  Once the existence of a community need is identified, the approach to addressing that need is the thrust of a grant application.  There is rarely a discussion of the demand for the service because the reality of most nonprofit services is that there is no market, which is why the nonprofit sector was created.  When there is no market (a public good or market failure in economists’ parlance), the traditional definition of market demand or price does not apply.

When we turn to social enterprise, the situation is reversed.  A social enterprise must have a market in order to have sales, revenues, and profits.  Now the question shifts to who are the buyers in that market, how much are they willing to pay, and what will make them choose the social enterprise’s product or service over other providers.  Experience tells us that buyers will always choose the superior product.  The social enterprise captures the sale by providing a product that is as good or better.  If it is as good, some buyers will favor the social enterprise because of its social mission.  However, social mission rarely trumps inferior product (at least for most buyers).  The only sure path to successful sales is for the social enterprise to provide a product that is superior to alternatives on the market.

And this is where the practice pitch session was a wonderful educational opportunity.  All  six participants were in the early stages of developing their ideas.  The event was not for entrepreneurs who had perfected their business and were  ready to find investors.  Rather, the event was a PRACTICE to expose social entrepreneurs to market-based questions early in their preparations.

Our panel was a cross section of experienced social entrepreneurs, angel investors, and experts in innovation and entrepreneurship.  What did they want to know?

  • Show us objective evidence that your product is superior to the competition.
  • Document the experience and skills your team members have in providing this service.
  • Show us who is already paying for this good or service and how much they are paying.
  • Tell us what the customer’s “pain”  is that creates demand for your service and how  your approach relieves that pain.
  • Show us evidence of the price buyers will pay and demonstrate that, at this price, there exists enough market volume for you to become profitable in a few years.
  • Show us a realistic marketing plan to attract buyers to your product.
  • Show us how much capital you need to get to a scale that is profitable enough to pay back investors with a reasonable return.

These are not the questions we have trained our social sector to answer.  This “practice pitch” session was an experiment.  It was successful because it exposed six entrepreneurs to this new set of questions.  But one session is not enough.  Now we need to figure out how to turn exposure into execution.  We already have created workshops, bootcamps, and mentoring programs to help.  What more do we need to provide budding social entrepreneurs so that they can be successful?

In this session, the dominant missing link was intense research into the market.  This shortcoming is familiar to angel investors in technology areas, who often see proposals that are built on hope for a market rather than evidence of a market.  Steve Blank’s concept of Lean Launchpad is one way to address this gap.  His four-week Audacity course focuses on “how to rapidly develop and test ideas by gathering massive amounts of customer and marketplace feedback. Many startups fail by not validating their ideas early on with real-life customers. In order to mitigate that, students will learn how to get out of the building and search for the real pain points and unmet needs of customers. Only with these can the entrepreneur find a proper solution and establish a suitable business model  Building a startup is not simply building an execution plan for a business model that the entrepreneur thinks will work, but rather, a search for the actual business model itself.”

I think my next step is to take his on-line course and see if that might be one link in the chain to social enterprise success.

Your next step is to send  your ideas  to info@cincohio.com on what you believe social entrepreneurs need in order to turn good ideas into commercially profitable social enterprises.  And keep tuned to the Center for Social Enterprise Development website  for our forthcoming announcements of the titles, dates, and locations of our programs for Spring 2015 to play our part to move those good ideas ahead.