Category Archives: business model

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.

Understanding the Starting Point

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.

The Starting Point

In the Lean Entrepreneur, Brant Cooper and Patrick Vlaskovits define the starting point for entrepreneurial ideas as usually one of the following: segment, problem, product, technology. For example, the entrepreneur first identifies a lucrative customer segment, then figures out what problems they are experiencing, before designing a product to solve that problem and figuring out the technology to deliver that solution. Each of the starting points are valid, and each carries its own challenges.

Starting With the Problem

For social entrepreneurs, the starting point seems to always starts at the problem:

  • Why don’t more people volunteer in Turkey? (ben1gönüllüyüm and Bir Elin Sesi Var)
  • How do we get people to consume less resources? (Eşya Kütüphanesi)
  • Why do small non-profits have trouble accessing individual donations? (Bağış Portalı and birayda)
  • How can we reduce our carbon footprint from plastic bags? (BagAway)

From there these social entrepreneurs try to delve into the extent of the problem, i.e. who is experiencing this problem, who actually cares enough to do something about it, and who holds the keys to actually initiating a solution.

An Example: Starting with the Problem

Eşya Kütüphanesi is an online platform to facilitate the sharing of household products amongst a larger community. The problem was simple: do people really have to “purchase” and “own” everything they use? Could some things be shared, borrowed, etc. to create higher levels of efficiency, and thereby reducing consumption and its effects on the environment?

Once they realized this was the problem they were passionate about and were excited to solve, the team started exploring different customer segments that recognized this problem, considered it significant and wanted to do something about it. this obviously involved lots of customer interviews, a plenty of revisions of their business model and initial assumptions. It’s not easy changing established habits, but within the larger population they discovered a group that was active sharers and borrowers within their own circle of friends, nicknamed Generation G.

Now they are in the process of figuring out the right product/service to effective facilitate these sharing transactions and the type of technology they will need to scale the solution outward.

Starting with the Segment

Then there are social entrepreneurs who start with the segment, a disadvantaged, marginalized portion of the population, i.e. the homeless or youth with mental disabilities (Mor Menekşem).

Usually they have some connection to the population – either they are personally themselves from that population, or have a family member or friend who has been marginalized. To develop effective solutions for the niche market requires an in-depth appreciation of their life, their day-to-day struggle, and the inherent problems that go along with it. Then the right solution and required technology can be determined.

An Example: Starting with the Segment

Mor Menekşem aims to create employment opportunities for the mentally disabled by running a greenhouse to raise purple violets and sell them as a brand for mental disability awareness. One of their team members serves as the Turkish Mental Disability Federation Chairman, and from the beginning the team was focused on developing a social enterprise to serve and aid the mentally disabled.

As they delved into the current conditions of the mentally disabled in Turkey, two big issues came up: employment opportunities catering to the mentally disabled were almost non-existent, and there was low awareness of mental disability in the general population. It is a problem that is oft hidden away from the public eye, and resources to support individuals and families are scarce.

Thus was born the idea of Mor Menekşem, transforming a simple flower into a socially-conscious consumer product that can serve as a symbol for the mentally disabled. Now the team is working to better understand the consumer segment of this equation, i.e. the type of people that would be excited to support such an effort through their purchase decisions.

Basically, unlike technology entrepreneurs, you rarely ever see social entrepreneurs enamored with a product or a technology first. It is the problem or it is the segment that drives them. It is solving that problem, or serving that segment that serves as the core of their business model.

There are definitely technology entrepreneurs who start with the segment or the problem, but unfortunately, more often that not, we come across entrepreneurs who are sold on their own product idea but are not actually solving a significant problem or meeting a significant need. Perhaps what we need to help technology entrepreneurs start thinking more like social entrepreneurs, actually embedding themselves with the population they want to serve and learning to empathize more with the people and the problems they face rather than simply developing and then trying to sell a product. The technology is only as good as its fit with the problem or need it is trying to solve (i.e. the Segway).

What do you think?

The Dance of the Key Partner

There is nothing more alluring than the dance of the key partner – you eye each other from across the dance floor, gauging the relative appeal of the opposing party, trying to understand if she’s worthy of your attention. And then the dance begins – who brings what to the table? what are your offering in return? how can I appease the other to get what I want? who will blink first?

In the social sector, the dance may not be about profit but there are other factors at work: status, prestige, impact, publicity, funding… I have to admit, the social sector does have a bit more openness, transparency than the for-profit world. Is it the innocence of those at work in the sector, or perhaps they are just less trained in the arts of corporate wiles and negotiation?

Sometimes the dance is like two mice trying to convince the other that they are actually elephants, fleet of foot on the dance floor. Sometimes only one of the parties is the mouse, and then we just try to discover who is deceiving who. In our case, I admit we are mice… but what are we trying to appear to be?

In the past few weeks we’ve started into the first throes of this dance with a large non-profit organization to co-develop our volunteering platform. Our goals are the same, i.e. increase the rate of volunteer activation in Turkey, we are both at relatively the same stage of idea development, and we generally agree on the main philosophical approaches to the subject but our relative strengths and areas of focus are quite different. Basically, we are attempting the attack the same problem from different angles. From a purely logical standpoint, it’s a solid match. But the dance must still be danced.

Given the limitations of social startups, specifically in regards to funding and resources, strategic partners are a must. It’s impossible to own all the resources and activities required during the startup phase, and even pretty difficult when they scale. But given the relatively politicized environment of the social sector, choosing the right partners, and weighing the relative gains and losses of the partnership, is essential. Don’t jump into the dance with any nice-looking mouse or elephant that comes along.

Questions to consider:

  • What are my Critical Success Factors?
  • What are the Key Activities and Key Resources of my enterprise?
  • Which of these can I achieve via a strategic partnership?