Market, Technical and Financial Risk - oh my!

As the season of ghosts and goblins is coming to a close, I'm reminded of scary things that go "bump" in the night. For an entrepreneur - especially a social entrepreneur - there is no limit to the numbers of things that keep us up at night. These are the inevitable risks of entrepreneurship. But, just like other things that are scary, I find it's best to shine a light on these risks, objectively examine and develop a plan for addressing them. Generally, entrepreneurial risks fall in the following categories: market, technical, financial and people. In my Sustayne workshops, I conduct a module on these risks and counsel organizations to take inventory of their risks in each category and develop a mitigation strategy to address each. It's also helpful to get an outside opinion on what risks are the most real and what strategies might work the best. And, it's critical to do this as OBJECTIVELY as possible - try to take the emotion and the stress out of it - then, it just becomes information. To get you started, I've included a framework at the end of this blog from Sustayne to help you begin to think through the various risks you face. The next step will be to prioritize these and develop mitigation strategies. Let me know what you think. For more on risk & risk mitigation, either attend a Sustayne workshop http://www.sustayne.com/ in the Bay Area (intro. session Nov. 15 9-noon) or Seattle (intro. session Jan. 31 9-noon) this winter and spring or attend my session on Risk at the Social Enterprise Alliance Summit in Boston March 9-11 http://www.se-alliance.org/

For your social venture, explore and note the risks you face in each of the categories listed below.

Market Risk. Bad timing: too early or too late. Unexpected competition. Wrong product or service. Wrong price. Poor positioning. Wrong target market. Etc.

Technical Risk. Problems in product development, manufacturing, or sourcing. Schedule slips. Cost overruns. Unavailability of sustainable materials. Etc.

Financial Risk. Project funding doesn’t come through. Or comes through too late. Or isn’t sufficient. Or costs too much. Etc.

People Risk. Product champion quits. Sponsor leaves. Can’t find the right talent to fill out the team. Can’t pay enough to attract the talent you need. Etc.

Try not to get overwhelmed with your list of risks. Start by prioritizing them by the ones you think are the most likely to the ones you think are probably unlikely. Next, list at least one way you can reduce or remove each of the risks. Finally - breathe. Risk and managing risk is part of life. Afterall, it's easier to address the things you know than the things you don't.

Lessons from Sustayne: Idea Vetting

So, you’ve got a great idea for a social venture. Or, you’re the leader of an organization and your staff and board keep coming to you with ideas. What do you do with them? On one hand, it’s great to foster a culture where ideas are vetted and dreams are dreamed. On the other hand, you’ve got WORK to do and paying attention to every little idea can be time consuming. One of the first things we focus on in Sustayne is to ask a few key questions to determine if an idea is worth assigning any more resources to.

First, develop a brief set (3-5) or organizational goals pertaining to social enterprise. Is your primary goal to develop a job training program or is it to generate revenue? Or, something else?

Identify the key goals of your social venture:
1.
2.
3.

Next, for each social venture idea, rate the extent to which the idea aligns with each of the following organizational factors. Once you’ve rated a venture, take a look at where it scored high and low and consider:

1. Are the areas where the venture scored low problems that can be remedied either through modifying the business model or via the organization? Are any of these areas “show stoppers”?

2. What is the organization’s willingness to change or work on specific organizational factors?

Scores
1 = not at all, 2 = not much, 3= moderately, 4 = well aligned, 5 = great fit

Rate each idea yourself, then have others in your organization rate it. Score separately, then compare.

To what extent does the business idea align with the organization’s mission?


To what extent does the business idea align with the organization’s core values?


To what extent does the business idea leverage organizational assets? (i.e. relationships, brand recognition, reputation, facilities, financial, knowledge)


To what extent does the business idea directly address the primary goals of the social venture?


Consider the minimum level of profit required to make the business idea worthwhile. To what extent is it possible that the business idea has a market demand and profit margin that can meet the organization’s profit needs?


Consider the minimum level of social impact the organization needs to achieve in order to make the business idea worthwhile. To what extent does the business idea realistically have the potential to make this level of social impact?


To what extent does the organization’s history of risk taking align with the risk level of the venture?


Consider the capital requirements of the business. To what extent can the organization realistically raise or find other sources of funding to cover these costs?


Consider cultural impact and reputation. To what extent does the venture’s level of impact align with the organization’s threshold for cultural impact and effect on reputation?


Total Score:
(copyright Social Enterprise Group 2005)

I've found this tool to come in handy to quickly eliminate or further consider various ideas. I hope this works for you - feel free to comment on how you used this tool. This is one of many I'll be sharing as part of our "Lessons From Sustayne". Want to know more about Sustayne? Go to www.socialenterprisegroup.com for more info. on workshops and licensing opportunities. Good luck!

