Research has shown that giving makes us far happier than receiving. In a way then, we are being both selfish and selfless by giving back to the community. It makes us happy to know we are making a positive difference in people’s lives. What if then you could run a for-profit business that also gave back to the community? That’s a social business, or social entrepreneurship, and it’s becoming more and more common as people want to make money, and make a positive difference in their community.
Social entrepreneurship often promotes the “triple-bottom-line approach” that seeks profits, social impact, and environmental sustainability. Although profits are not the primary motivation, revenue still plays an important role in the sustainability of the business.
Donations and public funding are not a part of the business model for social businesses. The goal is to be self-sustainable. Nobel Peace Prize Laureate Professor Muhammad Yunus says, “A charity dollar has only one life; a social business dollar can be invested over and over again.”
Yunus’ Seven Principles of a Social Business
1) To overcome poverty or one or more problems (such as education, health, technology access, and environment) which threaten people and society. It is not profit maximization
2) Financial sustainability
3) Investors do not invest to get rich. They get back their original investment only. No further dividends are paid
4) After the original investment is paid back, profits are reinvested in the business
5) Should be gender sensitive and environmentally conscious
6) Employees get a fair wage with better working conditions
7) Do it with joy
Whether you relate to all of the above, or a few, starting a successful social business can enrich yourself while doing good for others.
More and more people are looking at the ethics driving company’s decisions. The idea of “doing good and doing well” is becoming more and more popular. As such, there is no better time to start a social business! Studies have shown:
- 56% of US consumers have stopped buying from companies that are unethical
- 63% of consumers feel that ethical issues are becoming more important
- 58% of consumers revealed that buying ethically produced products makes them feel good
To get started, be clear on what motivates you. By doing so you’ll be able to stay focused on a vision and be able to focus on the mission when times get tough. Before you risk your own money, do the proper due diligence first. Conduct research interviews, connect with others in a similar field and identify the gap before jumping in with both feet. Another good way is to work for a social enterprise to get a taste of how things are run before branching out on your own.
Passion is a necessary ingredient, however, your skillset, ingenuity, and perseverance play a big part in determining your level of success or lack thereof.
Start it as a Side Hustle
When you first start out you should develop your social business as a side hustle. This way you will be guaranteed a paycheck while you test out your idea in your spare time. You want to mitigate your risk before fully committing. As such, here is what you should do when the budget is tight and you are first starting out:
- Consider a service based business model so you do not have to commit upfront capital. This keeps the risk low. Richard Branson, CEO of the Virgin Group, says whenever he gets into any business, he “protects the downside.” This means lowering the risk to nearly zero and one way to do that is to limit your upfront costs.
- Start with a basic idea and start small to test the market and get valuable feedback. Market feedback is invaluable. Those who don’t follow this mantra often people quote Steve Jobs who said, “people don’t know what they want unless you show it to them.” While true, he had an intuition about people’s wants and desires that were second to none. Instead, I have seen it time and time again where the product or service that was started was trying to solve a problem that didn’t exist or didn’t justify the cost being charged.
- Ask for help. There are a lot of resources both online and likely in your city that you can tap into. Look to start-up hubs as another resource where you can bounce ideas back and forth like the MaRS Discovery District in Toronto.
- Keep yourself flexible. Hire on staff only if you need to. Otherwise, look to do a lot of the initial work yourself and outsource the administrative tasks to maintain your focus and vision.
- Stay inspired. It is easy to get frustrated and lose the motivation to keep going. Surround yourself with a positive support network and read up on stories of other successful social entrepreneurs.
Examples of Social Businesses
Think of some of the brands you identify with. If you know your purchase is helping make a positive impact, chances are you are likely to purchase from that business. Here are a few companies that exist to help give inspiration:
- Baron Fig. They produce high-quality notebooks for creative professionals and hobbyists Aware of the impact paper production has on the environment, they are committed to planting a tree for every notebook sold.
- Warby Parker. The aim of Warby Parker is to address the challenge of 703 million people that currently live without access to eyewear. For every pair of glasses, you buy they donate the same pair to a non-profit.
- Trinity Oaks. They focus on locations around the world where trees have the biggest impact on the environment and where deforestation is prevalent. They plant a tree for every bottle of Trinity Oaks wine you purchase.
- Blanket America. For every blanket you buy through Blanket America, they give a blanket to a person in need.
- Lush. This Canadian cosmetics company leads with environmental awareness and ethical consumerism. Their products are all natural and they donate a portion of their profits to environmental and other worthy causes.
- Indiegogo. Their mission statement is to “empower everyone to change the world, one idea at a time.” They help entrepreneurs and artists of all kinds bring their visions to life.
Challenges of Social Businesses
Social entrepreneurship is challenging. Typically, if there is money to be made, there would be other companies doing it. The lack of interest in the sector is primarily due to offering help to those least able to pay for it. Social entrepreneurs must be creative to find new business models that can operate outside of the traditional business model.
