Building an entrepreneurial society

Archive for the tag “Entrepreneurship”

Social Business Part 1 — The stalled emergence of the social enterprise

The concept of the social enterprise is increasingly found in the news, social media and in the organizations arising to support them.  The social enterprise is expected to provide solutions to social issues while also being sustainable.  This sustainability is accomplished through a hybrid of not-for-profit and for-profit business models.  In my observation these entities start out on the drawing board as hybrids but tend to slide back towards traditional not-for-profits.   As this article will propose, we have not broken free from out-dated thinking that is needed for a new form of social enterprise to emerge.  I will present my thoughts in two separate posts.

The social sector has traditionally been not-for-profit organizations and government.  These groups addressed problems or needs where for-profit organizations were not engaged.  That is, there was no opportunity to make a profit so the private sector was not interested in investing.  The problem with this scenario is that the social problems and the cost of solving them has outstripped the supply of funding available.  On the flip side the funding that runs through the private financial system is building up and seems to be overrunning the investment opportunities in the private sector.  In parallel with these two trends the concept of social business and social finance has emerged.  Unfortunately, unlike the clear private/social poles that existed before, no one really knows how this new hybrid should work.

One thing we know from experience is that money flows quickly like water to where it can earn a return.  People and organizations don’t move at that pace.  They tend towards increment change.  As a result we are seeing social finance organizations emerging ahead of the organizations they need to invest in.  The band is starting to play but no one is on the dance floor.  We are also talking about impact investing before we fully understand what impact is and how we will measure it.  If we don’t solve this problem we will see poorly designed metrics and money chasing poor investment opportunities.  We need to shift our focus towards building sustainable social enterprises that we can invest in and we need them in large number.

For some there seems to be the expectation that existing not-for-profits and governments will tack on some form of impact measure and then carry on as usual.  This might be fine if what we have now is working effectively and efficiently and I don’t believe that is the case.  We have also seen private sector companies using superficial social measures to create the illusion of social impact.  Again most people don’t believe this is true on a wide scale.  The third alternative is the creation of a new set of organizations called social businesses.  They will have the joint social/financial outcomes baked in from the start.  The few that have been created tend to look like either a traditional not-for-profit or private sector company and mostly the former.  Founders tend to use one of these poles as a starting point when creating the business model.  With some exceptions they have not been very effective in creating large scale change or in being sustainable.

We need to break free from the status quo thinking that underlies the two primary business types in order to deal with social issues in a sustainable way.  In my next post I will discuss approaches for breaking away from these old ways of thinking that will enable us to successfully start building true social businesses.

Business building should be open ended

In years past the business building process involved putting together a plan with milestones and deadlines.  Often the plan building process took months and was completed before any discussions with potential customers were done.  The entrepreneur stayed tightly within the bounds of the plan forging ahead even when things weren’t working.  If there was outside funding this adherence to the plan was even more strict.  The introduction of a lean approach to business building removed these problems by pushing the plan aside in favour of a learn as you go process.  But many who teach, mentor or incubate start-ups have introduced a new model that reintroduces some of these problems.

Classes on business building and incubator programs or competitions have set time frames with some end project such as a pitch or business plan.  Forced into this time box entrepreneurs are limited in their ability to explore or make course corrections as they become necessary.  Time is further compressed as the teams approach the end date and move from building their business to practising their pitch.  The team will also avoid any changes in direction prior to working on their pitch since the changes may hamper their ability to get the pitch ready.  So we can see that the process itself actually takes away from the likelihood of success for the business.

Business building has to be open ended letting the problem/solution testing and customer discovery process find its course.  The team will usually need to conduct many discussions with potential users before they adequately define the need, the solution that solves the need and the initial user base.  The time it takes to get through these processes can’t be reasonably predicted.  Trying to force closure before the process is completed increases the risk of failure.

The incubators and entrepreneur classes get most of the attention but the truth is most successful companies do not come from these programs.  Very few school projects become sustainable businesses after graduation and incubators tend to work with a very small proportion of start-ups.  There is no evidence to indicate that start-ups coming from incubators have any greater chance of success than they would have on their own.  While we look for short cuts and magic formulas sometimes it is old fashioned hard work that still makes the difference.

Large companies as platforms for enterpreneurship

Entrepreneurship is not something that often arises when we think of large companies.  Maybe that is because we think of the legacy products and large scale infrastructure when we think of a large company.  We see bureaucracy and a commitment to productivity over change.  That perception would not be wrong because in most instances that is what they are.  They have legacy products and services that absorb most or all of their resources and attention.  Some have entrepreneurial units intended to create new products for the future that are poor second cousins and often amount to nothing more than window dressing.

