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Forbes.com: 10 Life-Or-Death Lessons For Social Entrepreneurs
Thursday, Aug. 2, 2012
This article was originally posted in the Forbes Blog. You can view the original article here.
The following guest post is by Al Bruno, cofounder of the Global Social Benefit Incubator and the William T. Cleary Professor in Santa Clara University’s Leavey School of Business. He is also the founder of the school’s Center for Innovation and Entrepreneurship.
For the past decade, my colleagues and I have helped more than 150 social entrepreneurs from all over the world hone their business plans, which they are able to pitch for 15 exhilarating minutes to Silicon Valley financiers and executives. Through our ten years running this mentoring program, called the Global Social Benefit Incubator, we’ve culled some top tips for anyone looking to develop their business plan and pitch it to potential funders or partners:
1. Prove that you know how your customers make decisions. Virtually every social venture we counsel asks its customers to change entrenched behaviors and make a different decision for spending their precious dollars: to pay for clean water instead of making do with dirty water; pay a few pennies for sanitary pads rather than stay home five days a month; invest in clean solar lights that initially cost more than toxic kerosene. Understanding how such customers or beneficiaries decide to spend – or not spend – can be one of the biggest challenges for any kind of venture. What will prove persuasive to get them to change? What evidence do you have that they will change?
2. Understand how your product or service works on a per-unit basis. To grow and thrive, you need to be able to “scale up” the value you bring to your current customers or beneficiaries. This requires a clear understanding of your marginal costs – how much it will cost to produce the next unit – and the prices that your customers are willing to pay. Typically this means adding in costs to expand production and distribution (which many entrepreneurs forget to factor in) in a way that grows the bottom line.
3. Document your key assumptions and provide a plan for testing them. Experienced funders and partners will want to test the assumptions that you make about customer buying behavior, markets, financing, etc. Do the work for them by setting metrics that can be tracked. India-based Naandi Foundation projected it could sell clean drinking water to 40 percent of its target market. To test that, Naandi employees who educate consumers on clean water’s benefits were enlisted for market research. They learned that customers wouldn’t travel to far-away water kiosks, so they added a bicycle delivery service – enabling them to exceed rather than miss their target.
4. Don’t overlook the “packaging” of your presentation, and be strategic with story-telling. Of course, the content of your business plan and presentation matters most, but packaging is more important than you think. Your audience is human, and you must use persuasion to get them on board. Utilizing video clips, “neat” graphics and a compelling – though not overdramatized – story of one beneficiary or group can grab the audience far better than a dry recitation of facts.
5. Be honest— even if you see opportunity slip away as a result. The starting point to being successful is to be brutally honest with yourself and with the stakeholders in your venture. While hyping the size of your target market to epic proportions may seem necessary to catch a funder’s attention, failing to live up to that hype during the diligence period can burn that bridge and many more. Be restrained and conservative in your projections — such as by overstating your expected costs and expenses, and understating your expected revenues — rather than the opposite.
6. Target and time your requests for funding to significant milestones in the evolution of your organization. A recent report indicates that one major “social impact” investing fund, the Acumen Fund, looked at more than 5,000 opportunities in the past 10 years and invested in only 65 of them. Why? The social entrepreneurs did not understand the business stage and maturity that Acumen seeks before it makes an investment. Do your research to pick the right prospective funders — be they grant-makers, equity investors, or lenders – and time your request at the appropriate stage of your corporate growth. And remember that what you have accomplished to date is history. What you hope to accomplish with the contributed capital is what is important to your funder.
7. Emphasize that you’ve built a strong team and organizational infrastructure—or show how you plan to achieve that vital goal. Funders and partners know that having capable people in key roles is critical to your success. Unfortunately, developing countries often can’t supply the key team members or qualified employees you need to scale. India-based Husk Power Systems (a GSBI alumni company) has addressed this problem by forming its own training entity— Husk Power University— to train the workers it needs to staff the 75 + power plants it currently operates, and to provide employees for future needs such as its move into Africa.
8. Show how you use or plan to use partnerships and alliances. Forming strategic relationships with other organizations can be a means to add complementary products or services, stretch scarce resources, or access markets through otherwise-inaccessible distribution channels. Another GSBI alumni company, Hapinoy, partners with the largest microfinancier in the Philippines to provide financing for its network of rural retailers, and teams up with local bus drivers to deliver essential goods to remote locations.
9. Build in governance and oversight into your plan. It is critical that you have strong oversight and governance to ensure appropriate and objective decision-making. Not only can external participants, such as board members, add useful insights to your thinking, but they also can reassure investors that there is an additional set of eyes and minds at work protecting their money from risk.
10. Be a feedback fiend. In addition to getting feedback from customers, expose your ideas and thinking to trusted advisors, mentors and investors to refine your pitch. Most importantly, listen to their comments, observations, and criticisms so you can address them in your next pitch. You must demonstrate that you have anticipated key concerns and have thought through the issues.
Want to see all this in action? Come hear about innovation that can change lives at the GSBI 2012 business plan presentations on August 23, 2012 in the Mayer Theatre at Santa Clara University. For more information, see http://www.scu.edu/socialbenefit/entrepreneurship/gsbi