Leverage Your Network
Join a community of like-minded social entrepreneurs and find a mentor. Ask people what they think of your idea and get feedback. Collaborate with other institutions; you do not have to do everything on your own.
Like with any side hustle, you need a method to determine ideas. To help brainstorm, you should focus on other people’s needs and wants. If your business model is community focused, focus on your community needs and wants. By understanding these factors, you can come up with solutions that address local needs. It is tempting to first come up with an idea and see if it fits in a need or want, but this is backward. Find the need and then meet that need with an idea.
If your target market is in another geographic location or country, visit that place first. You’ll gain first-hand experience if the need you thought was required is actually being met in other ways.
Ask yourself clarifying questions to help hone in your idea. Questions such as why is there a drug epidemic in my city? Maybe there is a lack of education on the harm of opioids. Or maybe it is an underlying symptom of how poorly the economy is doing. Do people lack access to jobs? Is it a lack of skills? Talk to industry leaders to find out.
Look to see if there are already companies operating in the space you are thinking of. If there are, this is validation your idea works. Think about what your competitive advantage would be in comparison to your competition.
There are three common approaches when starting a social business.
- The Innovation Model
The innovation model uses innovative products and services to solve a social issue. Solar Sister is an example of a company that addresses a social need through their clean energy technology to the most remote communities in Africa through a women-centered direct sales network.
- The Employment Model
The employment model serves the common good by employing disadvantaged people at a fair wage. An example is Ten Thousand Villages who creates opportunities for artisans in developing countries to earn income by bringing their products and stories to markets through fair trading relationships.
- The Give Back Model
The give back model serves the common good by giving back for every purchase made. Tom Shoes is one of the better-known companies that operate in this space. The pioneer of the one for one model, with every pair of shoes you buy from them they will donate a pair to a child in need
Get Inspiration from a Profit Based Business Model
Wait a second, but you want to start a social business, why start a for-profit business? A social business can take a variety of forms. You can have a for-profit business that does good either by donating part of the profits to other non-profit organizations or being environmentally friendly in the products or services being offered.
As an alternative, look at existing products and identify the social aspects of it. There is no need to try and reinvent the wheel. For example, Yunus through his Grameen Bank lent money to cash-poor people who had no access to the traditional banking system. Lending money has been around for millennia; he found a way to market to those in need.
Before You Get Started
- Clearly define your product or service
- Clearly define your social objectives
- Your plan for the blending of the social and business aspects
- How you measure success. Is it social impact, profit, or both? And what metric?
- Define who your target market is
- Create a plan for product or service delivery
- Determine the appropriate legal structure
- Create your operations plan including start-up costs, projected incomes, expenses and cash flows
- Determine the skills required and if you need any staff to fill in gaps
Create a Compelling Story
It is not enough to have a social business with a mission. You need to sell your story. Good marketing has the ability to tell an intriguing brand story about you and your company. If people can relate to your story, they are more likely to support you and be an advocate for your business. When I buy something from a social business like Tom Shoes, I feel warm and fuzzy inside knowing I am making the world a slightly better place. This connection to your brand is what you want.
- Using video is essential. If people feel connected to your brand they are more likely to support you and there is nothing better than video.
- Develop an elevator pitch. Let’s say you are on your morning commute and you bump into a potential investor that is interested in investing in the same industry your social business operates in. What do you do? You need to have an elevator pitch. An elevator pitch is a concise, compelling introduction that can be communicated in the same amount of time it takes to ride in an elevator.
Start by describing what your company does. Focus on the key problem you are solving and the value you are providing. Say it with enthusiasm and passion; people may not remember exactly what you said but they remember how you made them feel. Focus on what makes your company unique. Get feedback from others. Ride in an elevator and say it out loud. Practice, practice, practice. Time yourself. You want your pitch to come across as natural, not a forced sales line.
In summary to create an elevator pitch:
1) Identify your goal
2) Explain what you do
3) Communicate what makes your product or service unique
4) Ask a question
5) Get feedback
6) Practice, practice, practice
I would first recommend boot-strapping your business first with your own money, and test the market. If you gain traction and want to scale up consider the following methods to raise money:
- Find an incubator or accelerator. Not only do you get feedback on your business plan, but you also get to meet potential investors and receive training from academics and industry leaders in addition to specific access to funding.
- Consider crowdsourcing. Using platforms like Kickstarter, Indigiegogo and GoFundMe are becoming more and more popular and can help validate your idea.
- Develop a targeted sponsorship strategy to companies that align with your message.
- Offer presales of products you plan to launch.
- Target your fundraising approach. Avoid generic email blasting or Facebook posts. Craft individualized emails and texts. This is far more effective.
- Look at impact investors. This funding is ideal for social businesses that have been proven and have a high growth trajectory with high social impact. With equity investments, it is critical that your goals and mission is aligned with the investor. It is likely they will have an influence on which way your business decides to go.
Legal Disclaimer: The views expressed by Mr. Dumont on Money Sensei are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained on the blog is not a substitute for professional advice. The contents of this blog are accurate to the best of his knowledge at the time of posting, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.