In a recent post, I spoke about the importance of applying a structured innovation process to develop and launch your startup. Furthermore, I argued that a reasonable approach would accommodate a variety of contexts, from startup to corporate innovation. This article focuses on using the venture realization process to develop social innovations that create value, impact, and growth.
At its core, innovation evolves in much the same way; You start by identifying what outcomes you wish to achieve. This identification process focuses on a deep, empathetic understanding of the needs, desires, and frustrations of the target beneficiary of the innovation. This level of knowledge comes from engaging the people looking to solve a particular problem or perform a specific task or job. Sufficient engagement and extensive research into the associated environment help enhance your understanding of the individuals’ experience with the current conditions. Once you achieve this understanding, you can consider alternative solutions prioritized and tested iteratively. Your goal is to find a solution that aligns with the needs and desires outcomes of the individuals in question.
The above statement works for just about any innovation across most contexts. However, the more one drills down to better understand a specific situation, the more differences you find. These differences may be significant or nuanced. In the case of applying a structured innovation process to solving a significant social problem, you will experience both ends of the spectrum.
I will focus on social innovators representing market-driven, mission-driven, and hybrid models. I will note when a specific practice falls into a social impact business model category throughout the article. There are several ways to look at social impact business models. In our textbook, we break it down into four general models.
The first model is a not-for-profit structure in which the enterprise is focused entirely on a social mission. Unfortunately, this model can be limited in meeting its potential impact through lack of resources or even being able to sustain itself over the long haul. Such organizations often must rely on philanthropy, volunteering, and government grant supports as they have no mechanism to provide a return on investment for the sources of funding that apply to business ventures.
The second class of models is called hybrid. A legal structure enables both a social and a business mission to exist in a mutually supportive relationship. Although these models introduce challenging management and governance issues, they can attract external investment from the private sector and reduce the dependence on grants, philanthropy, and volunteers. Therefore, they may be sustainable over a long time.
The third class, the dual-mission model, uses a standard business structure where profits can be attractive enough for external investors to participate. At the same time, the company fulfills a significant social need.
The fourth class, sometimes referred to as “cooperatives,” gains scale by combining the efforts of several individual small businesses that, on their own, may not be sustainable. They share many resources, allowing them to survive and prosper. The shared resources could be creating a recognized brand, buying raw materials in larger quantities to reduce costs, using standard distribution networks, sharing knowledge, etc.
In the following sections, I will highlight a few elements of the venture realization process and how they apply to the practice of social innovation.
Framing the Opportunity
Entrepreneurs frame the opportunity by identifying a customer problem to solve and assessing whether it is worth exploring. Framing the opportunity is an essential first step in any entrepreneurial context.
Socially driven innovators solve significant, complex social problems. The framing process can be substantially challenging due to the complexity of the problem and the dynamics of the associated environment. For example, delivering healthy food in Manhattan is a much different proposition than doing the same in a small village in a developing country. Each situation has its challenges, but the latter may suffer from lack of infrastructure, supply shortages, transport disturbances, and many other difficulties. Same fundamental problem and desired outcome, but one situation is much harder to accomplish.
The social innovator must move the lens back and forth, looking at the problem from many angles and distances. Expand and shorten the time boundaries regarding the individual’s experience with the situation. Complex issues rarely start in an obvious way. There are almost always unobservable antecedent factors outside the immediate, visible context. There are many ways to define a problem, and one must probe beyond the initial conception of the situation. Complex social issues require looking for non-obvious or outside factors influencing the situation and the affected individuals.
In 2014, I was part of team training farmers in West Africa entrepreneurship and business fundamentals. For what was called the Africa Rural Youth Entrepreneur Project, we developed two rural training programs for aspiring entrepreneurs. The first type of training focused on creating master trainers and instructors able to deliver entrepreneurship training to young adults across four Western African countries, Benin, Cameroon, Gambia, and Nigeria. The second type of training targeted rural youth interested in non-farm & farm enterprises. Selected rural youth in the target countries participated in entrepreneurship training through our trained instructors. The curriculum and supporting materials for both instructors and entrepreneurs were English and French. When the program ended, we had trained over 600 entrepreneurs.
Before designing the program, we conducted a good deal of early research to understand the context and environment these farmers would encounter while starting their ventures. I will touch on this more in the customer and market discovery section. However, an important thing to note is the discrepancy among all stakeholders regarding their understanding of the farmers’ on-the-ground experience. The discovery process unearthed these differences, which allowed us to develop a relatively effective early test program.
