Three Steps to Evaluate a Social Enterprise Idea

Good Ideas

This question comes up a lot: “How do I know if I have a good idea for a social enterprise?” People want to understand if they are starting with a social impact idea that makes sense. Social entrepreneurship is hard because you’re trying to weave in the social impact that you’re making with a business model that works. 

Quite often, these two don’t naturally fit together. So it takes extra effort to make sure that you’re starting from solid ground. There are three components to this to decide if your idea is worth moving forward. 

  1. Do I understand the impact that I’m making, and am I able to actually make that impact?
  2. Do I have a business model that makes sense? 
  3. Do I enjoy the business activity that I envision?

The last question is often overlooked, and a reflection of whether or not the business idea is a right fit with who you are.

So let’s break down how you use this to evaluate a good social business idea. 

Understand your Impact Model

The most significant success indicator of creating an impact is how well you connect to the community you are serving.

  • If you’re solving issues around homelessness, have you gone out and spoken with those that are experiencing homelessness and asked them if what you’re proposing makes sense?
  • Or, if you’re working with kids in a disadvantaged area, have you reached out and talked to their parents?
  • If you’re targeting those with mental health issues or other cognitive handicaps, how familiar are you with that population? Do you have somebody in your family, a friend, a colleague?

How Do You Connect with Your Community?

When it comes to validating your idea, it is all about connecting with the people that you want to impact and getting their feedback on what they need most.  These questions can often be answered simply by volunteering with the population you want to impact.

Perhaps you’ve worked with this population through your job. That’s great. In these cases, you are actively connected to this community, and you can get answers by talking to them directly. It never helps to engineer a solution on your own in your bedroom, without the feedback from the people you’re trying to impact. 

Understanding another’s perspective is the key. We had a lot to learn when we started Wild Tiger Tees, a work program for youth experiencing homelessness. But it wasn’t until we started interacting, and even holding sessions with the youth that we could grasp their needs or their situation.

We learned so much when we started sample work sessions – quickly discovering the reality that they were both highly capable and yet struggling with so much adversity at the same time. A lot of our assumptions were flat-out wrong, and we got the information we needed by working with them directly and refining our process. Sometimes when you need feedback, you just need to start.

Determine your Business Model

The second part of evaluating your idea is determining whether or not you have a solid business model. Do you project a profit on your P&L (Profit and Loss)? This means estimating the sales that you expect to make and the cost you’ll incur to make those sales. Then you deduct your operating expenses which gives you a general idea of your net profit.

The less experience you have, the harder it is to estimate, but more important than accuracy is to grasp the story behind the numbers.

Next, you have to understand your cash flows, which basically means when you get paid versus when you have to pay your bills and making sure that you have enough cash to bridge that gap. 

What Business Model Are You Using?

Are you operating a B2B model (business to business) selling services or goods to another business or a B2C business to consumer where you’re selling directly to individuals?

What sort of activity are you engaged in?

  • Is this some form of direct sales while you’re selling a product or a service?
  • Or a franchise model where you’ve bought a franchise from somebody else, and you’re implementing their business plan?
  • Is it a freemium model where you’re offering a service for free and then another service at a premium?
  • Or is it a subscription model where people are signing up for a subscription and getting service from you on a regular basis?

There are tons of business models, and in addition to these common ones:

  • You can be a middleman making some part of the business cycle more efficient or easier.
  • You can provide a marketplace where you’re allowing other people to sell their goods.
  • You can print on demand or customize goods for people.
  • You can be selling virtual goods.
  • Or hold auction
  • Or connect people with networking opportunities or education.

The point is to understand what type of business you want to start. And then go out and look for other examples of people doing this. It is rare that anyone develops an entirely new way of doing business, so go find successful examples. See if you can find out their business model, and what activities they use to serve their customers.

Kenny Sipes, founder of the Roosevelt Coffeehouse, a nonprofit social enterprise here in Columbus, Ohio, took a road trip and spoke to existing nonprofit coffee shops. They shared with him what they were doing to run their business. And so he had a solid starting point. He is a great example of going out and researching a business model and getting feedback from other social entrepreneurs out there in the community. Use other people’s success as a model for your own. 

One thing that’s brilliant about social entrepreneurs is that when one person succeeds, they typically want to help somebody else succeed because that means a greater impact is possible. There is more collaboration than business models based on competition and a world where there is only one winner.

Developing Your Business Model Takes Time

This may all sound easy. But time and again, I see so many people passionate about creating an impact in their community that they start a business without really understanding the business model that goes behind it.

This is true for Wild Tiger Tees. I didn’t understand the economics of setting up a t-shirt screen printing shop or running it continuously and what we might expect as revenues until we actually started it. We didn’t realize that it is not a great business to scale or grow (at least in its current form). It’s very limited in the amount of work that it can bring to the youth. However, that doesn’t mean it can’t change and adapt and grow into something new.

But for now, it’s got a small niche area where it operates, and it delivers specific value for the youth we employ. Had we thought this through beforehand, we might’ve looked at our business model and really gone out and spoken with other screen printing shops, what volume they do, how they market and acquire sales, and how many people they can support on a salary through their shop.

Hint: most screen printing t-shirt shops don’t hire hundreds of people.

For a commodity business, such as t-shirts, it is typically a small shops run by two to three people. It is a simple profit and loss, where the cost of goods sold and net profit is easy to estimate. In its current form, the business works.

However, if we wanted something that could really grow, we would have had much better luck spending our time researching business models that could grow. At the end of the day, our time is a limited resource. If we spend it doing one activity, we’re not free to explore something else.

Start with really understanding your business model before you dive in and get too attached to one way of doing business.

Is this the Right Business For You?

If you have a good business model, it’s really important to look at whether or not you enjoy it. Starting a business is hard work, and it takes a lot of effort. If it’s not a topic or an activity that you are excited about getting up and doing, don’t waste your time. Find something that resonates with who you are.

I can’t underscore how important this is because if you start doing something only because it makes sense, but it doesn’t fit with who you are as a person, then likely you’re going to struggle and ultimately walk away frustrated. But that changes when you find something that uses your skills and talents in an area that calls out to you. That interest will draw you in and get those creative juices flowing to find new ways of solving problems.

In Summary

In summary, when you’re evaluating whether or not you have a good idea, first, take a look at how well you understand the people you’re impacting. Have you done your research? Have you talked to people? Have you bounced ideas off of them? Can you go out and make an impact in a small way for this group before diving in and trying to make a bigger impact? Start there

Second, understand your business model, figure out what it is that you’re going to do. Look at other similar businesses and figure out the basics of how the money will move through your business. Even if you don’t have a good picture, start somewhere and then refine it down the road.

Lastly, make sure you’ve picked something that you’re really passionate about and that you love. Because any kind of business is hard work and you want to be able to love what you’re doing now.

I hope this guide has given you the tools to help you evaluate whether or not you have a good idea to start with. Best of luck. And if you have any questions, please reach out. I’d love to talk about social enterprises, and I would love to speak to you about your idea.

Good Ideas
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