Our guide to starting a social enterprise and ensuring you build a sustainable one

Rob Czapiewski

As social entrepreneurs, we’re driven to deliver transformative societal change, and in doing so, we’re also reimagining marketing practises for this emerging business model. Taking a more values based approach, whilst still aiming to generate revenue, places us at the intersection of traditional, commercial business and environmental and social wellbeing causes. Navigating this relatively new terrain comes with its own set of challenges, which has likely piqued your interest in this article. Knowing what to incorporate from revenue models and how to marry them with impact driven approaches is a balancing act, so we’re going to clear the air and outline some tips and guidelines for your success.

How to ensure your social enterprise is sustainable

20% of small businesses fail in their first year, 30% of small businesses fail in their second year, and 50% in their fifth – and these aren’t even social impact-driven companies. Failure can be attributed to a number of causes – one being that they met their venture aims, but often it comes down to business indicators not being met.  To build a legacy, social enterprises need to meet the following criteria: planets, people, and profit. Does your product or service positively impact the environment or/and people? Are you generating enough to keep afloat? Are you investing back into your business and the wider community? All social enterprises are founded on a strong, guiding mission. But this alone isn’t enough to keep your business running. The challenge lies in monetising your efforts, having a robust infrastructure in place, and keeping up momentum.

Don’t rely too heavily on funding – focus on your sales income

Many social enterprises benefit greatly from government grants or venture capital funding, but given the precarious nature of state-sponsored funding programmes and the whims of the venture capital community, you want to aim towards being wholly self-sustaining from your own transactional model.

Champion your cause, and get stuck in 

Your customers aren’t purchasing a product or a service; they’re buying into your story, and joining your mission. Let your genuine passion for your cause shine through, and never let your commitment come into question. Roll your sleeves up, and regularly engage with the communities you work with, to establish your position. This can be in the offline, or online space, depending on your product – or better yet, both! 

Remember your value proposition 

 Staying grounded is key – you don’t want to stray too far from the business elements, but this can be easier said than done when you founded your business on a social impact model. Being emotionally invested from the get-go can create a tendency to focus more on the give back aspect, and neglect the more functional, pragmatic, moving parts of your business. For companies who have transitioned to a social model, they may have the opposite issue. Achieving a balance between commercial principles and social motivations is key.  

Just starting out? Keep the 9-5

Entrepreneurship has become the idolised vocation for the masses. An attractive cocktail of self-made success, a perceived escalator to wealth, along with a status of demi-god meets Dan Bilzerian meets Florence Nightingale (depending on your taste) has convinced many to commit themselves entirely to their pursuit of independent business ownership. And what’s not to love? You get to bring your concept to fruition, you’re no longer beholden to micromanaging bosses and required to make money for a bunch of faceless boardroom suits.  Chances are you’ve heard about some 25 year old who runs an empire that rakes in profit, seemingly overnight. Newsflash – it’s not that easy. You’ve no idea of the potential obstacles you may face, and all the pitfalls that potentially lie ahead. Holding onto your salary will provide you with a safety net for if something goes wrong (and the odds are often stacked against you). Then it’s just a matter of picking yourself up, regrouping, and having at it again – only because you have the means to do so since you DIDN’T pack in your job and burn all your bridges along the way.  Once you’re really starting to see a profit, and the time you’re spending at work is hindering your profitable businesses growth, then it’s time to consider your exit plan. Will you need to rent an office? Should you hire another full-timer? Factor in all these costs, and have a realistic plan for the future along with financial projects, so you can lift off at the optimal time. 
Changing course doesn’t mean selling out  Many socialpreneurs can be resistant to a change in business model, but you can pivot and adapt to ensure you’re making money without compromising on your mission. Though if you think a change is needed, provide ample warning to your customers – don’t take them by surprise. Walk them through the change, the thought process behind it, and relate back to your mission and how this will contribute to your shared success.  

Exercise an open book policy

Assuming you’ve made highly selective hires, your team likely comprises of colleagues who share your values, are talented, and have probably chosen this role because they’re driven by purpose over financial gain. But don’t take this for granted. Respect that they may have made financial sacrifices to be there are heavily invested in their work, and expect transparency from you about developments in the business. Not only do they form the backbone of your business, they are also accustomed to a fleeting view of career stability, and any disillusion with your companies choices, changes in direction, or treatment of colleagues can spark a mass exodus, which can damage morale and lead to your untimely demise.   If you’re facing a funding crisis or some unforeseen circumstance strikes, rally the troops and let them know you’re pushing forward together. Your team will no doubt have entrepreneurial flair and will be keen to absorb all they can from any challenge, so why waste the resource? 

