Why Social Entrepreneurs Should Pressure-test Their Ideas
Social
entrepreneurs -- those who try to tackle major social problems such as poverty
and disease while generating revenues -- are often well-meaning people. But in
their desire to make a difference to society, they sometimes fail to subject
their ideas to rigorous tests. Ian
C. MacMillan, a
professor of management at Wharton, and James D. Thompson, who leads the Wharton Social Enterprise Program, have just published an
ebook titled, The Social Entrepreneur's Playbook,
to help entrepreneurs do just that. In the interview here, MacMillan and
Thompson explain why it is important for
social enterprises to subject their beloved notions to tough love.
Excerpts are given below. At the end
the reference is given for further reading
James D. Thompson: One of the key distinctions of the approach we took was the
use of field research. Social entrepreneurship back then wasn't what it is
today. When we started out, there wasn't a lot to go on.... , one of the key
outcomes of the research that we were looking for was a framework, a tool. How
do you go and do this and do it in such a way that you increase your chances of
success and minimize the resources used in attempting to do what you're trying
to do? We used field research to learn our way into the space. The book is the
fruit of the last decade-plus of field research.
Knowledge@Wharton: One of the ideas that you really emphasize in the book is
the notion of "pressure testing" the core idea of the social enterprise.
But why is it important for a social enterprise to subject itself to this kind
of a pressure test?
MacMillan: ..The characteristic feature of these types of enterprises
is huge amounts of uncertainty. It's so easy to go charging down the road spending
other people's resources only to find out that your idea wasn't well backed in
the first place. The theme of the book is to give the would-be social
entrepreneur a series of questions they need to ask themselves. If at the end
of that particular due diligence phase you can't answer "yes" to most
of those questions, you've failed the pressure test and you should abandon [the
project]. Get out early and cheap and conserve those resources for something
that might work.
Thompson: ...It's doing the due diligence up front and not trying to
force your case in a highly uncertain environment, but rather trying to find
ways to show where you're wrong so that you can learn, adapt, redirect and
build your enterprise.
Knowledge@Wharton: ..But you said that social enterprises face a much greater
degree of uncertainty than normal startups. Why is that the case, and what can
be done about it?
MacMillan: We use the term "uncertainty"…... This is one of
the problems with a startup. You don't know whether there's going to be
appropriate governance; you don't know whether there's a market; you don't know
whether there are customers; you don't know the prices; you don't know what
materials are going to cost and so on. There are just huge amounts of
uncertainty.... You just don't know what's going to happen.... What we're
trying to do here -- by putting would-be social entrepreneurs through their
paces and giving them what we call these tough love questions to ask -- is [to
drive] the risk out. The uncertainty doesn't go away. But if you're able to
configure your enterprise in such a way that you have driven out the risk, then
you can afford to take on uncertain projects.
Thompson:. The nonprofit sector ... might find the book very useful.
So that's one: people in nonprofits trying to do more with less.
The second is the funding community:
foundations, philanthropists. One of the big cries out there today is for
transparency. How do we know when these activities are doing what they claim
they're doing? How do we compare them one against another? Let's face it:
nonprofits face the equivalent levels of competition for funding that a regular
firm does. We think that this book will give them tools to communicate to their
funding communities fairly strongly how it is they are doing what they are
doing, and how they're measuring the social impact that they are having.
The third is corporations. Many,
many companies around the world today are looking at social impact indices and
are getting measured on corporate social responsibility programs. …They have
stakeholders in the firm, out of the firm. We think this will give them a set
of tools to begin to think about what they're doing, and do it in a manner that
gives them greater impact with the resources that they dedicate to these programs.
Knowledge@Wharton: Mac, how does your model help social entrepreneurs move
from uncertainty to risk, or in other words, from what is plausible to what is
plannable?
MacMillan: The basic idea is to give them a series of exercises to go
through. You start off really subtly identifying what the real problem is and
how it's dispersed. For instance, is this problem something that's unique to a
small territory, or is it something that [exists] across a whole continent?
Make some decisions about who the initial target segment would be that's going
to benefit. You go for the segment that will benefit the most, but will also
adopt your offering the easiest. Then, the next step is to start to think
pragmatically about what is the competition today for the solution to the
problem, and oftentimes [the competitive alternative is] simply doing nothing.
People have existed in many cases
for dozens, if not hundreds, of years suffering from malnutrition or hunger or
lack of education. It's something that they're used to. [That is what you are]
competing against. Unless you can come up with something from the beneficiary's
point of view that is better than the nearest alternative, you're wasting your
time. We have a look at the market characteristics, and we look at the
competition and we have a look at finding the segment where you'll get the most
traction as soon as possible. Then, begin to think a little bit about the
politics of going into the space and what you need to do to make sure that you
don't fall foul of the politics. What you have is a systematic unfolding of
more and more insight into what it's going to take to really do this and make
this happen.
Knowledge@Wharton: Great. Jim, since you mentioned fieldwork -- it was a big
part of the way in which you worked on this book -- could you tell me a little
bit about what are some of the most common mistakes that you found social
entrepreneurs make by not following the process that Mac just outlined?
Thompson: That's a good question. Possibly at the top of that list is
the formulation of a plan by a group of individuals with the best of intentions
to go somewhere else in the world that they don't know a lot about. They may
know a lot about the subject that they are attending to in the part of the
world they come from. But conceiving this plan on another continent, for
example, [is not the same]. They raise resources, sometimes significant amounts
of resources, to go do what they believe to be a wonderful activity. They get
there and realize that the way they envisioned it to work was never going to
work. Yet they have committed themselves to this unilateral course of action --
a business plan, if you will. They have spent two, three, four, five years
floundering and learning why it's not going to work the way they envisioned it
would. That would be the top.
Another that comes to mind is cash
flow management.... What we find is that there's even greater uncertainty with
respect to cash flow in these types of environments. This is not new to anybody
in entrepreneurship, but in these environments, it can be even tougher to
manage cash flows for all sorts of reasons: regulatory, availability of foreign
exchange, etcetera.
The third one to mention is the idea
of redirection. How does one think about redirecting as the reality of being on
the ground unfolds? What we've tried to do in this book is attend to that,
because we know it happens. We've seen it in every single case we've been
involved with: this realization that your plan needs to change if you want to
keep doing what you're doing. But now you've got to redirect. That means
getting all your stakeholders on board to redirect, reconfiguring your
operations model, sometimes reconfiguring your funding model.
MacMillan: One of the big tragedies is that people assemble a
wonderful solution to a problem that they have not really studied hard enough
for the context where it's going to be implemented. Then they will go over with
all of that money and all of that energy and all of that excitement and find
that the so-called beneficiaries -- the recipients of this largess that they've
put together -- they could care less or they are very, very resistant. All of
that money, which is desperately needed to help people who are in need, just
goes to waste because people have been thoughtless.
Another big problem is that people
set in motion a program and then find that they can't sustain it. Then they
have to walk away from what they set up in the first place. A specific example
here was a case that was identified by [Paul Theroux in his book, Dark Star
Safari]. He went to east Africa, and while he was there, he ran into a
group of people who were feeding children. And what had happened was that
mothers had stopped nursing their children and fed these children with what
they called wet feeding. And they ran out of funds. And so what they did now is
they just packed up their tents and went on. All those women who would have
been able to continue feeding their children by breastfeeding now could no
longer do it; they were no longer lactating.... Nobody really thought through
what the outcome would be in the event of failure. So, you create dependence
and then you fail.
TO READ FURTHER AND IN FULL
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3289
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