The Right Sequence for Impact and Success: 2 Lessons for Founders to keep in mind when starting up a Social Enterprise

As a startup coach and academic researcher in the field of social innovation, I have been mentoring and researching early stage social entrepreneurs across India and the UK for close to 8 years. To this day, nothing gives me more joy than to witness those life changing moments when aspiring change-makers take the first step towards making their visionary dreams a reality. An electric energy, an optimistic nervousness, a fiery passion for social change, an unbounded ambition and a relentless sense of creativity — these emotional experiences that the founders go through at the start of their entrepreneurial journeys are what make the phases of ideation and piloting the most exciting stages of starting up and running a social venture.

However, the idealistic optimism experienced during social business model ideation is shortly followed by an unsettling sense of resource scarcity and outcome uncertainty. After a few months (or years) into the pilot and post-pilot stage, several social entrepreneurs are unpleasantly surprised that things haven’t gone as planned — the reality on the ground is quite different from what they had imagined.

The founders feel frustrated as they try to identify what went wrong. “Innovative business model design, check. Target market research, check. Robust financial planning, check. Hiring a team, check. Getting funders on board, check.” They seemed to have covered all the usual suspects, but then why did their plans fall through and what had they overlooked? More often than not, a startup social venture experiences the early onset of failure because the founder went about doing the right things, in the wrong order. This sequencing of priorities and activities is of particular importance for a social enterprise, more so than a commercial startup, because of the explicit mandate to create meaningful social impact. Here are 2 valuable lessons from the field, for aspiring social entrepreneurs, about the importance of having the right sequence of activities during the ideation and pilot stages of starting up a social venture:

1)Understand the social problem — Then design the appropriate solution

For social entrepreneurs, first and foremost, their allegiance should be to the pressing social problem that they are trying to address through their impact venture. They need to spend quality time, on the ground, to understand the root cause of the social problem that they are working on. This understanding must be grounded in deep insights about the systemic issues that give rise to the problem and the way it manifests in that specific local context; in order to avoid making superficial assumptions based on the visible symptoms of the problems, rather than the hidden root causes of the issue. Founders should spend adequate time in the field, talking to their users and target group, to truly understand their needs, pains and motivations with regards to the social problem being addressed. They should involve their users, as equal stakeholders, in order to earn their trust and buy-in right from the start, and they must incorporate valuable user feedback into the heart and soul of the solution design process.

This rich and meaningful understanding of the reality on the ground will enable social entrepreneurs to design appropriate solutions that best address the specific social problems (as experienced by their target groups); and not the other way around, where they are already attached to a snazzy idea and they try to fit it to ‘somehow’ address the problem at hand. Too often founders are already sold on an exciting idea or innovation that could be the ‘next big thing’, but when they go to pilot and launch the idea, they find that it does not always fit the reality and the needs of their target group. By then, they have already invested time, money and effort into designing the perfect solution, only to find out that it doesn’t really solve the social problem they are trying to address in the first place. If founders find themselves at such a juncture, as social change-makers, they should be married to the social problem and not the solution, and must be willing to adapt their idea or approach in order to truly address the social problem in the best possible way. This is probably one of the few times where it’s better for someone to be problem-focused rather than solution-focused☺

Perhaps one of the best known examples, that accurately illustrates this point, is the widely acknowledged failure of Playpumps International, an organization operating in several countries across Africa, that produced a fun and colorful merry-go-round water pump that children could play on while pumping clean water for their communities; in turn reducing the burden of water pumping for local women. However, too much focus and media attention on the exciting piece of equipment and too less time spent on understanding the needs of the local community led to the Playpumps™ lying idle and abandoned, the women doing more strenuous work than ever before and, ultimately, resulted in the shut down of the much-hyped venture altogether (Stanford Graduate School of Business, 2012). Thus, learning from the failure of Playpumps™, social entrepreneurs should remember to always place the social problem and impact first (their WHY), at the core of WHAT they do.

2) Design the appropriate solution — Then decide the right source of funding

Once they have designed the most appropriate solution for the specific social problem, founders should then try to see what sort of organizational and financial model best fits the impact centric activities of the social venture. Are they working with a target group that has purchasing power and can afford to pay for their offering? If yes, a for-profit model makes sense where the revenue comes from the customers themselves. If their users or target groups are from marginalized communities who do not earn enough income to pay for the product, program or service, then a non-profit model makes more sense, where the funding comes from grants and donors. Or perhaps, for that unique setting or specific social business model, a hybrid organization is the way to go, where one set of customers pay in order to cross subsidize the same offering for the more marginalized user segments.

The financial model of a social enterprise should also contribute to the social change created and should practically reinforce the impact of the product, program or service. A great example of a successful hybrid organization with an impactful financial model is Aravind Eye Care in India. By using the profits generated by providing the high-quality services to more wealthy paying customers, they have achieved enormous impact at scale by providing free-of-cost or low-cost high-quality eye care services to their poor and non-paying patients (MIT Press Journal, 2007).

It is a common misconception among aspiring social entrepreneurs that founders of non-profit organizations often sacrifice their own livelihood and don’t earn regular salaries. This is definitely not the case because founders must simply account for their own (and their teams’) salaries when fundraising from a diversified set of donors, and non-profit models can be just as financially sustainable in the long run as their for-profit counterparts (some of the biggest and most impactful organizations in the world are non-profits after all). Such misconceptions about financial models have led to more and more founders to be automatically drawn towards for-profit models — determined to create activities that generate revenue from customers, even if that might not be the best or most impactful model for their particular social problem or target group.

Regardless of non-profit, for-profit or hybrid models, founders still have to dedicate a significant amount of time into securing funding, whether it’s through fundraising from donors, raising capital from investors or generating regular sales and revenue from paying customers. Thus, founders must remember that the solution should dictate the appropriate financial model, and not the other way around, to create the maximum possible social impact on the ground.

The two lessons outlined above are certainly not new–thousands of incubators and universities across the world communicate the same message to aspiring social entrepreneurs. However, a reminder always helps. Especially recently, there has been an over-glorification of innovative ‘next big thing’ ideas that are deemed to be sure-shot tickets to exponential growth and success. For social entrepreneurs, there are no shortcuts to creating meaningful impact and they can avoid the typical dangers and pitfalls of social startup failure by placing the social problem, target group and mandate for social change at the core of their organizations.

The main takeaway for all founders: when starting up a social enterprise, the right sequence of priorities is the key to impact, success and long-lasting social change☺

Written By: Paroma Bhattacharya

Paroma Bhattacharya is a Doctoral Researcher and Guest Teacher at the LSE Social Innovation Lab and is currently pursuing her Ph.D. in Management (with a focus on Leadership in Startup Social Enterprise Teams) at Durham University Business School. She has a Master’s in Development Management from the London School of Economics and Political Science. She has worked for several years as a business and leadership coach for startup social entrepreneurs at UnLtd India, a leading social enterprise incubator in India. She has taught Social Innovation and Entrepreneurship courses at the LSE and the Indian School of Design and Innovation Parsons, Mumbai. Her experience, in the field of Social Innovation and Leadership Development for the Social Sector, spans across 10 years and several countries, including India, UK, Denmark and Sri Lanka. Apart from her passion for social innovation, she is also a strong animal rights advocate and a vegan food blogger.

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