Of course, you can make a similar case for any human challenge. But I find that social innovators’ challenges are typically more daunting. This fact alone makes the early identification of the opportunity and the entrepreneur’s assessment of their capacity to drive change more difficult and time-consuming. Solving social problems demands that the entrepreneur take the necessary time to understand the individual’s experience with the problem and what enablers and barriers are in the way of requisite behavioral changes and other targeted impacts.
Entrepreneurs look closely at the opportunity to ensure it aligns with their passions and current life circumstances during this early stage. Social innovators focus on a social mission, thus facing distinctive challenges. As noted above, the opportunity identification phase focuses on targeted behavior change and the impact of the task. In some cases, wealth creation is a lesser concern. With business entrepreneurs, wealth creation is how success is measured and, in most cases, bounded by incorporation requirements. They are subject to market discipline; if they do not shift resources to more economically productive uses, they may fail. Markets do not always value social impact, though this is changing. It is much harder to determine whether a social entrepreneur is creating sufficient social value to justify the resources used in making that value. The survival or growth of a social enterprise is not necessarily proof of success. Social impact is the main value proposition. However, it can be a long journey to that end.
The difference in focus changes how the social entrepreneur aligns the opportunity with their passions and capabilities. In the first stage, the process facilitates a preliminary venture opportunity assessment. Pre-screening analyses include technical, financial, and resource feasibility. Next, entrepreneurs assess their knowledge of the social problem and overall access to those experiencing said challenges. Additionally, an early screen of the overall ecosystem ensures that innovators know what optional solutions exist in the market.
A specific aspect of the pre-screening activity focuses on personal drivers and financial resources to sustain oneself during the early part of the entrepreneurial journey. Solving social problems can take an enormous amount of time and effort. In a sense, you have to be all in and ready to sustain yourself for some time. Therefore, it would be best, to be honest before taking this challenge.
Business Model Formation
Entrepreneurs build the first business model iteration that details early critical assumptions about how their venture will provide value to the customer.
Many social innovators apply the regular Business Model Canvas (BMC) as a framework to articulate and test their assumptions about how the enterprise plans to provide value to the end customer. However, social enterprises need to consider different factors when developing their business model. Here are some common differences to consider when using the Business Model Canvas for a social enterprise.
As with the BMC, social innovators should start by identifying their assumptions about the problem at hand, who mostly experiences the pain, and what solutions would be most appreciated by those experiencing it. Then, starting with the value proposition and segments elements, you may want to break down between the customer and beneficiary.
The end-users may be considered the beneficiaries of your offering. The Value Proposition for them will focus on what value or benefit they will derive from your product or service. The value proposition is an excellent place to articulate the “gains” they would act if they use your product. On the customer side, the organization funding the project (at least in the early stages) will want to know the expected degree of impact if the program is successful.
The Segment element follows that you may want to break it down to specific beneficiaries versus customers. In this case, the customer is the person or organization paying to address the problem and achieve a particular social impact.
One vital BMC element in a social enterprise is the identification of integral partnerships and alliances. Understanding all the essential stakeholders within the ecosystem of an impact area is crucial to success. Many early social enterprises need resource partners to provide capabilities currently missing from the enterprise. Partnerships that provide greater access to the beneficiaries are just as important, including “on-the-ground” organizations.
We knew that it would take several on-the-ground partnerships to deliver the planned value and impact for the Africa project. As a result, the program partnerships evolved with foundational relationships facilitated by the United Nations International Fund for Agricultural Development (IFAD). In addition, IFAD helped organize local partners in each country to support on-the-ground organization and program implementation.
Another BMC area that might require customizing is collectively called the profit model, the revenue, and cost elements. In this case, you may describe revenues as the inflow of funds or sources and the outflow of funds used. You can break down the sources of funds that you plan (by percentage) and align these with the uses, focusing on the most significant expenditure areas. Additionally, some social canvas models add a Surplus element to show how you would re-invest any residual funds (or profits).
The entrepreneur generates an overall business model by the end of this activity. The model articulates the value proposition and rationale for customer selection or product-market fit; the scope and channels for products/services offered by your venture; proposed organizational design including critical activities, resources, and partnerships; and initial assumptions on revenue streams and cost structures. Entrepreneurs refine this preliminary business model throughout the program.
Customer & Market Discovery
With the initial business model created, founders conduct customer and market research to support their innovation strategy. Module Three prepares entrepreneurs for customer discovery. The discovery process guides you towards a deeper understanding of the customer problem, jobs, and needs. With the customer well defined and the assumptions about their needs articulated, the entrepreneur is ready to conduct discovery interviews and surveys. The customer data helps validate business model assumptions and drive early solution design and testing.
