The Johns Hopkins University center for leadership education has hosted a business plan competition for the past 13 years. In 2011, they expanded to include Social Enterprises. I was asked if I might serve as a judge for this new field. Envisioning Apprentice and Shark Tank, of course I obliged. It wasn’t until I gained access to eight 25 page plans that I realized this was not an hour long reality show. In the spirit of doing things right, I spent hours with each plan considering how to heighten the prospects of 8 businesses and 20 odd entrepreneurs. It was an enriching experience.
Despite knowing the work load I offered to judge again this year. Based on my first judging experience and another year of operating my own social enterprise I had much better grasp of what it means to utilize entrepreneurial concepts to create social change. In particular, I understood that an effective social business will create BOTH financial value and social value. The key to the plan is to demonstrate both. A plan that shows that the business is sustainable economically and defines and measures impact is well on its way to changing the world. Unfortunately the later, defining and measuring impact, is exceptionally hard. (Future blog posts will explore this)
In the process of judging plans I took notes. I noted similar things about most of the plans. After reading all the plans I compiled a document exploring common missteps. Below is what I shared with all of the groups.
Social enterprises serve two purposes: impact on society and economic sustainability/profit. Both purposes should be presented in the business plan and emphasis should likely be placed on the economics. However, the plan should clearly define the social impact that is being created and how it will be measured.
The Executive Summary:
The summary should be a summary. The summary’s purpose is to quickly compel a reader to go further. It should certainly define the product/service, the market, the position in the market, the potential (change and profit), and most importantly the ASK.
An entity must know what business it is in. What value is it providing? As a social enterprise this is clearly defining the social change and the product/service that the entity will sell to achieve that social change. It is important to differentiate between a “user” someone the entity may be serving and adding value to and a “customer”, someone who will pay the entity for the value added.
A side consideration on product and value: If the business is producing technology, IP is very important. The world is changing with regards to protectionist standards on IP (google-economy, free-economy) Are there ideas on how else to extract value from the product/service? Google provides its amazing service for free to end users. How do they make money? Could these concepts work in other businesses?
The markets of a social business includes all entities or individuals who could receive value from the product or service. The most important market to explore in a business plan is the market that will be paying for the value provided. Market research should be focused. Just because the entity sells a product on-line does not mean that the market is the entirety of on-line retail. If the entity sells baby products the market is likely mothers. Make the research meaningful by pinpointing exactly who the entity is providing value to. If the market is undetermined, spend more time thinking about the value provided. Social enterprises likely have several markets to consider.
The purpose of industry analysis is to know the competition. Every business has competition. If there is no competition and the business is as great as the plan is stating, it will not be long before there is direct competition. Which entities are most likely to become competition?
To know the competition is to know what they do, and how they are different. Principles are a great starting point. Mission is another place to look, and then look at strategy. Know numbers about them. How big physically, on paper, and in the minds of consumers?
Think about whether they are competition or are they entities to collaborate with in business. In 2012 it is easy to find and foster partners. This can be an invaluable strategy for business. Who is nominally doing what the entity proposes but not quite? Could the entities work together, instead of against one another? Building a business with a partner in mind could also be a GREAT exit strategy.
Strategic partnerships can be meaningful competitive advantages. However, in order for it to be an advantage it needs to exist and it must be somewhat exclusive. If a business relies too heavily on a strategic partnership it may be cause for concern because what happens to the business if the relationship alters. It is also important that the relationship be defined. There should be a contract. The contract should define the relationship and some level of exclusivity if the partnership is to be a true advantage.
Type of Business Entity:
It is easy to assume that a Social Enterprise should be a non-profit or a Benefit Corporation (a recently developed business structure in MD). If this model is chosen clearly state why. Any type of entity can do social good.
Non-profits have advantage’s but there are disadvantages as well. In particular non-profits are not known for garnering outside investors. Furthermore, most of the money “invested” into non-profits comes with strings attached.
The benefit corporation is a new and unique entity in Maryland (and several other states). The model protects leaders (board and executive staff) from legal proceedings if decisions are made that support the mission at the expense of stock holder value. The model is great for making the social statement that accountability is beyond the traditional bottom line. However, the model has additional requirements of accountability. In particular it must prove that it is achieving the social good of its mission statement. Furthermore, the model has not been tested in court.
A B-corp is NOT a business entity. It is a certification similar to LEEDs. It verifies that businesses are considering multiple bottom lines (planet-people-profit) It is a third party audit of social benefit, not a legal tax entity.
If you are interested in other unique business models I suggest you check out the L3C entity in Vermont.
The reason to announce the team is not to give the authors and founders recognition. Use the space to clearly define roles and why each person is qualified to be in a specific role. Undefined roles leads to organizational confusion, and the wrong person filling a job is cause for concern.
The team must demonstrate a mastery of the product or service provided. If murals are the product and the team is without an artist, it brings into serious question whether the entity can produce the product. Do not underestimate the significance of roles either. Community organizing is as much a skill as ruby on rails developing.
Business in 2012 requires more then analytical minds. The team should highlight general business skills (negotiation, selling, marketing, legal) and consider the softer skills (creativity, communication, and organizing) of the entire team. Demonstrate that the whole brain (not just the left side) will be working on the business. If skills are lacking they should be accounted for either in advisory positions, or with a strategy to obtain them.
A side note on resumes: include numbers to show work rather than stating it.
Marketing is all about stories. An entity must know the stories of its customers/users, its own story, and know how to get its customers/users to connect with its story. Marketing is a VERY important part of business. If people do not know about the entity, they will not purchase the product. For example the web is a huge place and just because a site is up does not guarantee that people will use it or even find it. Marketing budgets are easy to under estimate. Seriously consider how to understand customers stories, entity stories and sharing both.
This is a great place to go further on the ASK. Define how much and what kind of money is sought. A grant, contribution or gift with no expect return payment. A loan/debt with scheduled repayment and interest. Equity, an offering of ownership. If it is a grant, know what the expectation for its use is. If offering a loan/debt, the payments need to be accounted for in the financials. If it is equity, demonstrate the expected return on investment and exit opportunity. A time line of need is also helpful, and may make the investment easier for an investor. Yes it is helpful to have it all up front, but if it will not be used up front the investor has lost the time value on that money.
If making forecasts, which must be done in complete financials, assumptions will be made. Clearly state the assumptions and why they are reasonable. It is better to be conservative on revenue, and liberal on expenses. Make sure that the expenses cover the entire spectrum of what the entity is doing, and know that marketing is apart of EVERY business.
It is important to pay ALL staff including founders. It might seem reasonable to forgo pay but paying people does several things. It says that this is a job and has a sense of professionalism. It also provides an opportunity to hold someone accountable. It is fair to expect that staff will deliver value if something of value is being provided to them. If you are smart and have value, investors will have no problem sustaining you! Not paying yourself or other important players is a non-sustainable model.