Build a cash reserve to cover your workforce

Given the aforementioned unreliable nature of funding, and any potential shortfalls (predictable or otherwise) it’s critical that you scrimp and save until you have enough put aside to keep a sizable chunk for your staff’s salaries. This way if you’re set on a collision course with an iceberg, all hands are on deck to help change course away from danger. Not having to worry about paying staff is one less headache you’ll welcome should your business go through a rough spot. 

Bring it back to relationships

In marketing vernacular, relationships traditionally refer to how a brand resonates with its customer based on advertising or basic interactions like in-store service. But in the digital age, what really defines a social enterprise is how you build relationships across the board. Does your email response and tone of voice on social media match your brand values? Do you come across as sincere and passionate when you meet with stakeholders? The key here is to remember that your enterprise has some kind of emotional appeal, be it helping communities thrive agriculturally in rural sub-Saharan Africa, or developing an app that unites dog walkers with owners. People need to see that you’ve got the will and tenacity to see it through, and are in it for more than personal glory.  At each point in your customer journey, and at every meeting with a client or investor, you have the opportunity to reinforce a sense of authenticity. You should approach all relationships as if they were your loved ones. Just as you build trust and confidence over time, marketing your business, and yourself requires the same level of consistent interactions. 

Measuring your product or service social impact

Accruing social capital can seem tricky – you can document your efforts to give back to society, but how can you measure it? To start, let’s think about the three dimensions of sustainability; environmental, economic and social. As a social enterprise, you often face deeper scrutiny than a traditional for-profit enterprise, since improving or contributing to one of these three is your MO. This seems a little unfair although the tides are certainly turning. These days, if you’re an oil company with a track record of upending towns and plundering mother nature for her goods, consumers’ no longer tolerate this as a means to the end. They also are increasingly calling BS on obvious tokenistic CSR afterthoughts. Planting a few trees ain’t going to cut it anymore. But with all that said, it’s important for you to understand your yardsticks for measuring impact so that you can articulate your value genuinely.

Social Return On Investment (SROI)

SROI is a social enterprise alternative to a traditional cost-benefit analysis, which is used to express the social and financial value rather than just compare different investments or projects. This is used by non-profits, philanthropists and other socially motivated companies to project the monetary value of their positive social contributions.  In essence, SROI follows a basic formula that divides the value of benefits by the total investment costs to produce your SROI. So, if your social model is based on helping homeless get training and skills and then helping them get jobs, then your SROI formula might look something like this:  SROI = sum of salaries of successful graduates + costs saved on aid services/investment costs  Now, this is overly simplified of course and the benefit isn’t always easily articulated in financial terms. But in essence, this is a good place to start for articulating your SROI. Here are the four core elements to consider when making your evaluation:
  • Inputs; whatever you invest in your project.
  • Outputs; how many people you’ve placed into jobs, or the products you’ve distributed
  • Outcomes: these are the real social proof points we’re looking for. Reducing plastic cup use, improving quality of life and wellbeing in your customers and the wider community etc.
  • Impact; What’s the direct, lasting impact linked to your service or product? 
There are typically two SROI routes to take; evaluative, which reviews the outcomes that have already been achieved, and forecast, a process that, surprise surprise, predicts future social value based on intended outcomes. Since the former requires robust data, it’s better to practice solid measuring processes either when launching your social enterprise, so you can fully appreciate the scale of your social impact. This article delves deeper into the many aspects of SROI calculation SROI is a complex and nuanced framework that requires you to take an in-depth look at quantitative data to not only prove your service or product has been valuable, but to articulate a direct social value from that and that alone. Helping you arrive at an accurate SROI number is something we can help with. Chat to us about your strategy if you need a helping hand.
Social accounting and audit (SAA) Prove, improve and account for the difference you’re making with a framework that addresses the following factors to assess the value your social enterprise generates:
  • Clarifying Purpose
  • Define Scope
  • Engage Stakeholders
  • Determine Materiality
  • Make Comparisons 
  • Exhibit Transparency
  • Verify Accounts
  • Embed the process
Without a robust measuring system in place, you’re flying blind. However, with no common language or easy way to track outcomes, getting the oversight you need can be daunting. But don’t let it be. Social impact measurement is open to innovation, so you may need to devise your own creative approaches. Creating your own multidirectional accountability system will ensure your mission and stakeholder promises stay on track.  And this is important, as many socially conscious enterprises struggle with credibility as a result of founders consumed by fluffy hubris, without the ‘hard numbers’ which often puts off investors. Whereas with a compelling story + tangible KPIs, now you’re talking investors’ language! This can mean falling on your sword if targets aren’t being met and increases your level of accountability but as advocates for social impact, you should not shy away from this.  In a nutshell, you want to prove and improve your social, economic and environmental impact, to help define and justify your aims and objectives to stakeholders. SAA provides you with a way to determine the insights that validate your assumptions, confirms your ability to deliver social impact, and ensures full accountability across all your operations. 