As noted in the business model section, customer segmentation can be more complex for a social enterprise. Like an enterprise serving a business customer, the social entrepreneur most likely serves several stakeholders. Commonly called beneficiaries or end-users, these customers are directly experiencing the problem and applying your product or services as a solution. The most significant impact is on these end customers. No matter the context, the entrepreneur must completely understand this customer, their needs, and what solution will be most acceptable to them. Having a deep understanding of their situation is essential and cannot be short-changed. Sometimes, the entrepreneurs will directly experience the problem and associated context as in a business scenario. This personal knowledge is helpful but not sufficient. You sill want to engage more significant numbers of these end customers to understand their experience truly.
As with a B2B business model, social innovators must engage other decision-makers and stakeholders. These customers include resource providers, supporting organizations that serve or host end customers, and other active contributors and participants in the associated ecosystem. In a social enterprise model that depends on external subsidies, funders will be one of these stakeholders. From experience, I can say that there will be some discrepancy between the goals of these stakeholders and the needs of the beneficiaries in most cases. This discrepancy is one of the primary challenges in social innovation navigating and aligning the impact objectives across all stakeholders.
Entrepreneurs begin to add secondary research to their market knowledge. Entrepreneurs conduct a comprehensive competitive analysis of various solution providers, identifying key competitors in their industry sector and exploring their respective business models. Social enterprises need to look at “competition” as optional solution providers. When solving a significant social problem, you believe that the more people working on this, the better. While there is certainly competition for resources and funding, most social innovators see other solution providers as kindred spirits trying to make a difference. Therefore, it is vital to study relevant solution providers to learn best practices and identify any gaps in the services.
Another research activity is the identification of essential stakeholders with the relevant ecosystem. Several stakeholder categories, including domain experts and local support organizations necessary to deliver services to your beneficiaries. For example, when we provided entrepreneurship training for farmers in Western Africa, we extensively analyzed the support system for entrepreneurs. We looked at what support networks existed to support entrepreneurship through interviews and surveys. Was government funding available to support early venture development? Were there any existing training or education programs that entrepreneurs could participate in as part of their ongoing development? How supportive were local business regulations and practices for new businesses? For social innovators, it is crucial to survey the local ecosystem to identify both enablers and barriers in achieving the desired social impact.
Often, social enterprises are focused on solving complex social problems experienced by underserved populations. Therefore, one must take the time to understand their needs, priorities, and the context of their experience. There are many situations that a social entrepreneur is working with customers whose everyday life is much different than that of the problem solvers. So you need to evaluate your assumptions carefully and interpretations of the customers’ experience. At best, you don’t optimally solve the problem. At worst, you create unintended consequences.
Lean Product Design & Testing
At this stage of venture development, product and market innovation comes to the forefront. The entrepreneur shifts focus from the customer’s problem to the design of the solution. The basic tenets of lean product development work perfectly well with a socially driven solution. Like any minimum viable product, it is essential to always focus on how to provide value to your customer with every engagement point. Early versions of any product may not solve the whole problem, but there is always pressure to solve quickly, especially in social challenges. Working on fundamental issues drives a sense of urgency. This sense of urgency by stakeholders, especially funders and investors, places pressure on growth and impact. However, this is a trap that social innovators should not fall into at all costs.
Social innovators must focus on value and impact early, followed closely by scalability. You must start with value to the end-user or beneficiary. If they don’t see the value of your solution, they certainly will not use it. There are many instances where excellent solutions end up unused because the end-user either does not see the value or the use is somehow culturally inappropriate, making it challenging for the individual to change behavior in the required manner. This condition often exists when one creates social innovations without understanding how an individual’s religious or cultural traditions lead to rejection of the solution. Once the demand is validated, the next question is, does it work? Will your solution have the desired impact? In later iterations of solution testing, social innovators will shift focus again and look to validate the business model. Have you created a scalable and repeatable model, the least essential element of social innovation? Later MVP iterations will test whether all the parts of the business model work in concert to deliver the value to the en-user. It is challenging to validate value, impact, and scalability concurrently. The social entrepreneur must stay focused on all three and work towards validation step-by-step.
