Building a Successful Social Venture: A Guide for Social Entrepreneurs

By Eric Carlson and James Koch

This is the first book on creating and running a social enterprise to combine theoretical discussions with current cases from around the world, filling a huge gap in the literature. It serves as an eminently practical blueprint for those who wish to build, sustain, and grow social ventures.
 
Building a Successful Social Venture draws on Eric Carlson's and James Koch's pioneering work with the Global Social Benefit Institute, cofounded by Koch at Santa Clara University's Miller Center for Social Entrepreneurship. Since 2003, over 200 Silicon Valley executives have mentored more than 800 aspiring social entrepreneurs at the GSBI. It is this unparalleled real-world foundation that truly sets the book apart. Early versions of the book were used in both undergraduate and MBA classes.

Part 1 of the book describes the assumptions that the GSBI model is based on: a bottom-up approach to social change, a focus on base-of-the-pyramid markets, and a specific approach to business planning developed by the GSBI. Part 2 presents the seven elements of the GSBI business planning process, and Part 3 lays out the keys to executing it. The book includes “Social Venture Snapshots” illustrating how different organizations have realized elements of the plan, as well as a wealth of checklists and exercises.

Social ventures hold enormous promise to solve some of the world's most intractable problems. This book offers a tested framework for students, social entrepreneurs, and field researchers who wish to learn more about the application of business principles and theories of change for advancing social progress and creating a more just world.

• Language: English
• Publisher: Berrett-Koehler Publishers, Inc.
• Release date: Sep 18, 2018
• ISBN: 9781523095964

Eric Carlson

Eric Carlson spends his time living in Fort Collins, CO with his guitar Angela and his parrot Kenny. The traveling trio spend their time hiking, singing folk songs, and drinking $1.50 PBR at the local watering hole. Feel free to contact the man himself at [e-mail].

Book preview

Praise for Building a Successful Social Venture

From Social Entrepreneurs

"Where else can one find out how to go about developing a business plan with both impact and profit in mind? Where else does one find a guide to convert intractable social problems into opportunities for realistic dreamers to tackle through effective social ventures? Jim Koch and Eric Carlson’s book Building a Successful Social Venture provides a powerful guide for social entrepreneurs like me, who must permanently battle the tradeoffs between social impact and sustainability. The book is a treasure."

—Martin Burt, PhD, founder, Fundación Paraguaya (2005 Skoll Awardee), Poverty Stoplight, and Teach a Man to Fish

The information found here is detailed and pertinent, with real-life insights into the origins and functioning of social enterprises. Step-by-step guidelines, examples, and charts offer a critical but encouraging perspective on building and scaling social impact.

—Neelam Chibber, cofounder and Managing Trustee, Industree Crafts Foundation (2011 Social Entrepreneur of the Year India Awardee), and Schwab Fellow

The term ‘social venture’ has been notoriously ill-defined over the past decade. The authors bring much-needed definition to the space. This will be helpful for investors, regulators, and entrepreneurs alike going forward. At Kiva, we benefitted greatly from the Global Social Benefit Incubator in getting started. This work can help us take it to the next level!

—Matt Flannery, cofounder and former CEO, Kiva (2008 Skoll Awardee), and cofounder and CEO, Branch.co

The knowledge captured by the book is amazing. I wish we had a book like this for reference in 2002–03 when we went about setting up Ziqitza. Back then there was no concept of ‘social venture.’ I believe this is a good foundation for anyone who is looking to start a social venture. Attending GSBI was a great experience for me; I learned so much in the short time I was on campus.

—Ravi Krishna, cofounder and Director, Ziqitza Health Care (2013 Times of India Social Impact Awardee)

A comprehensive guide and tool kit for these times. Koch and Carlson illuminate the field with research, case studies, and critical specification checklists. Their work makes it clear that social entrepreneurship has a vital role to play in the personal and collective transformation required to create a more harmonious and equitable world.

