The Five Big Choices For Your Social Enterprise
(Thanks for reading, I’ve recently made a better version of this article here)
If you’ve started a social enterprise, or are thinking about starting one, then you’re likely to encounter five tricky decisions.
Each decision is simple, but not easy.
You can probably come up with an answer to each of them in less than twenty seconds, but it might take months to come up with an answer that you like.
They are:
1. What is your mission?
2. How does your impact model work?
3. What does your business model look like?
4. How does your financial model work?
5. What is your testing plan?
You want a well-thought out answer for each of them.
All five are difficult, and they don’t get easier if you put them off.
As a leader, you can’t fully outsource any of them – you need to be involved, especially as you’re responsible for each of them.
On the plus side, none of these require you to spend any money in their design, none of these require a MBA, and there are plenty of helpful resources and people who can help you sharpen your thinking.
Let’s now look at each of them in more detail:
What Is Your Mission?
You might be familiar with the expression “Be careful what you wish for”, the idea that getting what you literally ask for may not result in your own happiness.
I like to think of The Monkey’s Paw, a magical artifact that grants wishes that come at a price;
e.g. you wish to be famous, so an unflattering photo of your becomes a worldwide meme.
The Monkey’s Paw is silly but it makes you think through your wishes in detail.
It might make you clarify the details of what change you want to see.
e.g. you wish disposable cups were illegal – but people now throw reusable cups in the bin.
Or you wish there were more Indigenous musicians – but there are still hardly an Indigenous music executives.
Or you wish that every village in the world had access to an online library – but nobody ever felt like reading those books.
In these scenarios, we might reframe the wishes to something like:
“I wish people genuinely cared about their environmental impact” or “I wish cafes and coffee drinkers were incentivised to act responsibly”.
“I wish that more Indigenous musicians were famous and celebrated by the mainstream audience” or “I wish we had Indigenous representation in every level of the arts”.
“I wish that every person could access and enjoy great resources that inspire and educate them” or “I wish that remote communities developed higher literacy rates”.
Minor changes in language, but now the wish gets to the underlying desire, rather than measuring something that doesn’t achieve much on its own.
This will help your team and partners create products, services and opportunities that deliver on what’s most important, rather than a vanity metric.
My suggestion is to think about your personal motivations, then refine your mission down to something that is memorable, measurable and inspiring.
How Does Your Impact Model Work?
I like to think of an impact model as a recipe for change.
Recipes are tested, clear and repeatable – if you follow the steps as prescribed, you’ll end up with the same result as the author.
Recipes are not a guess, they’re not circumstantial, and they’re not easy to design.
When you’re working on an important cause, it’s essential to take the same approach – we don’t have the right to be wrong.
We want to be confident that if people trust us, we’ll deliver a great results.
If they move from subsistence farming to cash crops, they won’t be left with nothing to eat.
If they fund our program, they’ll see improved outcomes for a community.
If they buy and use our products, they’ll reduce their carbon footprint.
My suggestion is to work through your Problem Tree and Logic Model.
What Does Your Business Model Look Like?
The is not “one perfect model” for a social enterprise, you’re going to have lots of choices around who you serve, what you sell, how they pay you and what roles you play.
A great tool for thinking this through is the Business Model Canvas, a one-page template that explores your customers, value propositions, channels, resources and partners.
You can use these canvases to map out different types of business model, allowing you to compare various ideas to see which ones are your favourites.
These are a great way of identifying your assumptions – the guesses that underpin your idea.
If those assumptions can be validated, you suddenly have a lucrative business.
If those assumptions are invalidated, you save a lot of time and money, and can use those insights to design the next round of business models.
My suggestion is to draft out some Business Models and show them to your advisors.
How Does Your Financial Model Work?
Even if you have a great impact model and business concept, if there’s no money in the bank then you won’t have an enterprise.
Grants and donations are a band-aid solution to a bigger issue – can this venture ever become financially sustainable?
Nobody makes a profit by accident, it comes from deliberate design and diligent oversight of the numbers – how does the business make, spend and retain money?
You want to think about your Cash Cows, Small Margins and Loss Leaders, to see which products and services are actually contributing to your surplus.
You probably want to create an Assumptions Table, to store all of your guesses and easily update them when better information becomes available.
My suggestion is to look at your Financial Skeleton – how your revenues, costs and surplus are calculated.
What Is Your Testing Plan?
Your impact model, business model and financial model are full of guesses.
That’s ok…for now.
It’s easy to confuse guesses for facts over time, and as your enterprise grows this leads to costly mistakes.
e.g. scaling a solution that doesn’t meet your mission, creating products that customers don’t want, expanding the company but running out of cash, etc.
You’re in need of a testing plan – an open minded approach that helps you separate the truth from the lies, the good ideas from the bad, all without spending too much time or money.
You can have better customer conversations to understand your market, or learn more about the problem you seek to solve.
My suggestion is to use a series of Test Cards, which help you form and test different hypothesis without too much bias or blind optimism.
Those are the five big choices – simple but not easy.
Simple because you’ll eventually be able to sum each of them up in 10 words or less.
Not easy because you’ll find a lot of wrong options before you find the best option, and that’s ok.
Nobody nails them on the first try, so make the most of the support around you.
This support might be in the form of books, coaches, friends, podcasts, forums or clubs.
It might be worth seeking out an accountability partner to help you stay on track, then looking for specialist advice on each of the five areas.
Once you’ve made these choices, you can move on to considerations like hiring, growth, innovation and maintenance.
The work will never be “finished” as such, but by designing strong models you give it the best chance of success, and will find it easier to bring other people into your enterprise.