Articulate your short term and long term definitions of success

A point we keep hammering in here is longevity; good intentions are nothing without results, and social enterprises, whatever service they offer or good they provide, are particularly beholden to lasting impacts. Take any of the popular meditation apps available on the market right now. Acquiring new users is great for proving there’s demand, but it’s damn near useless in affirming the product’s social utility. Retaining those users shows it’s serving its purpose. If I spend 20 minutes on the app each night for a year, have I become more relaxed? Well, therein lies another curious factor. It could mean it’s working, though there’s also the possibility of a false positive scenario occurring. Does the prolonged use suggest the app’s failure to adequately relax your mind and solve your sleeping issues, or is habitual use required, or do you persist despite a low efficacy rate?   We founded Oddpod to address our personal grievance with regular coffee pods. Even though they’re recyclable, going through a dozen or so capsules a week isn’t in sync with our efforts at a reasonably sustainable lifestyle. Plus it just naturally feels nonsensical, excessive and wasteful. We know other people feel the same which is why reusing the same pods has mass appeal. Does that mean we attribute success to single purchases alone? Heck no. That’s crucial, but if our customers flip back to regular ones, at any point, then we’ve slipped up on our environmental quota. 

Invite thoughts from your team, investors, and your customer base

Sharing reports internally can prompt further insights and realisations from your team – someone from another department might interpret results differently or have a solution or an explanation for the cause that hadn’t been thought of. Sharing finds (in a slick, engaging way of course) on social media is a chance to highlight your noble achievements. It’s also a little recognition for your consumers, which will encourage loyalty.

Understanding your customer lifetime value and customer acquisition costs

Most business models viability is determined by Cost to Acquire Customers (CAC), and Customer Lifetime Value (LTV) which focuses on how to monetize customers. Hitting the sweet spot with your Lifetime Value to Customer Acquisition (LTV: CAC) ratio will reflect your marketing budgets success and prove your business models ability to deliver. 

Customer acquisition cost (CAC)

CAC is the best approximation of the total cost of acquiring a new customer, spanning the gamut of your marketing efforts over a certain period of time. In general, this will help dictate your marketing strategy and reflect your budget’s efficacy. But calculations can vary based on your business model – it may be that you have to take other cost factors into consideration, other than sales and marketing, that contribute to acquisition. It’s also important to break the calculations down into your different channels, to gauge the effectiveness of each, and identify any fluctuations that can occur. If you’re dealing with SEO for example, you’re likely not expecting to see results overnight, so combining this channel alongside more short term ones (like social media and search ads) may just muddy the waters. 

What’s the right formula? 

Start with your marketing budget. Staffing costs, your overheads, any marketing tools you pay for and paid marketing like Facebook Google ads, will likely comprise the bulk of your marketing expenses. Consider what part of your business you’re looking to investigate, and measure accordingly; you may rely solely on your marketing team to convert customers, or it may be your sales team that brings in the lion’s share of leads. Or maybe you want to determine whether the cost of running your e-commerce site outweighs the business it brings in. The trick is to be aware of what you’re measuring and why, and not just bundle everything together in your CAC calculation. Be smart, be selective, and test any hypotheses you develop.  Here’s a rudimentary formula that you can implement straight off the bat:  CAC =  TE / NC  Where (TE) is the total expenses of attracting and converting prospects, and (NC) is the number of new acquisitions or customers. That last one is pivotal; don’t fall into the trap of accidentally including existing customers in your evaluation, even though the TE can account for re engagement efforts with existing customers. 