—Ronni Goldfarb, founder and former President and CEO, Equal Access International (2016 Tech Awards Laureate)

Carlson and Koch have written an informative guide that shows readers the unique opportunity that social entrepreneurship offers to address complex societal challenges and offers specific, engaging, and practical guidance for those of us eager to create financially sustainable and beneficial social ventures.

—Sara Goldman, cofounder, Heart of the Heartland

This book is the culmination of James Koch and Eric Carlson’s dedication to mentoring hundreds of social enterprises, from formation through scale. There’s never one right way to build a company, so they have aggregated and analyzed the different lessons learned from many organizations. This book is well worth the read for any aspiring or practicing social entrepreneur!

—Lesley Marincola, founder and CEO, Angaza (2018 Skoll Awardee and 2016 Tech Awards Laureate)

I have had the honor of learning many of the concepts presented in this book directly from Jim and Eric at Santa Clara. I applied many of these concepts at Husk Power Systems and raised funding to scale. This book does a phenomenal job of providing a very detailed and easy-to-follow framework for launching and scaling successful businesses focused on solving the world’s biggest problems. Concrete case studies are presented in a succinct way to illustrate how these frameworks can be applied effectively. I would highly recommend both social entrepreneurs and leaders of successful social enterprises read this book and use it as a reference to continually evolve.

—Manoj Sinha, cofounder and CEO, Husk Power Systems (2009 and 2013 GSBI alumnus)

An inspirational, holistic, and practical resource with real-world lessons and examples. A must-read for early stage ventures as well as ventures moving along the path to scale. I admire Jim and Eric’s completeness of vision and their true and unwavering commitment to building social ventures and mentoring the social entrepreneurs who lead them.

—Elizabeth Hausler, founder and CEO, Build Change (2017 Skoll Awardee)

From Academic and Industry Experts

Complementing and extending prior Base of the Pyramid work, Carlson and Koch’s book provides something new and important: a business planning paradigm designed specifically for the unique opportunities and challenges facing B P entrepreneurs. The outcome is an entrepreneurs’ road map for building better social ventures.

—Ted London, Adjunct Professor, Ross School of Business, and Senior Research Fellow, William Davidson Institute, University of Michigan, and author of The Base of the Pyramid Promise

This excellent workbook takes the reader through the steps in the process of developing and running a social venture. The examples are richly described and make the concepts come alive.

—Madhu Viswanathan, PhD, Professor, Diane and Steven N. Miller Centennial Chair in Business, and founder of Subsistence Marketplaces Initiative, Gies College of Business, University of Illinois at Urbana-Champaign, and author of Bottom-Up Enterprise

"Carlson and Koch have crafted a rare primer that offers inspiration and guidance for every stage of the entrepreneurial journey. Building a Successful Social Venture shines as a text for undergraduate and graduate students of social innovation. The authors offer deep experiential wisdom and theory-driven frameworks built upon the practice of hundreds of social ventures. The stakes for social innovation are high for us all, and the authors place commendable emphasis on execution with a social consciousness—including actionable tools for investors, managers, and entrepreneurs who care about meaningful social change. This book is invaluable."

—Geoffrey Desa, PhD, Associate Professor of Management and Social Innovation, San Francisco State University

What a wonderful overview of the field with amazing tools for not only understanding conceptually but also moving the ideas of social innovation and social venture into practice.

—Adrienne Falcon, PhD, Associate Professor, Department of Public and Nonprofit Leadership, and Director, Master of Advocacy and Political Leadership, Metropolitan State University

I feel very privileged to have been part of the first ten years of the Global Social Benefit Incubator at Santa Clara University in Silicon Valley—as a mentor, coach, friend, and teacher. In their book, Eric Carlson and James Koch brilliantly capture the lessons learned from the first ten years of their accelerator, informed by a unique combination of the Jesuit commitment to social justice and Silicon Valley’s entrepreneurial and innovation-driven culture. This is a must-read for all social entrepreneurs serious about scaling their impact.