Keep on Keepin' On

Michael Meade is one of my favorite authors and happens to be a Vashon Islander like myself. I was recently listening to a CD of his on mentoring and came across this thought "to not live your dreams causes younger people to lose theirs." It got me thinking - hard. Being an entrepreneur is tough. Being a social entrepreneur is even tougher. There are days when I wonder what I'm doing. I'm a single parent. I try to keep my life simple, but I have a house, 2 young kids and a business to run. Why can't I just go out and get some high-paying corporate gig and quit worrying about cash flow, about trying to scale a methodology, about creating impact in the world? Because I can't. Because I have a dream - one I've been feeding for over 7 years. I deeply believe that applying the rigor of business to the framework of how we address social and environmental issues IS critical to changing the world. I deeply believe that all those intrapreneurs (entrepreneurs working within organizations) in the public and nonprofit sectors and all those entrepreneurs who are starting and running private business that have a social or environmental bottom line are making a difference one transaction at a time. And, I believe that the work I do in the world and the curriculum (Sustayne) I've developed with Bainbridge Graduate Institute is a highly effective tool in helping these ideas to get off the back of a cocktail napkin, get reworked into something feasible and get launched. I believe the work of Social Enterprise Group changes the world by providing an important toolkit for others who are changing the world.

We recently called several of our past Sustayne participants to find out how they're doing. This tool had a lasting impact for every single one of them. That matters. To me, to my company, to every single on of our clients and to all the clients and customers they serve.

So, when I ask myself why I can't just "get a real job"? It's because if I don't live my dream, there might be some fantastic social venture ideas that never quite get off the ground. And, my kids might not have the inspiration they need to live their dreams.

Hiring an Entrepreneurial Leader

I recently had a client ask me for suggestions on what type of questions to ask of their Executive Director candidates that would help them find someone who would be able to effectively lead their social enterprise efforts. I realized many organizations are in similar situations - going through leadership transitions and wanting to find someone that can lead the organization in a way that supports an entrepreneurial culture. Here are a few tips on questions to ask and answers to look for:

1) Ask what their entrepreneurial experience has been - have they started a business? Have they started major initiatives within a larger organization? Find out how these endeavors ended up. Listen for the mistakes they made and what they learned form those. If they try to sugar coat their entrepreneurial experiences, they may not really get that one of the most important aspects of being an entrepreneur is making mistakes, making course corrections and moving on.

2) Ask how they have or plan to integrate entrepreneurial thinking and support into the organization. Look for indications that they'll set up simple processes for allowing people's ideas to be surfaced and quickly vetted to determine if they should receive more organizational resources to study further. Try to get a sense of how they'll provide incentives for people to come up with innovative solutions to everyday problems.

3) Ask what their expectations are for earned income generation in the organization. If they are wildly optimistic and think the organization can be totally self-sufficient in a short period of time, they probably don't have a realistic sense of what it really means to run a social enterprise. On the other hand, if they are so down on earned income they don't want to have anything to do with it, they may have had a negative entrepreneurial experience they still haven't recovered from. In short, they should be looking to determine the most realistic, sustainable revenue mix (e.g. grants, individual donations, earned income) for that particular organization and develop a plan around how to achieve it.

Lastly, I think it's always a good thing to come across someone who knows what they don't know. If they know they have limitations around particular aspects of being an entrepreneur that's great - you're a step ahead in figuring out what gaps need to be filled through training, other staff or consultants. Best wishes on a successful hire! And, for all of you entrepreneurial job searchers out there - just be honest and be yourself. Really.

Determining the feasibility of a social venture - what is "success"?

Anna (my fantastic assistant) and I have spent much of the past few weeks working on the financial model for a new business venture for one of our clients. They are a wonderful organization that helps women through many types of big life transitions. They offer a comprehensive range of services to these women, from a daytime drop-in center to keep women off the streets to residential living to childcare to substance abuse & mental health support. they are now branching into the development of a social venture in order to add a job skills & training component as well as provide more visibility for the organization in the community and, hopefully, generate some revenue. We are assisting them with developing a model for a small bakery & cafe. In developing the financials, we needed to determine 1) how much the job training portion costs and 2) whether or not the bakery/cafe could be break even or better on its own, without the job training pieces. The main reason for breaking this out in this way was because I felt that it was extremely important for them to understand going into this whether they were just needing to obtain funding for the job training portion or, if they were developing a business model that, as a standalone, without the social mission piece, would also needed underwriting.

