Some cold hard advice for the entrepreneur who wants to change the world.
When it comes to starting a social enterprise, consider putting the “social” before the “enterprise.” At REDF, we put the social mission first, which means we start by asking, “What kind of business supports our mission to employ people facing barriers to employment?” before asking “How profitable will the business be?”
Beware the pet project! It’s often tempting to get emotionally attached to a particular business idea, build an overly optimistic plan around it, then try to make it work. Perhaps it’s an idea being pushed by a funder or Board member, or it comes with “free” retail space or other strings attached.
When things inevitably get rocky, usually it’s the social goals that get compromised in order to keep it financially viable – for instance, hiring people that are easier to employ, or reducing social supports to cut costs. Then what you’re left with is… a plain old enterprise. And a failing one at that. Don’t fall into the trap!
How to avoid this trap? Simple: all investors should agree on clear criteria for both social and financial goals, and stick to them, BEFORE screening and selecting ideas against the criteria. The best criteria are SMART: specific, measurable, actionable, realistic, and time-bound.
Examples of social criteria include:
• Minimum number of jobs to create
• Minimum number of people to employ
• Target population: who to employ, and how to help them
• Job structure: types of skills learned, potential career path afterwards
Examples of financial criteria include:
• Maximum amount willing to invest up front
• Maximum amount willing to subsidize or lose
• Minimum gross/net margin before and after social costs
• Time to breakeven
Starting a business isn’t easy. Starting a social enterprise is even harder! With two bottom lines, the stakes are higher and the risks are greater. But when it does work, it’s a thing of beauty. Selecting the right business idea, and more importantly, saying no to the wrong ones, is a big step in the right direction.