—Charly Kleissner, PhD, cofounder, KL Felicitas Foundation, Toniic, 100% Impact Network, and Social-Impact International

The authors have decades of experience on what it takes to build a social enterprise. It is no easy feat, and this book provides a detailed manuscript for entrepreneurs, with examples, exercises, and resources touching on each aspect of building a business. In the age of ‘fail fast,’ this is a book on ‘build it to last.’ The authors also trace the arc of shared experience and the original thesis behind creating social impact to guide both new enterprises and today’s corporations in creating a better tomorrow.

—John Kohler, Executive Fellow and Senior Director, Impact Capital, Miller Center for Social Entrepreneurship, Santa Clara University

Jim and Eric’s book comes at a great time. Solving the world’s toughest social issues—such as poverty, access to energy, health care, and education—has not occurred with top-down philanthropy. This ‘Guide for Social Entrepreneurs’ simplifies that process of teaching social entrepreneurship from a bottom-up perspective. It is not an academic thought piece but rather draws from the experience of hundreds of social enterprises, both successful and unsuccessful, learning perhaps as much or more from the failures as from the successes. I highly recommend it.

—Brad Mattson, Chairman, Siva Power; former Lead Mentor, GSBI; and founder and former CEO, Novellus and Mattson Technology

This is the most practical and useful book for anyone thinking about developing a social venture that combines market-based principles with a social mission. Written by two authors who have deep experience working with hundreds of social ventures from around the world, every chapter, case study, and exercise is based on a solid foundation of lessons from more than a decade of experience with the GSBI program. This book is essential reading for social entrepreneurs, impact investors, and others interested in this sector.

—Saurabh Lall, PhD, Assistant Professor of Social Enterprise and Nonprofit Management, School of Planning, Public Policy and Management, University of Oregon

Professors Koch and Carlson have captured the essence of what has become the gold standard for social entrepreneur success and growth. With over ten years of practical implementation, involving hundreds of social entrepreneurs, they thoroughly detail the development of sustainable, scalable social business models and plans; clearly explain ‘bottom-up innovation through social ventures’ and social change theory; and offer sound practical advice to overcome key challenges that all social entrepreneurs must deal with. I’ve been a social entrepreneur mentor for almost fifteen years, and this book is my number-one tool to accelerate the success of social businesses.

—Dennis Reker, Lead Mentor, GSBI, and former senior executive, Intel

"From the perspective of someone who, in parallel with an international business career, has devoted more than fifty years to the development of bottom-up approaches to poverty reduction and social innovation, I find Building a Successful Social Venture by Eric Carlson and James Koch to be a magnificent contribution to this field and an invaluable handbook for those who wish to start, grow, fund, or evaluate a social venture—whether nonprofit or for-profit. This guide creates a historic and social context within which practitioners can better understand the significance of what they are doing, and it provides them with the tools they need to become effective at doing it. I believe it should be required reading for anyone who wants to change things for the better in a sustainable way."

—Robert H. Scarlett, Board Chair, Venn Foundation; Trustee, Sundance Family Foundation; and Member, President’s Circle, Accion

The Miller Center at Santa Clara University has continued to be a source of rigorous and serious work with social entrepreneurs worldwide—contributing invaluable insights that have significantly influenced our own development and the field of social entrepreneurship. We believe that this new book based on the Santa Clara University experience will help thousands of entrepreneurs.

—Alfred Vernis, Associate Professor of Business Policy and Strategy and cofounder, Institute for Social Innovation, ESADE Business School, ESADE–Ramon Llull University, Barcelona, Spain

This fantastic resource sets a framework for social ventures as essential actors in the global economy. The middle part is the recipe: the how-to for social entrepreneurs. The beginning and end position social ventures as answers to needs in society and the economy that have not been, and arguably cannot be, addressed any other way. Social ventures are simultaneously a ‘new thing’ in terms of their legitimacy in the eyes of academics and conventional businesspeople, and they’re all around us. We all probably interact daily with, or may even already be part of, one, often without realizing it. This book illuminates the potential to improve the world in what we may already be doing and shows how we can do it even more powerfully. While newcomers to social entrepreneurship will find this an indispensable resource, it may be even more important for experienced social entrepreneurs because it will remind you of how mighty your work really is.