Lifetime value (LTV)

LTV represents the gross margin your average customer will bring in over their lifespan. Understanding this will help highlight where you might want to allocate resources, such as to a specific service you offer, or whichever customer segment that yields significant value. For example, If you offer a premium upgrade option, you might be looking to upsell your customers with a basic membership or its equivalent. For businesses that offer subscription packages, keeping users locked in and redeeming is the name of the game. So, retention, upselling, and cross-selling may be the factors you want to analyse.  For mobile apps, the core tenets are typically as follows: 
  • Monetization (in-app purchases, ad impressions or subscription payments) 
  • Retention (your products ability to maintain customer engagement)
  • Virality (the average number of new users your customer can onboard) 

What to look for in a healthy CAC to LTV ratio

A high CAC to LTV ratio can signal the impending demise of a startup. To achieve a decent profit, you should aim to pay less to acquire customers that represent more value. Imagine we owned a fictitious company named couchpotatopower, a health and fitness app that caters for sedentary folk who want to introduce fitness into their lifestyle..without having to leave the couch (this is a hypothetical venture; if anyone wishes to make it a reality, you’ve got our full support!). Basic membership is free and gives you access to fitness videos and other content, subsidized by advertising income – but for detailed fitness plans and extra content, members can upgrade. So let’s take the following information to figure out our ratio: 100,000 basic members at $0 a month, with an average lifespan of 8 months 30,000 premium members at $15 a month, with an average lifespan of 12 months LTV= [(0$ x 100,000 x 8 = $0 ) + ($15 x 30,000 x 12 = $5,400,000  )] / 130,000 = $41.53 Next, we get CAC from our total marketing expenses to acquire new customers over the same period. So if our sales and marketing costs come to $170,000 and we acquire 10,000 new customers, then: CAC = $170,000/ 10,000 = $17 per customer Therefore our LTV to CAC ratio would be: $41.53 / $17 = 2.44:1

Funding your social enterprise 

As a social enterprise, you can obtain finance from traditional sources, but you also have access to government grants, incubator programmes, and can explore hybrid funding options. So, what’s available for you?

Best for non-profits

Grant/donation funding

A growing number of philanthropic and government organisations offer investment with no expectations of a financial return. Usually, grantors operate in specific areas of interest, so it may be the case that you approach different bodies with tailored packages that resonate with their social impact goals. There are plenty of organisations that specialise in funding exclusively non-profit businesses. Do your research and find the right fit for your business. 

Impact/Social investment

This relatively nascent form of funding is best for companies that can prove their ability to deliver social and societal impact alongside generating financial returns. This said, investors still accept the returns might not be substantial, so again the high-risk low-return aspect comes into play. Considering your income streams, costs, and developing a revenue model will be crucial in helping you determine your repayment capacities, and assuring your lender. Social impact bonds are a form of repayment-by-results contracts that allow governments to bring in impact investors, virtually acting as their proxy lenders. This way governments mitigate risks, by repaying and rewarding investors for their financial risk only if the desired social outcomes are achieved. If you’re working towards a goal in the public sector, this avenue could attract a number of socially conscious investors to your cause. 

Best for both 

Accelerator and incubator programs

Accelerators are mentorship-driven programs that expedite business growth, but also give you access to an extensive network of founders and funders. If pitching to investors is new to you, these camps can give you all the guidance you’ll need to know how to successfully present your idea to VC firms and apply for grants, and come away with the capital you need. Graduating validates your product roadmap, marketing strategy, and your concept in general to potential investors, somewhat reducing the risk factor/ associated risk. Plus, free office space and free/ reduced costs of tools such as Hubspot and Google cloud platform allow you to focus on your efforts without incurring all the usual maintenance costs.  For companies in their earlier stages, incubators offer much the same experience and wealth of resources as accelerators, but typically accommodate businesses that need longer to get off the ground, with some staying for years. Although it offers an incredible chance to grow with long-term support, investors may demand a larger slice of the pie in return. These courses are typically as competitive as they are demanding, so only consider these options if you have the determination and solid concepts to match.  

