You’ve probably heard that social entrepreneurship is on the rise, but what does that really mean? Let’s say you have an idea that will make the world a better place. Maybe it’s a new way to bring electricity to underserved villages in South America, or perhaps you want to start an organic, local food delivery service in your hometown. You’ve probably already done some research, at least enough to assure yourself that no one out there is doing exactly what you’re doing. Great start!
In 2012, approximately 10 million people were involved with social enterprises, generating more than $500 billion in revenue. Yet one of the key questions I run into as I work with social entrepreneurs is, how different are social startups from technology ones, or from other ventures in more established areas? Through a series of articles here at TriplePundit, I’m going to explore this question and provide some practical advice and tools to help social entrepreneurs to go from concept phase to launch and beyond.
First, you need to answer some key questions to determine whether your idea can make it as a business.
- Who are your customers and what do they need that you can provide? Think about the demographics of the people who will want to buy your product or service, where they live, and how much disposable income they have. To answer this question, you’ll need to start talking to potential customers, do market research through surveys and focus groups (preferably with a prototype in hand), and continuously refine your customer segments. As you explore this question, remember to also think about whether there are enough customers as you’ve defined them to make your business viable—i.e. what’s the size of your addressable market?
- What is your value proposition? To answer this question, think about the benefits you are providing to your customers. You may also want to consider barriers to adoption, as well as possible substitutes that are already meeting their needs. And don’t forget to test your value proposition out with your target customers by doing more market research.
- Just as importantly, how is your value proposition communicated to your customers? This is a high level marketing question—don’t worry about whether it’s through social media or billboards or some other marketing channel yet. The key question here: what is the message that you need customers to understand when they see or think about your brand, agnostic of the channel? This may ultimately influence your brand values and even your product definition.
- How will you generate revenue? Assuming you don’t want to start a nonprofit that depends on donations and grants, you have to generate revenue to be a viable business. You may discover that you have multiple possible revenue streams. That’s great, but pick one to start with and phase in others (rule of thumb: no more than three revenue streams) over time. Also think about how much revenue can you generate in the first couple of years and how this may grow or change over time.
- Assuming you can generate revenue, is it enough to cover the cost of producing, marketing, and selling your product or service? Even if you don’t know much about financial management, you can do a ballpark calculation of the costs needed to produce and sell your product. Subtract that from your expected revenue. If it’s positive, move forward; if not, go back and figure out how you can generate more revenue or how you can lower your costs. Easier said then done, of course.
Don’t worry, there are lots of resources that can help you to answer and organize these questions.
- Business Model Generation. This book, website, and iPad app (highly recommended) help you to think through and share graphically the nine basic building blocks of your business. In particular, it’s a great tool for non-MBAs to quickly get up to speed on what you need to think about as you’re creating a business. Other books to check out: Lean Startup and 4 Steps to the Epiphany.
- Find mentors. Mentors are usually experienced entrepreneurs who can help you figure out the answers to these key questions, provide feedback on your ideas, and connect you with other resources. Seek out mentors who may have a particular interest in and knowledge of your focus area through networking events, alumni associations, and by asking colleagues, friends, and family for suggestions. Mentors may also be good advisory team members for your startup!
- Join an incubator or accelerator program. Tech accelerators like Y Combinator and TechStars are booming, but there are also several that specifically focus on social enterprises. Greenstart works with clean tech businesses through its accelerator program and invests in exchange for an ownership percentage. Local Food Lab is an accelerator program focused on sustainable food business; they use a fee for service model, and they are also in the midst of setting up a seed fund for participants. Hub Ventures works with social enterprises, and is based out of a co-working community of social entrepreneurs in San Francisco.
Once you answer these questions, you’re ready to explore some second order questions about your venture, like how fast you can and want to grow, what kind of investment you need to do so, who you’re competing with (and how you’re different from them), and what strategies you’ll create to make your business successful. More to come on that in the next installment.