I have long been curious as to the mix of large and small companies and how they will fit together going forward.  There are many cases of large companies becoming irrelevant as upstarts disrupt their markets and push them out.  Others just fade away over time as their market erodes or their performance declines.  Only a few seem able to go on through all kinds of change and turbulence and that number is declining.  Most struggle with innovation and rethinking their business models.

What if we looked at big companies in a different way?  We might see the potential for real innovation.

Large companies have some resources that would be valuable to the entrepreneurs as they develop their business models and try to scale them.  Large companies often have global reach with distribution and people in markets around the world.  They have infrastructure that enables large scale production and distribution.  There are lab facilities and other means of building and testing products and services.  There are usually financial resources that can be used to fund and build new ventures.  Finally they have people used to running larger entities and systems and processes that early stage companies can graduate to once they prove their business model.

With that in mind we could look at large companies as platforms with pools of capital on which to start and grow new ventures.  Thinking from this perspective will give a whole new structure to the lifecycle of businesses and products.  The company would not be the products but would be the mechanism to create, scale and retire a constant stream of products and services.

Part of the company would continue to focus on operational excellence in delivery of active products by constantly finding ways to improve their access to markets around the world and to efficient production and delivery of products and services.  The strength of this part of the organization will be essential in the ultimate success of products being developed.

Under this model all products would lack permanence.  They would be in place until the next generation moves them aside and funds would not be spent trying to extend the life of a dying product through price cuts and advertising campaigns.  The role of senior management would be to manage a portfolio of products and ensure that the knowledge and resources flow between the venture development and operational sides of the business.

With the market access, core product and technology knowledge and scaling infrastructures these companies would incubators on steroids.

Finding a real world problem to solve

As I have mentioned in previous posts a wave of entrepreneurs creating new ventures has a greater ability to solve the problems and capitalize on today’s opportunities than existing top down institutions.  Since that time I have had the opportunity to work with many entrepreneurs and speak with other mentors and funders of entrepreneurship.  While there are many good venture concepts that could lead to improvements in the world there are still many entertainment or recreation based ideas.  These ideas add value by raising an interest in entrepreneurship, testing business models and advancing the technology itself.  Now it is time to start turning the attention of entrepreneurs to serious problems and opportunities.

I have also discussed in previous posts that the entrepreneurial process starts with the problem and not the solution.  The success of an entrepreneur that finds a problem that their potential customers consider worth paying to solve is substantially higher than the ones that start with a solution and try to find acceptance later.  So we should start with the problems to solve.

The good thing about starting with problems to solve is that we have alot of them.  And many of these are worth solving with people willing and able to pay for the solution.  We need to look around us and see where we can improve life for ourselves and others.  The problems don’t have to be the huge, change the world in one day kind.  Often we are better to start small since we expect the ventures to build momentum over time as they grow and merge with other ideas.

Being critically observant or curious is a trait is essential to finding truly unique but important problems to solve.  When you see things that don’t work as they should we can ask ourselves why and what would need to change to fix it.  We should look at the system of cause and effects that created the problem.  Use a series of questions to drill down to root causes.  The first things we see are usually symptoms but not the cause of the problem.  A systems view is important to understanding a problem well enough to begin looking for a way to solve it.

Many solutions will require the use of a unique business model to deliver it successfully.  It is often not enough just to find a problem and build a simple solution. In the next post I will spend time talking about business model innovation and how to incorporate that.

For some background on finding problems to solve I refer you to the first three chapters of Innovator’s Solution by Clay Christensen.  I also encourage you to work in small teams since people often see things from different angles.  So I leave that as a starting point to find problems that matter where the solution helps the society we live in.

Who needs process — let’s just get out there and do it. Right?

People, especially entepreneurs, don’t like to follow process if they can avoid it.  This fact is especially true when the process is not intuitive.  We are generally driven to just get started and build stuff.  My belief about how we assess someone’s contribution is based on their list of stuff.  The people with the longer list look like they accomplished more than the ones with the shorter list.  We don’t necessarily look to see if the stuff on the list added any value.  We also tend to consider stopping to think before we act as a waste of time.  Unfortunately this way of going about things has never been very productive and will be less so over time.