Best for companies with a profit-driven model

Investment funding

Angel investors are wealthy individuals who commonly back businesses in their early stages, usually in return for equity. Their name is not derived from their religious fervour – their angelic status reflects the amount of risk they are taking, by investing in early-stage startups deemed too unsafe an investment to make. Angels provide capital off their belief in your business’s ability to scale, so be in a position where you can demonstrate your rapid growth abilities, have a healthy existing or potential customer base, and a comprehensive business plan. 

Venture capital (VC) funding

VC firms are professional investors, and these are who you go-to for the big bucks.  Their money also comes with their experience, advice, exposure to more potential partners, and the partnership instantly boosts your company’s credibility. If you’re in tech, healthcare, or the like, you’ll need serious capital to enter the market as a challenger – in which case VC funding may be ideal for you. These firms are well poised to fork over considerable sums which can help you circumvent the pitfalls of bootstrapping that cause other founders to throw in the towel, whilst trying to find your product-market fit. VC funding usually comes post angel investment and comes in ‘series’. Series A is obviously the first round of VC investment and can continue right down E (although pretty rare).  With VC funding, you will be relinquishing control of the business; with the aims and goals of the business no longer yours alone. Make sure VC partners understand your company’s DNA, respect your goals, but also you need to be open to compromise and understand that they are looking for a return.
Low-cost tools for your social enterprises

Business Model Canvas

Created by Alexander Osterwalder of Strategyzer, the Business Model Canvas (BMC) is a strategic management and lean startup template, that allows you and your team to outline your plan, test your business model for strengths and weaknesses, and determine its overall viability. Comprising nine elements – customer segments, value proposition, revenue streams, channels, customer relationships, key activities, key resources, key partners, and cost structure. With the BMC you can fully interrogate every aspect of your strategy, and test hypotheses. Having such clarity of vision helps identify your key drivers, weed out the problem areas, and allow you to tweak and pivot accordingly. Try analysing a successful competitor and using BMC to map out their business model. To know your enemy, you must become your enemy, as Sun Tzu would say…

Pitcherific

Hone your pitch to perfection. Pitcherific will help you write and rehearse so that you can pitch with confidence”​ – Forbes’ clear and succinct endorsement of this super intuitive business modelling tool is exactly how founders want to present their big idea. Yet we’re not all accustomed to the big stage, and without proper practise a presentation can become an ugly display of closed body language, “erm erm” spouting, and poorly communicated ideas. There’s an art to selling confidently, and Pitcherific’s digital tool guides you through all the stages of presentation to become pitch perfect before opening night.

Google Analytics

Google’s free analytics platform is your one-stop spot for monitoring performance across your content channels, website, product and more. Knowing where your traffic is coming from helps you better understand user behaviours, and know which marketing channels need more attention. Wondering how long your average user read that last blog post for? Which marketing asset is your greatest conversion tool? Want to track your e-commerce sales activities? And optimise your landing page? All this awaits you – and much, much more.

Canva

In startup culture, the term bootstrapping is synonymous with another SE/ startup buzzword – being lean. Spreading yourself and your team relatively thin sometimes means you have to wear different hats for different jobs. Hiring graphic designers and having a dedicated design department usually come later on in a businesses lifecycle, with things like engineers and business development teams taking priority. Canva allows you or anyone on the creativity spectrum to design and produce social media assets, presentations, logos, with access to millions of stock photos, and an abundance of beautiful fonts and professionally designed layouts. Easy to dive into, this is a trusted friend to both clueless wannabes and skilled designers who don’t quite need the Adobe big leagues.

Slack

Shifting work paradigms have led to communication channels taking the place of a meeting room, a water cooler, and even whole offices. It’s just as useful for pinging messages to your remote customer success manager as it is for being a more considerate chatterbox in an otherwise disruptive open-office. Slack is a popular messaging tool that allows for private and public conversations, different channels (great for different clients/ projects etc), and can even upload up to 1gb files (Gmail maxes out at 25mb). At the time of writing, COVID-19 was showing signs of condemning a sizable portion of the digital workforce to an indefinite period of WFH…never has team collaboration software been so relevant…

Asana

Whatever your social enterprise concept is, the chances are the bulk of your operations take place online. Asana is a project management tool that helps your team stay on schedule. By assigning tasks and having recorded logs on conversations and set deadlines, Asana helps your business achieve total accountability, whilst making project and workflow planning an absolute doddle. We’ve used Jira in the past, but find this new platform to be exceptionally user friendly. Monitoring engineering sprints, planning your social media calendar, track prospects through your sales funnel, onboard new employees and more – all in one place.

