Business and Impact Planning for Social Enterprises

<div class="xblock xblock-public_view xblock-public_view-vertical" data-runtime-version="1" data-course-id="course-v1:MITx+0.SolveX+2T2021" data-graded="False" data-block-type="vertical" data-has-score="False" data-usage-id="block-v1:MITx+0.SolveX+2T2021+type@vertical+block@f4285625d01244dabb4f18254a725ffa" data-init="VerticalStudentView" data-runtime-class="LmsRuntime" data-request-token="94eb064227d211f0a78a0e09798aea1b"> <h2 class="hd hd-2 unit-title">Key Terms</h2> <div class="vert-mod"> <div class="vert vert-0" data-id="block-v1:MITx+0.SolveX+2T2021+type@html+block@1baf0dce356f42ea84314107537141d1"> <div class="xblock xblock-public_view xblock-public_view-html xmodule_display xmodule_HtmlBlock" data-runtime-version="1" data-course-id="course-v1:MITx+0.SolveX+2T2021" data-graded="False" data-block-type="html" data-has-score="False" data-usage-id="block-v1:MITx+0.SolveX+2T2021+type@html+block@1baf0dce356f42ea84314107537141d1" data-init="XBlockToXModuleShim" data-runtime-class="LmsRuntime" data-request-token="94eb064227d211f0a78a0e09798aea1b"> <script type="json/xblock-args" class="xblock-json-init-args"> {"xmodule-type": "HTMLModule"} </script> <p>Throughout the course, we’ll be exploring concepts that are core to any social business model. Invest some time now to become familiar with terms that are often used to describe key aspects of startups and social enterprises. They are part of the basic language of entrepreneurship, and you may encounter them as you develop as a social entrepreneur. You do not need to memorize them now! Throughout the course, you'll be learning new terms which we will flag as we go. These terms and more also appear in the handy <a href="https://courses.edx.org/courses/course-v1:MITx+0.SolveX+2T2021/ffc16fe648a24c91b4c30bc018a02c2a/" target="[object Object]">Glossary</a> page. Make sure to revisit that reference page for a refresher, to dig deeper with the linked articles and examples, or to explore terms that you encounter in your readings. New jargon can feel intimidating. Know that you do not have to know the jargon to be an innovator or do important work! But if you want to explain your ideas to others, it can be helpful to draw on terms like these that convey the ideas you are working so hard to refine.</p> </div> </div> <div class="vert vert-1" data-id="block-v1:MITx+0.SolveX+2T2021+type@html+block@9a1789ecb39747749da74b39856f1df0"> <div class="xblock xblock-public_view xblock-public_view-html xmodule_display xmodule_HtmlBlock" data-runtime-version="1" data-course-id="course-v1:MITx+0.SolveX+2T2021" data-graded="False" data-block-type="html" data-has-score="False" data-usage-id="block-v1:MITx+0.SolveX+2T2021+type@html+block@9a1789ecb39747749da74b39856f1df0" data-init="XBlockToXModuleShim" data-runtime-class="LmsRuntime" data-request-token="94eb064227d211f0a78a0e09798aea1b"> <script type="json/xblock-args" class="xblock-json-init-args"> {"xmodule-type": "HTMLModule"} </script> <h3><strong>Value Proposition</strong></h3> <p>All organizations aim to provide value to people in some way. A store may provide products that you want at reasonable prices. A non-profit may provide services and support to underserved people, which is valuable both to those people and to donors that support the work. An organization's <em>value proposition</em> is a clear statement of the value they provide, and who they provide it to. A good value proposition explains three essential elements:</p> <ul> <li>What you offer (for example, a smartphone app, a new product, a safe space, a training program)</li> <li>Who you offer it to (for example, specific customer groups, types of users, or beneficiaries)</li> <li>What type of value or benefit is associated with your offering (such as cost savings, time savings, revenue increase, customer/employee satisfaction, or coolness)</li> </ul> <p>A value proposition can go further by can accounting for:</p> <ul> <li>How the value is generated (ex: cost savings due to a more efficient manufacturing process)</li> <li>Why it differs from or is better than other options (ex. the app is more accessible, the product has a unique set of features, the training program is designed for the local community)</li> </ul> <p>Here's an example from a company you might know. The value proposition for Coca-Cola might go like this: "<em>Coke provides a safe, refreshing, and tasty beverage at an affordable price that is ubiquitous and consistent around the world.</em>"</p> <p>Value propositions are the center of any business or social business model and can take many revisions to fully convey the organization's value. Some organizations may have different value propositions for different types of products or customers.</p> <p>An example of a value proposition for a social enterprise could include the following statements: <em>We sell inexpensive, clean, and safe drinking water to small vendors and cities, which enables thousands of people to have access to low-cost and healthier water supplies.</em></p> <p>As with many of the ideas we're exploring, it's better to make your value proposition brief and focused. It might help to put your key ideas down in a statement, then experiment with paring it down to the simplest version that allows you to differentiate your offering from others'.