Like all MVP contexts, the social entrepreneur must prioritize which customer value and impact areas to explore during early iterations. Additionally, MVPs must meet the criteria of minimizing the costs and risks while still providing some value. Some of your assumptions will be relatively easy to validate regarding expense, time, and risk. However, significantly higher risk areas or longer-term impacts take longer to validate. Therefore, social innovators must find creative ways to test high-risk areas and find potential interim metrics, considering logical steps towards longer-term implications. I find this an excellent place to use process or journey maps to look for antecedent factors that need to be tested and validated towards the longer-term objectives. For example, when training the farmers in Africa, we looked for early indicators of value leading up to the desired impact. In this case, successful early customer engagement was a good step towards launching a business that would eventually support the farmer and family.
Determining the sequence of testing is essential. You must find approaches to test more significant risk assumptions in the most cost-effective and fastest way. As your MVP evolves, the experiments will become more complex and expensive. However, if conducted in the proper order, you will make the right kind of progress. This staged approach will minimize the risk of developing an undervalued solution or one of limited impact. For example, in the Africa project, we started with a small cohort in one country, and then with lessons learned from the first delivery, we staged the entry into the other countries.
For example, many social innovations demand more in-person effort than it takes to test a software product using A/B testing. The phasing of participant size can be part of the iteration process. Start with a small end-user group, testing the solution and any value and impact measurement. As you learn more about what works and what doesn’t, you can increase the number of participants at each successful iteration. Managing participant size allows you to quickly iterate while having the appropriate time to solicit feedback, collect data, and monitor results. It is important to note that many desired outcomes may not manifest immediately after an intervention, especially when they are behavioral. So you will have to create follow-up assessment methods to validate longer-term value and impact.
In the solution testing stage, we validate the solution’s value to the end-user and generate the impact desired. The last critical element of social innovation is whether it is scalable? The answer to this question will inevitably influence resource requirements and funding.
Validating that your business model leads to growth is challenging in the best of circumstances. Early growth depends on solid customer acquisition strategies, execution capacity, and enough capital to fund both in market-driven enterprises. The development of socially driven enterprises can be more complicated, especially when funding is required to make up for any deficit derived by the fact that the end-user is not fully paying for the solution. In addition, socially-driven entrepreneurs may not be able to manage the economics of the enterprise, applying traditional unit economics. For example, it may cost more to provide one service than the amount received.
Many socially driven entrepreneurs rely on subsidies to develop early pilot programs. But, inevitably, these funds run out and are never sufficient for long-term growth. So your business model must have a path to future growth, with funds coming in from multiple financial sources.
Based on experience, I advocate that the end-user or beneficiaries pay something in most situations. While there are cases where this is impossible, I have found that if the individual sees the value, they are willing to pay something. Additionally, and we have all experienced this, there is more motivation to participate in something we have paid for and tend to be less enthused when the offer is free.
As we worked to find ways to scale our farmer’s entrepreneurship training, we tested this out as we transitioned away from the funds received from the United Nations. We tested two models. The first payment model had the farmers paying modest amounts for the training. In this case, we found that students were willing to pay small micro-payments in installments over the course’s delivery. Building on this model, we tested the idea of creating master teachers recruited from early cohorts of farmers. We trained several master teachers. They taught classes and shared in the class revenues. We were making enough income to fund some on-the-ground activities but not enough to scale beyond a small regional footprint. In this case, the program did not move forward as we did not find the next wave of funding to help test and validate a regional growth model with established training centers. While disappointing, we did manage to train 600 plus farmers in the region. However, while this metric demonstrated some value, it did not validate the long-term impact.
The above example illustrates how social innovators can transition from fully subsidized to a more market-driven model. But, of course, some social enterprises are built on market-driven models and apply a percentage of revenues or profits to support the social mission. For example, I worked with a social entrepreneur who founded a school for young women, funded by dedicated revenues from Shingora Textiles and managed through their family foundation. So basically, for every scarf sold globally, a percentage of the income goes to funding the students’ education.
Social Innovation Metrics
Entrepreneurs select important Innovation metrics to measure and monitor as the venture evolves to support goal attainment. For example, social innovators focus on value, impact, and growth metrics. The decision on what to measure changes over time. You must break down what assumptions you are testing and measure each aspect separately. In the Africa example, we started with metrics around interest and participation. Much like a sales funnel, we estimated how many people would sign up for information sessions and how many would enroll in the class. Once registered, we measure learning outcomes through various testing and assignment outputs. Next, we looked at the percentage of those that graduated versus enrollment. Finally, we monitored how many students moved forward with their ventures after the program was over.
I see all these measures as intermediate metrics showing value leading to impact. For a program like this, the ultimate impact is measured by how many entrepreneurs successfully launched their ventures, followed by evidence of sustainable growth. We did start to see some evidence of this level of impact, but the program did not last long enough for any long-term measurement – a common challenge for social innovators.
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