Moqups

Before breaking the bank and throwing 1000’s of working hours into creating a super sophisticated app, you should start by making your Minimum Viable Product (MVP). Even big players like Uber started with a humble MVP with just the core features, to provide proof of concept and get to market in a cost and time-efficient fashion. Moqups is a wireframing tool that allows you to sketch out web and mobile diagrams, map out user flows, whiteboard, collaborate, and produce viable prototypes. Once reserved mainly for UX professionals and product managers, we encourage every founder and team member to get involved with this foundational ideation process – ideas can be borne from any corner of a social enterprise, and the better your team understands the product journey, the more effective a workforce you’ll command.

Mailchimp

73 percent of Millenials would rather businesses communicate with them via email than any other channel. That may come as a surprise to some, but the original digital communication platform remains a heavyweight, for B2B and B2C marketing. Mailchimp’s free package entitles you to 10,000 emails a month to 2,000 subscribers, access to their built-in CRM, and reports on geo-tracking, clients, and social media. Having an automated email marketing platform helps foster a healthy habit of routinely providing valuable newsletters, producing beautifully made campaigns, and reviewing in-depth analyses of your email efforts.

Hootsuite

As you’ve noticed, there’s a trend for all-in-one platforms developing here, precisely because every and any business – and especially a lean, resource-light social enterprise – welcomes convenience. Social media’s ascent as a prime marketing tool means a strong social presence across multiple platforms is essentially non-negotiable. Hootsuite allows you to manage them all from a single platform, including syncing all your social assets, scheduling posts, and even customising message distribution through features like demographic targeting. With multiple channels to monitor and burgeoning audiences, having a single platform to help respond quicker, more effectively, and monitor your customer issues and sentiment is key to accruing social capital.

SEMrush

If your content is taking a beating in the search results, you need an SEO and PPC tool to analyse your competition and develop a strategy to give your exposure a boost. Identifying potential backlinks, running a keyword search, performing an SEO audit of your blog, improving your approach to link building, and providing an overview of your competitor’s keyword strategy are just some of the services SEMrush offers to ensure you’re getting the most out of your content.

Hotjar

Having the requisite analytics and tracking in place (like Google Analytics), is really important. But often this data alone does not provide you with all the answers you need. That’s why Hotjar’s heat-mapping software is an important addition to your analytics stack. Hotjar allows you to visualise your users’ behaviour on your site, including where they scroll and move and what they click – often the strongest indicators of visitor motivation and desire. Understanding what content on your site your users engage with and actually care about, stops the guesswork and can directly improve your site’s performance but might also inform your content strategy more broadly. 

Zendesk

Customer support – or, to use up to date enterprise vernacular – customer success, has gone from being somewhat of an afterthought to being a business’s front line of defence. As such, you must possess an arsenal of weaponry to be a contender. Zendesk offers a full suite of support apps that allow you to manage, track, analyse and of course respond to all your customer communications in one comprehensive interface. Since their price packages accommodate all business sizes, you get a cost-efficient tool without compromising on quality, which is why we’re all over it. All your inbound customer queries from every channel can be received and assigned to different user profiles, allowing you to distribute workload and develop an efficient workflow. Complete with a knowledge base, community forum, ticketing, live chat and call centre, this is a tool you’d be wise to invest in from the get-go. Once you start scaling you’ve got a host of upgrade options, including web SDK, chatbots, CSAT surveys and more, so you can really get on top of the customer experience.

Mapping the road ahead 

Whatever social purpose runs deep in your businesses DNA needs to be projected out into the world. Ideas that change peoples lives or environment for the better need to be sung from the proverbial rooftops. These days that equates to branding, your tone, your image, your communications, and a strong narrative. At Knowgood we make it our business to steer yours towards success through our range of digital marketing services. If you’re looking for actionable strategies that will deliver results, get in touch for a chat.

Ready to talk about your social enterprise?