Balancing Bottom Lines as a Social Entrepreneur

Having the opportunity to work with technology entrepreneurs in the Fit Startup Factory and now social entrepreneurs via Social Change Labs has afforded me a unique perspective into the startup journey of each segment, and the unique challenges that they face. Although we preach the same methodology and approach to both parties (Business Model Generation, Customer Development, Lean Startup, etc.), there are obvious differences. In the next few posts I want to take a moment to explore some of those differences and would love to hear your thoughts as well.

In my first post, I discussed the differences regarding the starting point of entrepreneurial ideas, technology vs. social, and how that impacts the development of the business model. In my second post, we explored the challenge faced by social startups in serving multiple customer segments. In my third post, I emphasized the need for social entrepreneurs to truly explore the depths of the problem. In this post we will look at the delicate balance of bottom lines.


Bottom Lines

Startups are fundamentally customer-driven. For technology startups, and most business in general, listening to the customer and finding better ways to serve them fulfills the business’ fundamental bottom line: profit. But what about social startups with multiple bottom lines – financial, social, environmental, etc.? Is listening to the customer enough?

For example, consider a homeless shelter. If a shelter was to serve free beer to their “customers”, i.e. the homeless, as part of their service the place would be jam packed every night, but that would obviously detract from their fundamental social purpose. Simply focusing on “serving the customer” is not enough. Social entrepreneurs must keep the big picture in mind and constantly return to the core values of their business – social enterprises create social impact.

This weekend I had the opportunity to visit the Çöpmadam workshop in Ayvalık and spend time with Tara Hopkins, one of the co-founders of this leading Turkish social enterprise. For Tara the core values of her business are, in no particular order: environment, poverty, and women empowerment. The idea is simple – hiring never-employed women to make fashionable handbags and other accessories out of trash. There is environmental impact via the reuse of waste materials, generally industrial packaging; there is poverty alleviation through employment and alternative revenue creation; and there is also women empowerment through the focus on training and enabling women who had previously never worked for a salary before. Check, check, check. Most importantly, they have been able to find a market for their mission and their products, financially supported by both corporate sponsors and product sales.

But with multiple customers and multiple purposes, the balancing act of bottom lines becomes quite difficult.

To illustrate my point, consider a couple debates/challenges that Çöpmadam has faced previously in growing their business:

  • Incorporating Technology toward Mass Production 
    • Positives: lower cost and time of production; increase production capacity
    • Negatives: takes away from the empowerment of uneducated women; lose custom, handmade feel
    • Decision: No
  • Lower Prices to Compete Better with Competition
    • Positives: increase overall sales; extend reach to new potential segments
    • Negatives: reduce impact of poverty alleviation, i.e. providing above-market wages
    • Decision: No

I’m sure each of these decisions were not easy. Sacrifices were made. And I know there were a lot more difficult decisions than just the ones I outlined. But in the end, keeping the social purpose in mind, the founders made the decisions they had to make. And that is what sets social entrepreneurs apart.

Balancing Multiple Bottom Lines: an example

Another Social Change Labs semi-finalist, Cemre, has to balance the demands and expectations of different customer segments that currently have no relationship or even contact with one another. The idea: setting up a full-service ecotourism company to facilitate city dwellers to experience traditional rural life while enabling villagers to access a new source of income. The ecotourism idea is not new, not even in Turkey, but every case is unique and requires a delicate balance between the demands and expectations of all parties involved.

Basically ecotourism involves a clash of cultures, even within the same country, and thus social impact needs to be measured beyond simply income creation. As Cemre’s founders start planning their business, including two pilot trips this summer, they need to carefully balance some of the following questions:

  • How many tours/tourists can be bring without disrupting the life of the village?
  • How can we preserve the village’s way of life while meeting the comfort needs of the tourists?
  • How do we ensure a relatively equal distribution of wealth across the village brought in by these tours?
  • How can we support women’s empowerment and other social values through our program?

In this case, even though tourists are the paying customers (and for a startup, the paying customer is king!), it may not always be to best advantage of Cemre’s social impact mission to adhere to their needs and desires. Consider level of comfort, types of activities, usage of local resources, and even the additional carbon footprint brought in by each incoming tourists. Each of these are potential areas of conflict between more satisfied customers, and thereby more money, and the protection of the local ecosystem.

Moreover, perhaps with a short-sighted view of increasing financial income, local villagers may actually welcome these changes, not factoring in the long-term impact to their livelihood and their environment. It is up to Cemre to manage all of those demands, keeping the big picture in mind, and make the right decisions in order to achieve lasting social impact.

 

When people ask me how social entrepreneurship is different from other forms of entrepreneurship, this is fundamentally the topic I explain: balancing multiple bottom lines. On the surface it seems fairly simple, but in practice, in each and every decision, to constantly and continuously seek social impact is far from easy, and often requires a lot of compromises. But that is the core of social entrepreneurship, a fine balance, but a balance that hopefully leads to a better world.


Summary: social enterprises constantly need to balance their multiple bottom lines in each decision that they make, and have the courage to stick to their social impact goals, even to the potential detriment of the business’ financial health.

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