Why Social Entrepreneurs Need to Be Better Than Their Commercial Counterparts

16/10/2014 15:17 | Updated 16 December 2014

Successful commercial entrepreneurs have to prioritise building two types of value within their ventures: user value and financial value.

The job of creating value for users is hard. It relies on a profound understanding of the intrinsic motivations of the target audience. It requires the time, investment and experience for an iterative design process that responds intelligently to needs and behaviours. Converting this user value into financial value is even harder. Despite getting good traction amongst users, many commercial startups fail because they can't translate this into sustainable income streams.

It is often assumed that the job of a social entrepreneur is a little easier. Rather than obsessively building user value and developing this into revenue, many see the job of a social entrepreneur purely to demonstrate social value.

Recently, for example, several new versions of the excellent Business Model Canvas approach have emerged that aim to help social enterprises through the early stages of planning. They take Alexander Osterwalder's original model and make a switch: the core segment of the original canvas, which focusses on Value Propositions, is replaced by Social Value Propositions. Questions like "What value do we deliver to the customer?" are replaced with "What difference are we making?", before moving on to look at who would pay for this impact.

This isn't wrong - social business models absolutely should be based on a strong theory of change and an evidence based social value proposition. But it is misleading, because it suggests that social entrepreneurs don't have to focus on generating value for their users or on converting this into revenue. It suggests that non-profit sector designers don't need to obsess about how loved and needed their products and services or whether people actually choose them, because there will always be grant funders to pay for them to be distributed or delivered.

In fact, the best social entrepreneurs excel at building all three strands of value into their products and services: social value, user value and financial value.

Simon Berry, CEO of Cola Life, the provider of medical supplies in developing countries, is a great example. When he first developed his original idea for the venture, he, like most social innovators, identified a clear social need.

"I was working in a remote part of Zambia and I could always get a Coca-Cola but, at the same time, one in five children didn't make it to their fifth birthday because there weren't medicines for them. After respiratory disease, the second biggest killer was dehydration - from diarrhoea - which can be stopped with oral rehydration salts (ORS) and zinc."

Cola Life responded to this social need by creating a product that would provide social value through the provision of basic family medicine.

"We designed the Kit Yamoyo, or "kit of life". Each kit has ORS sachets and zinc tablets. The container is also a water measurer to make the ORS solution, and a cup from which a child can drink the rehydration solution."

The original plan for the distribution of the kits was as part of the Coca Cola distribution system. The innovation that got western funders, donors and sponsors so excited was the design of a plastic container designed to fit between bottles in drinks crates.

But, what makes Berry such an inspiring social entrepreneur is that he soon recognised the need to treat the target market as customers, not as aid recipients. He recognised that just distributing the original product had not generated any real user value and, therefore, lacked traction with users.

"In the end, hardly any of our kits have been put into crates. Instead, what has worked is copying Coca-Cola's business techniques: create a desirable product, market it like mad, and put the product in a distribution system at a price so that everyone can make a profit. If there is demand and retailers can make a profit, then they will do anything to meet that demand."

This is a solution designed for some of the poorest people on the planet, yet one that thrived by understanding the demands of the target audience as consumers and the realities of the local economy. Through this, Simon Berry combined his profound understanding of social needs with a new appreciation of user needs and established financial value that was rooted in consumer demand.

Gradually building and intertwining three strong strands of value transforms the potential of social innovations. Firstly, and most clearly, user and financial value establish a self-sustaining business model and, with it, the potential for the long-term delivery of impact at scale. But, just as importantly, generating real consumer demand represents a profound shift in the perceived value of the product by the target audience, becoming something that they have valued and chosen. This shift in perceived value by users is the source of higher and faster take up, more sustained use and greater likelihood of peer-to-peer promotion and mutual support.

Social enterprises like Cola Life, d.light, Patients Know Best and Revolution Foods, which have developed three equally strong strands of value in their businesses, are pioneers of an approach that we can all learn from. Non-profits that would normally describe their interventions as projects, initiatives or campaigns, rather than products and services, can still obsess about creating genuine user value. Funders and social investors can help social innovators find the time and resources they need to build and demonstrate a real connection with user needs and intertwining this value with the growth of social impact. Commercial companies that have products with strong traction can explore how they can harness this to deliver social value to those very same customers.

Aiming for three strands of strong value makes the job of a social entrepreneur much harder than that of a commercial entrepreneur. They have to understand complex social issues and market segmentation, they have to balance user needs and social needs and they have to be able to track and measure different types of impact. And all of this starts with a Business Model Canvas that has two value proposition boxes in the middle rather than one.

Nick Stanhope is CEO of Shift (formerly We Are What We Do), a London and San Francisco based social enterprise that designs consumer products which address social problems through behaviour change. By creating products that meet consumer demand that can grow to scale as self-sustaining social ventures, Shift aims to have a measurable, long-term effect complex social issues. Products include the I'm Not a Plastic Bag, Historypin and Box Chicken. Shift has worked closely with the Nominet Trust to develop the three strands of value model.