The Three M's Of A Successful Social Enterprise
When you’ve been in a job for a while, patterns begin to emerge.
You might be able to spot the signs of someone who is ready to buy, or who is about to cause trouble.
It starts as a gut sense, an instant recognition of a good or bad scenario.
This is exactly what we found in the first few years at The Difference Incubator – we began to detect promising opportunities (and potential disasters) with speed and precision.
It took a while to put words to our intuition, but we settled on the three M’s.
If a social enterprise was missing any of the three, we’d have to either make an adjustment or decline to take them to a capital raise.
A clear, genuine social Mission
A sustainable, replicable business Model
A passionate and capable Management team
It’s hard to argue with those three, but how do you differentiate between pass and fail?
Let’s look at each of them in more detail…
I have never changed anyone’s mind about their social mission.
However, I’ve heard of some terrible causes – people pushing crackpot agendas and fighting against good social progress.
I’ve also seen companies make flimsy impact claims, when they’re really only interested in making profit.
Real social entrepreneurs are hard to shut up, so when someone comes with no clarity or passion for a particular issue, it becomes obvious.
A mission should be clear, aspirational and measurable.
That is, it should be seen as a bit of a stretch without being impossible.
It needs to be memorable, with customers able to understand how their individual contribution fits with the broader goal.
If done well, it makes the story shareable, and increases the chances of new customers understanding why your work is important.
A good business model should eventually run like a machine – all parts working in sync to consistently deliver a great result.
It shouldn’t be dependent on an individual, otherwise the entrepreneur has created a job instead of a business.
It also needs to make more money than it spends, generating a surplus each year – the alternative is that it makes a loss, which then needs to be patched up with grant funding.
There are three elements to a good Model – it is desirable to a customer, feasible to run and financially viable.
A good Model changes over time – it adjusts to suit the needs of its customers, or changes in the market.
A social enterprise needs people who are both passionate and capable.
If they’re passionate but not capable, the business will underperform, and the team will quickly become frustrated.
If they’re capable but not passionate, the team will run out of energy at the first hurdle, and will struggle to overcome the inevitable difficulties that face any new business.
We also look for people who are teachable – they have enough humility to learn from others.
A leader needs a certain self-confidence, but ego can often block people from listening to good advice.
Passion and discipline are a powerful combination.
A leader needs to be passionate about the cause, the customer and the welfare of their team.
They are the champion and ambassador for the enterprise, and there will be no shortage of resistance, setbacks and challenges that deflate and demoralise their staff.
They also need to be disciplined – doing the important jobs even when they’re not urgent.
This includes monitoring the financial performance of the enterprise, the social impact they create, and the ability to say No to distractions.
We sometimes refer to this as “Willing to be held accountable for social and financial performance”.
Sometimes things go wrong, but shifting blame is a terrible look.
We love working with teams who are honest about their successes and failures, and who take responsible for what happens under their watch.
Generally speaking, the only M we can change is the Model.
The Mission is either there or it’s not, and not many entrepreneurs have to be told to be more passionate about their cause.
We can also identify issues with the management team, but it’s hard to change someone’s DNA.
It’s possible to say “You need a full time salesperson”, but not to rewire the individuals in the team.
How to demonstrate the Three M’s
You need to understand your cause inside-out.
These problems exist because they’re hard to solve, and many others have tried to fix them in the past.
You’ll want to be clear on what has worked/failed in the past, and be realistic about what is achievable in the near future.
There’s an art to being able to speak persuasively about the Mission without coming across as being overly complex, overly simplistic or being militant.
We’re looking for deep insights into how your customers think and behave, such as the challenges they face, their likes and dislikes, and their willingness and ability to pay.
Validation is powerful – we love examples of customers already pre-purchasing from your enterprise.
Assumptions can be questioned, but real sales are undeniable.
It’s also good to talk about the various potential options that lie ahead – there’s generally 4-5 different ways you could change the business in the future, and we want to know that you’ve at least thought about each of them.
Track record is important; it demonstrates that you have the right skills for the job.
After that, it tends to come down to chemistry – do we like you?
Would we sit next to you on a long haul flight?
This test goes both ways - you have to like us as well.
Otherwise, why would you take our advice?
Ultimately, this is a relationship rather than an exam.
If there’s not a good match, that’s ok, there’ll be someone out there who’s a better fit.
You’ll have investors overlook your ideas and capabilities, and you’ll hopefully prove them wrong.
Maybe it’s the right person at the wrong time, and in twelve months the scenario might be quite different.
Either way, if you get turned down, it’s probably unwise to respond with rudeness.
Your anger won’t change anyone’s mind, in fact it will probably vindicate their decision.
You’re better off preserving the relationship and moving on to the next investor.