There has been a lot of attention lately on whether social ventures have to be "profitable" to be considered "successful". It is my continued belief that the financial feasibility of a social venture is determined by the intent and by what is reasonably planned for. For example, for this organization, running a business that is at least break even or, preferably, profitable but finding grant support for the job training portion would be successful. Running the business itself at a continued loss (understanding it may take 2 years or so to get to break even) AND needing grant support for the training portion would not be successful. However, for this particular scenario, it is not reasonable to assume that they can run the bakery/cafe and the training program profitably, at least for many years. Does that mean it's not "successful"? No. It means that this organization must go into this with their eyes wide open and with a full accounting of what the true costs are that are associated with a job training program (e.g. extra staffing, less productivity, higher cost of goods sold, per student training fees) and be able to locate a reliable source of funding for those costs. And, they must keep their eye on the business side of running the bakery/cafe, keeping COGS under control, understanding their market and phasing into this in a way that makes sense for where they're at financially and culturally.

Again, another illustration of why it's so important for organizations to get assistance and to really assess why they're entering into social enterprise, what level of enterprise they're ready for and what the true cultural and financial costs are. Then, it can be successful for the organization, the community, the clients and the world. That's where the real change happens.

Social IS environmental; the environment IS social

I constantly find myself pulling out social and environmental bottom lines when I'm creating promotional materials, writings and deliverables. Each time I write something like "developing a business that manages to profit and a social/environmental bottom line" I feel frustrated that many of us in the social enterprise field and many in the environmental sustainability field don't necessarily behave as if social and environmental issues are intertwined. I believe they are. How can a social service organization claiming to be addressing issues of poverty not also take under consideration that poverty and the environment are linked? For example, a worldwide reduction in farmland combined with farmers planting corn to be used as alternative fuel instead of food has caused an astronomical 60% increase in the price of tortillas in Mexico. The poor who can barely afford to eat cannot afford even the most minimal of food staples. How can an environmental organization who is interested in helping people reduce their carbon footprints not also take under consideration the reality of a working class American family that may buy conventional foods and petroleum-based plastic products because they are by far cheaper than organics and items made from natural materials? When you're living paycheck to paycheck, you are thinking about surviving today, so solutions need to be put forth that are achievable for everyone. For example, teaching people to buy used - shop thrift stores instead of running to Wal-Mart is a place to start. I get that we are all doing the best we can and that we can't all attend to every issue out there. However, I think we all need to think about the interconnectedness of everything - bring social and environmental issues closer together - without a society, there wouldn't be a need to attend to the environment. Without an environment, there is no society. I look forward to the day when we can stop separating the two and know that they are two parts of a whole.

"We have spent 99% of our history in the wild. Sky, water, and trees are embedded in us. Sever that and we've severed what it is to be human." -John Todd

The integration of life and work - of society and business

I haven't blogged for a while - life has gotten in the way and work has been pared down to getting the necessities done. Life has calmed down again and I can begin to attend to other details of work. As I was speaking with a client this week, I was again reminded that life and work cannot be separated. That, to me, is the crux of social enterprise. You cannot pretend like doing business and attending to social and environmental needs are separate activities. They are all intertwined and all affect each other. For example, this particular client is an extension of a program that provides residential and other services to mothers who are in drug and alcohol recovery. This program is a catering company that provides job skills and training to women who have "graduated" from long-term recovery. I'm assisting them with writing their ongoing business plan. On paper, this business could look really good - it has the potential to be profitable, it provides a much needed service to the women they serve and they offer healthy foods catering in a region where there is not a lot of availability of healthy foods. However, the single biggest barrier to the success of this business is NOT something most businesses would consider but is a reality of our society. This business needs a non-client, professional chef to oversee the business - order supplies, create recipes, teach the women how to assemble & prepare the food and generally run the food operations. But, they've found it very difficult to find someone with the right skills and when they do finally hire someone - they've not been able to consistently pass drug tests. In short, finding a "sober" chef has proved to be one of the greatest risks of this business. The reality of this community - and many others across the country - is that drug and alcohol use is rampant and is especially so in the food industry. If we dig deeper, we open up the Pandora's Box of issues systemic to our culture that cause so many people to need to find ways to "numb out". As I write their business plan, I am again reminded that you cannot separate social issues and business. Ignoring the drug issue would be ignoring the biggest barrier to this businesses' success.

My definition of success for the field of social enterprise? When we no longer call it social enterprise, but integrating social and environmental impact is the "norm" for the way all businesses are planned and operated.

