By Chris Miller
Social entrepreneurship and its commercial counterpart are much more alike than different. In fact, some experts have concluded that all entrepreneurship is actually social. Without a doubt, launching a startup of any kind requires a herculean effort to scale and sustain. Nonetheless, three key differences make business planning for a social enterprise even more difficult.
By definition, social enterprises attempt to generate revenue through selling products or services in order to reinvest that income into their overarching missions. While it’s certainly ideal for an enterprise to have a “mission-aligned” business, the reality is that the business’s specific industry or vertical may or may not have anything to do with the mission itself. Just like their commercial counterparts, social entrepreneurs need to investigate the specific trends, demographics, geography and more to understand the competitive landscape.
However, on the social side, this requires market analyses of the mission space — usually consisting of nonprofit social service agencies serving a similar population or intervention — as well as the industry vertical in which the social enterprise is operating. As if that weren’t a high enough bar to overcome, social entrepreneurs are also confronted with the need to provide a mechanism by which the enterprise’s impact can be clearly measured.
It’s the combination of all three analyses that make social entrepreneurship so much more difficult. The task is far from impossible, however, and startups around the world succeed every day by utilizing the following three tools of the trade:
- “Mission-market” analysis: Stemming from the primary intention of the social enterprise to positively impact a social or environmental issue, early-stage social entrepreneurs have an obligation to investigate the competitive landscape of three kinds of businesses: nonprofit, for-profit and hybrid. Regardless of where the competition might come from, the social enterprise must provide a case for how its intervention is more effective, efficient, scalable, replicable and economical than alternative solutions.
- “Industry-market” analysis: Given that a necessary condition of a social enterprise is a defensible business model that attempts to generate the revenue necessary to sustain the social or environmental impact, a traditional industry analysis for any product or service is also needed. While “excess revenue over expenses” is welcomed by any social enterprise, it's more complicated in the world of social entrepreneurship because creating financial profits for our investors is never the primary objective. Despite prioritizing the impact for stakeholders over financial returns for shareholders — or, maybe, precisely because of it — social entrepreneurs should be expected to have a depth of knowledge about any competitor operating a profitable model selling similar products or services.
- Impact measurement plan (social return on investment): While traditional commercial startups are increasingly asked to provide some level of transparency regarding the social and environmental impacts of their primary pursuit of profit, all social enterprises are required to do so from the outset. Despite the fact that “social return on investment” is more complicated to define than traditional ROI, its demonstration is the social entrepreneurs’ most important — and difficult — job of all.
Social entrepreneurs clearly face an uphill battle, but they do have one competitive advantage: They know what today’s consumers are looking for and have a plan for providing it.
What consumers want from today’s entrepreneurs
Regardless of whether a business technically qualifies as a social enterprise, consumers need to be able to assess the business’s claims and compare the relative levels of impact. Specifically, consumers consider the following three factors in evaluating a particular company, product or service:
- Authenticity: The most reliable way to determine a pure social enterprise is to look to the genesis of the venture and seek out the founder’s underlying story. Does the enterprise hold a genuine intent to prioritize social or environmental impact at least as much as profit maximization?
- Transparency: Consumers want to know to what extent a business provides access to the information needed to substantiate claims of social or environmental impact. If social entrepreneurs can inform their audiences, they’re on the right track.
- Accountability: Consumers also want to know to what extent a business provides a clear and measurable way of verifying its claims of social or environmental impact over time. The impact measurement plan and SROI should address this concern.
Now that we’re beginning to understand how important authenticity, transparency and accountability are to consumers, the social entrepreneurs’ task is slowly becoming more manageable. Building a startup of any kind is still among the most difficult jobs in the world. Nonetheless, we can all rest assured in knowing that it’s also among the most noble — and by almost all accounts, well worth the challenge.
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Chris Miller is the founder and CEO of internationally renowned social entrepreneurship incubator and accelerator The Mission Center L3C. He is the co-founder of the Washington University Startup Training Lab and a senior lecturer of entrepreneurship at the University of Missouri-St. Louis.