"I've got this great idea for a new social enterprise!" says your board member. "We should really think about getting into [insert type of enterprise]!" says your executive director. "This is a great opportunity!" Hmm... maybe yes, maybe no. How do you know whether this "great opportunity" is legit and worthy of your limited time and attention, or just an interesting idea? That's what this and next week's posts will address.
As a social entrepreneur, you need a quick way to identify which enterprise ideas are worth exploring further. You've got limited time and money, and can't afford to look into every one. So, with the help of many colleagues and clients, I've come up with a simple framework, called "Just-Enough Assessment", that involves four feasibility assessment questions and four increasingly-rigorous levels of assessment. In this week's post, I'll introduce you to the questions...
For any new enterprise idea, you should consider the following four questions, in this order:
Will it make the right impact?
Can we really do it?
Will paying customers choose us?
Will we be able to get and make the money we'll need?
The first two questions focus on you, whereas questions three and four focus on the market. Let's go through each one in turn.
1. Will it make the right impact?
As a social entrepreneur, your ultimate bottom line, the one by which your success will be measured, is the impact you make in your community. So, it's critical to first consider whether the presenting idea will make the right impact. That is, will it help who or what your mission says you help, with the issue you are concerned with addressing. For example, if you work at a youth employment centre, will a proposed coffee shop enterprise directly help the youth in your community to get and keep quality work? If not, move on; there are lots of other ideas out there, and at least one of them will directly address your community issue. No need to ask any more questions; go find another idea. If you can answer "Yes!", then to to #2.
2. Can we really do it?
Let's say you get a resounding "Yes!" to your first question. Your next question should focus on whether you actually have the competencies, resources, and leadership to move this idea forward. You're at the idea stage, so I'm not asking whether you could open the doors today, but rather whether it fits with your capabilities. The idea of core competence is an important one here. Any organisation tends to be really good at only a few things, and those few things underpin almost everything they do. A youth employment centre might identify that it's really good at: a) helping youth assess and explore their career goals, b) providing high quality employability training, and c) connecting them with great jobs in the community. A good social enterprise for this organisation should draw upon at least one of these competencies, if not all three.
Resources are important too. But, again, it's not that you need to have everything required to start the enterprise but, rather, just enough to explore it further. The big resources will come as you develop your idea into an actual enterprise.
Finally, leadership is critical. Do you have someone who will be thrilled to research and develop the idea it into a viable enterprise? This needn't be the person who will ultimately run the enterprise; I've seen many ideas start their lives with volunteers or administrative staff who hand off the idea to an enterprise manager if and when the idea evolves into an actual enterprise. But ideas are vulnerable things in the early going, and you need someone to take personal responsibility for its development.
Part of the rationale of answering these first two questions first is that, if you get a "no" to either one, you need not go any further. Full stop - find another idea. And, just as important, you should be able to answer these questions quickly with your judgement and readily-available information. So, get the "easy" questions answered first, before you move on to the harder ones.
3. Will paying customers choose us?
If you've got a solid "Yes!" to the first two questions, then you can be fairly sure that the idea fits with you and your organisation. But you are only half of the equation. Time to consider the market. First, is there some evidence that customers are paying (or will pay) for the kind of product or service that's connected to your enterprise idea? They don't have to be buying exactly the same kind of product or service as what you'd be selling, but they should be spending money to acquire the same kinds of benefits as what you'd be offering.
And, let's be clear: when I say "customer", I don't mean the people in your community who will benefit from your enterprise (they've been considered, appropriately, in the first question), and I don't mean government agencies, foundations, or other sponsors who will fund your enterprise because they value the impact that you will make (we'll deal with that with the next question). I am talking about people, businesses, or organisations in your community who will buy your product or service because it will give them some direct benefit. We call this a "quid pro quo" arrangement: I'll give you my money in exchange for your product or service. We all make this kind of exchange every day as customers, yet it's amazing how often benificiaries and funders are confused with paying customers. There can be overlap sometimes but, more often than not, they're three different groups.
Next, is there a clear rationale (or, ideally, some evidence) for why these prospective paying customers will choose your enterprise's product or service over whatever alternative they perceive that they have? And, yes, you will have competition. Customers always have an alternative to you, even if that alternative is doing nothing. Competition = any alternative that your prospective customers (not you) perceive as an alternative for providing the same or similar benefits. For example, in addition to other, similar, funky, fair trade coffee shops, your prospective customers will have the option of making their own coffee at home, having a coffee at their favourite lunchtime restaurant, getting a cup at work, buying a cup at a chain cafe... or your funky, fair trade coffee shop that will train and employ local youth.
And the rationale that your customers will use to make their choice will be based on their priorities, not yours. So, for the coffee shop, what do they look for in the perfect cup? Origin of the beans, how they prepare it, price, convenience? And brace yourself: your social impact will only come into play after you have met your customers' other priorities, and only if they care about your social impact. I buy my coffee from a fair-trade shop in my local community (because I value local and fair trade), but I wouldn't do that if they sold bad coffee.
4. Will we be able to get and make the money we'll need?
Finally - the money. Yes, it's essential, but only something you need consider after the first three questions. The money question has three parts.
First, is it clear to you how you will make money from the sale of your product or service? In the youth employment coffee shop example, a cup of coffee may cost you $0.50 to make (including the coffee, cup, and lid) and you perhaps can sell it for $2.50, resulting in a gross profit of $2.00 for every cup you sell. You sell 200 cups in a day and you clear $400, which you can use to pay wages, rent, and utilities. You should be able to do that kind of back-of-the-napkin calculation for your enterprise idea at the outset, and be prepared to get more detailed as the idea progresses.
Second, are you confident that you can secure the financing you will need to launch the minimum-viable version of your enterprise? I say "minimum-viable version" because I believe in starting as small as you possible can, without compromising the value proposition that will make your customers choose you. You may want to have a 100-seat cafe with 10 staff, but perhaps you can start with something much smaller (and cheaper) that will nonetheless get you out into the market - learning, refining, making a little money, and (most important) making an impact in your community. Now, let's say you will need $10k to start your minimum viable coffee shop. How confident are you that you can pull together this amount, from money you have in savings, plus grants, donations, investments, loans, and other sources? I want to stress that, my comment about starting small notwithstanding, it's the relationship between what you need and what you can get that's important here. It's possible that an enterprise with a $100k startup cost may be more finance-able than a $10k enterprise, because there's a funder that's willing to support it because it aligns with their own interests.
Finally, you should consider whether you will be able to secure ongoing social revenue (e.g. grants, sponsorships, contributions) to offset ongoing social costs. A coffee shop that trains and employs youth who've never had a job before (because that's the social mission) will likely have higher product waste, training, supervision, and employee turnover than the for-profit coffee shop down the street that's free to operate for maximum efficiency. And, to the extent that these are the legitimate, incremental costs of running the business as a social enterprise that creates incremental social benefit, you should be able to secure ongoing social revenue to offset them. But can you? If not, you may have an enterprise that would only work as a private, for-profit business that isn't burdened with social costs.
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Next week, I'll introduce you to the four levels of feasibility assessment, where you delve into each of these questions in increasing detail, going only as far as you need to, to know if and how to proceed further. Stay tuned.