Achieving balance

A teacher of mine recently sent me some thoughts, including this: "‘balance’ in our lives is not static, it is fluid and dynamic - more a dance than a fixed state."

When I speak to my clients about social enterprise, the issue of balance inevitably comes up. As social entrepreneurs, we constantly struggle with balancing our social mission with profit. There is a dynamic tension that occurs when these two complimentary, yet sometimes conflicting, elements require difficult decisions to be made that can feel like you're giving up one for the other. I am often asked how to stop this tension. My answer: you can't - and, you shouldn't. I believe that there is great power in this dynamic tension and needs to be identified, managed and embraced, rather than stopped. I believe that this tension is what pushes both sides of the coin. The need to make decisions at times that are more focused on the money than the mission can be an important catalyst for examining whether you are making smart, financially sustainable financial decisions. After all, there is no mission activity if there is no money. On the other hand, when you find yourself making decisions that put the mission first and may feel detrimental to the financial bottom line, you're being pushed to examine how your enterprise impacts people. The key is that the decisions that are more money focused and the decisions that are more socially focused balance out over time - not that every decision itself is balanced. I've found that once organizations understand this, as well as the common areas of tension that arise - they can begin to recognize it, foster healthy discussions and embrace both points of view as important parts of the whole.

Big Thinking or Small Actions?

I recently came across an old story about a traveler who comes across two stone cutters. He asks the first "What are you doing?" and receives the reply "Squaring the stone." He then walks over to the second stone cutter and asks :What are you doing?" and receives the reply, "I am building a cathedral." Both men are performing the same tasks, but one of them is aware that he has the choice to be part of a greater dream (from Alberto Villoldo's book, The Four Insights).

Social entrepreneurs and those who support them are often asking the question of whether it's enough to save the world one social entrepreneur at a time or if we need to be thinking bigger. My answer is: both. It is up to everyone one of us to learn how to simultaneously be focused on our daily tasks - whether it's the emails we're responding to, reports we're writing, conversations we're having or thoughts we're conceiving - AND begin to understand how those daily tasks affect a bigger dream. In this work and in any world changing work, there are often a contingency of dreamers and a contingency of doers. I believe that while most of us are stronger in one area or the other, we cannot exclusively be one OR the other. We must learn how to be both, how to do our daily tasks and figure out what more we need to do to affect greater change.

The Pilates of Social Enterprise?

I was amused to stumble across Yale professor Jeff Trexler's blog http://www.trexfiles.com/ that discusses Sustayne, our comprehensive business planning methodology for social ventures. I love the comparison to Pilates. Yes, we are definitely trying to get a proven, quality methodology out there and get as many instructors/consultants as possible trained to deliver this to social entrepreneurs in all sectors in all parts of the world. Why? Because I deeply believe that a powerful tool for changing the world is entrepreneurs - specifically social entrepreneurs. AND, I believe that these entrepreneurs need as much assistance as possible in the early stages of developing their ventures to determine how best to develop their business model and set it up from success from the get go. Sustayne is based on the life work of Gifford Pinchot III, author, entrepreneur and founder of Bainbridge Graduate Institute www.bgiedu.org . He has been using this method with Fortune 500 companies and major government agencies, such as the US Forest Service for over 20 years. I've been working for the past several years to organize it and modify it to fit social venture development. Voila! Sustayne is born.

Mr. Trexler also spends a couple of lines lamenting the name Sustayne. So, for anyone who's interested, here's where it came from:
the word sustayne was used widely in 16th and 17th century poetry and was generally used to reference sustaining oneself spiritually, emotionally and physically
- it harkens back to a time when society, the earth and business were inextricably linked – the impacts of one on the others was widely known
- this work comes from my deep belief that bringing this link deliberately back into the way we develop solutions to social and environmental issues as well as the way we sustain ourselves financially IS an important key to making a real change in the world
- we use a water wheel as the logo – again, a symbol of the time this word was used as well as fitting into Sir Isaac Newton’s laws of Motion (originated in 1687; from Wikopedia.com) :

o Objects in motion tend to stay in motion, and objects at rest tend to stay at
rest, unless an outside force acts upon them.
o The net force on an object
is equal to the product of its mass and its acceleration.
o To every action
(force applied) there is an equal and opposite reaction (equal force applied in
the opposite direction).

Sustayne is the force that generates the motion to cause a reaction.

So, we’re pleased even the name causes a reaction! For more info., go to www.socialenterprisegroup.com or call 206.903.8578.