</p> <p>For guidance on writing and interpreting value propositions, see <a href="https://learn.marsdd.com/article/value-proposition-a-reflection-of-the-relationship-between-your-customer-and-brand/" target="_blank">this article</a>.</p> <h3><strong>Market Opportunity</strong></h3> <p>A <em>market opportunity</em> is how much money you might be able to make with your product or service. Market opportunity is based on how many people or organizations have an unmet need that you can solve, and the potential value of meeting that need (often measured by how much they will pay). Your market opportunity could include households that would like to buy a certain type of product or service, but currently do not as their existing options are inaccessible or unaffordable. Your market opportunity could also encompass people who are purchasing something today that does not meet all their needs for features, convenience, or cost-effectiveness. Often market opportunity is identified for an initial market (sometimes called a ‘beachhead’) and a larger market as a long-term target (<a href="https://www.inc.com/jeff-haden/how-to-write-a-great-business-plan-market-opportunities.html">Further reading here</a>).</p> <p>As another example, imagine if a company were to make the following claim: “Communities around the world need data on flooding and water rates to stay safe and respond to emergencies. However, most sensors for this kind of data are large and expensive, which results in them being too costly for many places and governments.” This claim illustrates a market opportunity, and there is some overlap between this and components of a value proposition for an organization.</p> <h3><strong>Business Model</strong></h3> <p>Your <em>business model</em> outlines what your organization does or will do and how its core aspects work together to deliver your service or product. Business models explain how a given organization responds to a <em>market opportunity</em> through its <em>value proposition</em>. Often, the term is used as a shorthand for the ways in which a venture generates revenue, but you will need to think beyond finances to map out your business model as you also need to account for how you create and deliver your offerings. A well-defined business model lies at the heart of any <a href="https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan#section-header-0" target="[object Object]">business plan</a>, a formal, structured document that lays out the nuts and bolts of how you plan to build your organization and reach your users or customers. It's also key for other ways of presenting how you aim to design and deliver your goods and services, such as flexible and lean <a href="https://www.strategyzer.com/canvas/business-model-canvas" target="[object Object]">canvases</a>. To develop your business model, you'll need to define:</p> <ul> <li>Value proposition - The overall statement of the value your organization provides, whether to customers or other stakeholders.</li> <li>Key customers - Who you provide that value to.</li> <li>Key activities - What you do. This includes the products, services, or processes that you make, sell, or provide to your key customers. </li> <li>Revenue streams - How you bring in money.</li> <li>Key expenses - What costs you incur while operating, including employees, buildings, and the cost for materials or goods that you will sell.</li> </ul> <p>A business model is a planning tool for the founder(s) and a key document for any funders and many other key stakeholders. This course will not focus on developing a full business model - we'll focus on concepts that help businesses create social and environmental impact as well as making money. There are many resources available for a deeper look at business models, including other online courses.</p> <h3><strong>Social Business Model</strong></h3> <p>When an entrepreneur aims to create social or environmental impact along with making money, they may develop a <em>social business model</em>. This includes most of the same components as a traditional business model - value proposition, key customers, activities, revenue streams, and expenses. However, because of the dual goal of impact and profit, social business models have a few additional components. These include:</p> <ul> <li>In addition to customers, the model often also includes other stakeholders that are either paying for the value delivered (ex: donors), are receiving the value without paying full price for a product or service, or paying for an alternative product, or are important to the success of the enterprise even if not directly involved in the key activities.</li> <li>Social business models identify the impact they are trying to create, both as part of their value propositions, and through specific metrics that can be measured and reported along with monetary metrics like revenue. </li> </ul> <p>Just like traditional business models, social business models can come in many forms. As one example, <a href="http://www.socialbusinessmodelcanvas.com/" target="_blank">Tandemic</a> has developed a Social Business Model Canvas that extends a traditional business model canvas to include impact elements and additional stakeholders, and provides an example using <a href="https://drive.google.com/file/d/150u0DhglOsI4INsE6JFp3tJMsD9NFJ6k/view" target="_blank">Kiva.org</a>.