The problem we are starting to accept is that people don’t know in advance what will work and what won’t.  This reality is true for stock investments as well as for starting a business.  This reality is true despite having a number of experts trying to appear as if somehow they do.  We read in the press about all of the successful people who seem to have created a business from some grand plan in their head and executed it just right.  What we don’t read about are the thousands of people who did the same thing and failed.

If you have an idea for a business and just go for it you might succeed.  Then again you might not.  Just because we were successful this time doesn’t mean we will be successful next time.  Just because we failed doesn’t mean we will fail next time.  There are few successful serial entrepreneurs and many people who have followed multiple failures with a success.  By jumping in feet first we are throwing ourselves on the mercy of randomness.

We can’t do anything about the uncertainty that surrounds the start up and growth of a new venture.  But, we can manage this uncertainty and prevent alot of waste.  We can also discover our missteps in time to make corrections.  By using a process of continual learning we are building the product as we learn what the customer wants and doesn’t want.  An example of a process is the lean start up approach that starts with a minimal product and tests each new feature as it is built, letting the market drive the product configuration.

There is a similar train of thought described best as an option approach.  Build just enough to give us the option to take the next step.  The idea is to put enough into the product or service to see if there is acceptance before a lot of money is spent on a more permanent solution.  A cable company launched its movie on demand process by taking orders over the internet and then having people manually load the movie for the customer.  From the customer’s perspective they were getting an automated service.  The company wanted to make sure there enough demand before they spent money building this automated system.  In this process the product is executed as a series of options.

Regardless of which approach you take make sure that you have some process to manage the uncertainty that exists.  The swashbuckling entrepreneur that throws caution to the wind, takes huge risks and launches directly into a successful business is a myth.  Most of these types end up at the bottom of the ocean never to be heard from again.

What kind of society do we want and how do we create it?

The first step in deciding what an entrepreneurial society should look like or whether it is even feasible we need to decide what we want as a society.  While we like to blame others for things we don’t like such as offshoring of jobs, income inequality and environmental problems we as the people of society cause them to happen.  We do this by how we spend our money and time, who we vote for, who we work for and other activities.  Therefore we will need to align our activities with what will bring about the society we want for the future.

As a start, do we want to retain the shopping driven consumer culture we have been living for a good part of our lives.  There is a lot of evidence that this mode of living has not made us happier or has created a better place to live.  A lot of evidence points to the fact that it has the opposite impact.  We have also driven corporations to reduce costs by moving production to lower cost locations and automating away manual processes (i.e. jobs).  Further, it has created a lot of debt for people, companies and countries.  So even if we have a desire for a growth based society we need to do a better of job of it.

If we don’t have a growth driven economy we have something called steady state where things remain in a holding pattern.  This steady state economy is not the same as a failed or stalled growth based economy.  Instead it is one where the plan is not to grow but to live with what we have.  It is a more egalitarian society and has gained a lot of popularity in recent years with the economic and ecological concerns that exist.  I just wonder whether we know how to live in this type of steady state.  Unless we were able to somehow gain unanimous agreement there will always be some groups that will try to move ahead either economically or militarily.

So we need progress and we need markets but we need to do them better.  We can decide to do growth differently and to make sure we have real markets instead of the distorted ones we have today.  Shouldn’t people be able to look forward to having a job that enables them to live fulfilled lives and be connected to society?  You shouldn’t have to be elite or rich to enjoy life.  Whether or not you believe in global warming is it reasonable to believe we can continue to grow in the way we have and not overrun the resources of the planet?  This is especially true if developing countries also want to grow and enjoy prosperity.  Shouldn’t technological advances improve our lives in some way rather than being wasted on trivial applications?  How can we keep people as productive participants in society as they age?  Wouldn’t we prefer products and services that create value over ones that divert existing value towards selected segments of society?  As individuals we have to think about what is important and ask ourselves these and other questions.

I am not suggesting that everyone will get together and make some grand plan on the structure of society.  That would not be possible and there probably isn’t some homogeneous model that would work for everyone anyway.  We also can’t let governments decide since we have already seen what planned economies turn into.  It will be something that will evolve over time as we make the choices we make.  Society will evolve with the actions of its people.

So in effect it will be the mirror image of the entrepreneurial side of society.  Entrepreneurs will create organizations based on what they think people will want and what will make society better off.  As consumers, employees and voters we will determine which of these venture will succeed and which ones won’t.  This bi-directional action will help shape organizations as the organizations shape society and its citizens.  So we all need to start looking at our actions as an opportunity to shape society and not just as random acts.  That way we can get it right and create a society that is worth living in for everyone.

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