The Genius of Youth and the Dreams of Entrepreneurs

Last night, I attended an amazing event here on Vashon Island. It was a youth-adult discussion forum, moderated by the very talented storyteller, Michael Meade, a Vashonite. The theme was "a crisis of culture and the genius of youth". In my discussions with a couple of high schoolers, I was particularly struck by what they felt the genius of youth meant. We discussed how important the wide-eyed dreamer aspect of youth is, but also how important it is to balance that with the pragmatism and experience of elders. It struck me that that balance is exactly what make social enterprise tick. It's vitally important to balance the enthusiasm, passion and wide-eyed dreaming so necessary in allowing social ventures ideas to hatch with the structure, information and experience of those that have been there before.

I guess that's one of the reasons I'm so passionate and wide-eyed about scaling Sustayne. I deeply believe that it blends both of these aspects - it creates a space for dreaming, but provides structure and pragmatic information to help dreamers get their dreams into a tangible and sustainable format. It's the passion for that dream that keeps me going, but I've also had to be careful about tempering that dream with reality and pragmatism. I guess that's the balance for us all - a constant work in progress.

Global social enterprise - the same old conversations?

Last week, I was one of 3 panelists at the Canadian Conference on Social Enterprise in Vancouver, BC. The topic of the panel was Lessons From Abroad and focused on what we can learn from social enterprise initiatives in other parts of the world as well as what's the same and different about working in North America versus other parts of the world. The main things I learned from this conversation are:

1) The barriers to social enterprise are virtually the same the world over: lack of appropriate & sustainable types of financing, public policy that doesn't support or understand social enterprise and lack of effective and accessible management support/technical assistance - which happens to be my big passion and the push behind getting Sustayne, our sustainable business planning methodology scaled as broadly as possible.

2) Many large global philanthropies are the major funders in developing countries and there is a dependency on these dollars. However, most of these organizations are bureaucratic and not very entrepreneurial themselves, so they often don't understand how to support social enterprise and the innovative solutions stemming from social entrepreneurs.

3) Meeting communities where they are at continues to be an issue. Developing countries are often facing very core issues such as hunger, basic education, water sanitation and rampant theft. So, some solutions we might seek in North America are often not appropriate for where a specific community is at in terms of the very real constraints they have to work in. One example that was given is a funder who gave computers to a nonprofit in South Africa. The community had a major theft problem and computers were often stolen quickly. Additionally, having a computer put a person into a different social "status" than those without computers. So, there were many issues behind the receipt of computer equipment than just being a solution to a specific problem.

A question that was raised that really made me think was "these sound like the same conversations I had in graduate school 20 years ago in terms of community development and micro enterprise - has anything changed?" Hmmm. I had to admit, these are many of the central issues I learned as a Peace Corps Small Enterprise Development volunteer in Mali, West Africa many years ago. He's right. The conversation does sound the same. I guess for me what's changed is my understanding of what these issues mean and how an entrepreneurial approach to solving tough social and environmental issues can actually be applied for effectiveness. And, the world has changed. We are living in a very different place with much more communication than 20 years ago. Thanks to technology, women in small villages can sell their art around the world. We can see, hear and practically feel what's going on in the farthest reaches of the world. So, yes, much of the conversation around global social issues is the same....I just hope we are all getting to a deeper level of understanding what these issues mean and how to approach them.

This is NOT business as usual, this is how you change the world

To kick off this blog, I'll start by stating my big,bold belief in the world and the source of the passion behind my work. I deeply believe that this world is changing, one entrepreneur at a time. And, it's changing with the increase in the numbers of people - individuals, nonprofit staff and managers, for profit entrepreneurs and, yes, even government agencies, who are rethinking the way they work. I believe that thoughtfully and intentionally bringing together social and environmental issues with business methodology helps us to address important societal issues in more effective and financially sustainable ways. Examples of this abound - check out www.skoll.org and www.ashoka.org for profiles of amazing social entrepreneurs who are changing the world.

The focus of my work is to get streamlined best practices out to people - whether they call themselves social entrepreneurs or not - who are committed to developing business models that have a dual bottom line so they can make better decisions about how and whether to develop a social venture. I feel lucky that I get to work with all sectors - public, private and government and in a variety of settings - from small, rural communities who are looking to social enterprise as a way to meet important local social needs and generate money in their economy to the US Forest Service bringing entrepreneurial concepts into the way they manage the stewardship of our forests to nonprofits who find that the development of a social venture can help them meet their social mission and generate revenue for their organization.

I hope my blog will be a place to have a fluid conversation about a variety of strategic and tactical issues around social enterprise. I expect it will raise questions, push the envelope and will hopefully inform and inspire. Let me know what you think and what you want to read about. Enjoy!