</p> <h3><strong>Customer Discovery</strong></h3> <p><em>Customer Discovery</em> is the process of identifying your first customers. This is done by taking your main assumptions about who you think your customers will be, and talking to selected people who you think represent this group of customers to see if they would actually be interested. Finding and understanding your initial customers or beachhead market - people who have a need that you are aiming to meet, and are representative of a larger group – can take a lot of discussion and experiential time. Sometimes innovators start new businesses based on their own lived experience which gives them an understanding of an unmet need that they have had to contend with in their own life or work, having spent months or years experiencing an unmet need themselves.</p> <p>For instance, before announcing a new shampoo, a company could interview parents of young children in 30 different cities to understand what they were looking for in terms of features and price for buying children's hygiene products.</p> <p>We will spend Week 3 of the course on Customer Discovery, and <a href="https://learn.marsdd.com/article/developing-your-value-proposition-an-overview-of-customer-discovery/" target="[object Object]">you can find additional guidance here on customer discovery</a>.</p> <h3><strong>Intellectual Property & Intellectual Property Rights</strong></h3> <p>Intellectual property (IP) refers to creations of the mind: inventions such as new technologies or processes; literary and artistic works; and symbols, names, and images used in commerce. When you come up with a new idea or approach, that innovation is IP, and is often a key part of a new business.</p> <p>To protect your IP and the value or advantage it provides, there are various ways to claim exclusive use of the idea. The most common four approaches are:</p> <ol> <li><strong>Patents</strong>, where you publicly document a new invention in exchange for the exclusive legal right to use it for a period of time.</li> <li><strong>Copyright</strong>, which is automatically conferred upon the creator of written or artistic work.</li> <li><strong>Trademarks</strong>, which provide legal protection for a word or image (e.g. your company's name and logo).</li> <li><strong>Trade secrets</strong>, which are protected by keeping them private, including through the use of legal non-disclosure agreements with employees or partners.</li> </ol> <p>Particularly for businesses that focus on technological innovation, developing and protecting <a href="https://learn.marsdd.com/mars-library/intellectual-property-strategy/" target="_blank">IP is a key strategy</a>. There can sometimes be confusion about who owns a piece of IP, and sometimes an entrepreneur may take for granted that they control the IP. For instance, if an entrepreneur publicly posted about their work on social media, although they might be the first to report their accomplishments, this would not establish intellectual property protection. Considerations such as academic affiliation, employer contracts, and collaborations may complicate IP ownership, particularly if a business is successful. Understanding what IP is being created, how it is protected, and who has the rights to own, sell, or use it is critical for you as you build your venture, but we will not explore the issues in this course.</p> <h3><strong>Capital & Raising Capital</strong></h3> <p>Capital is the money or durable assets (such as machinery or a factory) needed to produce goods and services. All businesses need some capital in order to purchase assets, inputs, or inventory, maintain their operations, and continue to execute. Growing a business often requires raising additional capital, such as to hire additional employees ahead of expanding services, to enlarge a store or manufacturing space, or to purchase enough materials or goods to start filling larger orders.</p> <p>Initial capital for a business generally comes from an entrepreneur, their family, or friends. Other sources can come from grants, investors, bank loans, or newer approaches such as crowdfunding. Revenue from sales of products or services is <strong>not</strong> generally considered to be raised capital - though profits could be reinvested as capital.</p> <p>When raising larger amounts of money for early but established businesses, we often refer to the process of 'raising a round' - e.g. a seed round, or a Series A. These rounds bring in a specific amount investment capital in exchange for partial ownership of the business. For many entrepreneurs, raising capital is a significant part of their time, and <a href="https://learn.marsdd.com/article/how-to-raise-your-first-round-of-capital/" target="_blank">understanding the basics</a> is critical for success.</p> <p>For a longer definition of capital and its different varieties, see <a href="https://www.investopedia.com/terms/c/capital.asp" target="_blank">Investopedia</a>.</p> </div> </div> </div> </div>