—Sara Olsen, founder and CEO, SVT Group

From Undergraduate Beta Tests of Building a Successful Social Venture

"University students hunger for effective theories of positive social change: Building a Successful Social Venture provides them a feast. Unlike most textbooks about social entrepreneurship, Building a Sucessful Social Venture challenges students to drill down into business models and how these can drive change in society. My students have drawn rich insights in enterprise-led social transformation from this book with direct application to action research projects around the world. Subsequent to using this book in two classes, four students received Fulbright Awards."

—Keith Douglass Warner, OFM, Senior Director, Education and Action Research, and Director, Global Social Benefit Fellowship, Miller Center for Social Entrepreneurship, Santa Clara University

From Santa Clara University MBA Students

I really enjoyed the class and definitely will be applying it to a future social venture I’ve wanted to create since I was much younger. Maybe I’ll see you at the GSBI in a few years!

—Bhargav Brahmbhatt

This was by far my favorite class in the MBA curriculum. I’ve learned so much from the weekly assignments and roundtable discussions. I just developed my first ever business plan for work, which was a huge undertaking, and I would have been so lost without this course.

—Erin Horiuchi

It was a great learning experience for me and I am sure I will be using the concepts in my social venture.

—Sijith Salim

I thoroughly enjoyed the class, and I learned a lot about social entrepreneurship and Moringa Connect. It was a great experience working on a business plan for a real company with founders who are trying to make a real impact on the lives of farmers in Ghana. I will definitely take the lessons learned with me, and I hope to apply them throughout my career and personal life.

—Brooke Langer

Building a Successful Social Venture

Building a Successful Social Venture

A Guide for Social Entrepreneurs

Eric Carlson

James Koch

Building a Successful Social Venture

Copyright © 2018 by Eric Carlson and James Koch

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed Attention: Permissions Coordinator, at the address below.

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First Edition

Paperback print edition ISBN 978-1-5230-9594-0

PDF e-book ISBN 978-1-5230-9595-7

IDPF e-book ISBN 978-1-5230-9596-4

Digital audio ISBN 978-1-5230-9598-8

2018-1

Book producer: Westchester Publishing Services

Text designer: Darlene K. Swanson

Cover designer: Adam Johnson

Paul Locatelli, S. J.

September 16, 1938– July 12, 2010

This book is dedicated to Father Paul J. Locatelli, the twenty-seventh president of Santa Clara University and the first secretary of higher education of the Society of Jesus—a network of 170 institutions around the world. Paul encouraged questions that open into a search for greater purpose in life and a thirst for justice. Throughout his twenty years as president of Santa Clara he sought to bridge the secular and the sacred—the innovation-driven ethos of Silicon Valley with the traditions of Jesuit education, a Catholic religious order founded half a millennium ago. He inspired the work of centers of distinction in Jesuit education, applied ethics, and technology and society, and, through these efforts, he sought to integrate competence, conscience, and compassion as the foundations for transformative education. As president of Santa Clara University he created an environment in which the work described in this book could flourish.

Contents

Preface

PART I    BACKGROUND

Chapter 1    Top-Down and Bottom-Up Theories of Social Pro gress

Conceptual Roots

Comparing Approaches to Poverty Reduction

Government and Philanthropy

The Role of Multinational Corporations: C. K. Prahalad’s Thesis

The Informal Economy

Market Imperfections and Approaches to Poverty Reduction

Advantages of Bottom-Up Innovation through Social Ventures

To Recap

Background Resources

Chapter 2    The Market at the Base of the Pyramid

The Size of the BOP Market

Poverty as a Concentrated Problem

Problems and Opportunities at the BOP

The MDGs: Improving Life Choices

The SDGs

Large-Scale Systems Thinking

Market-Creation Requirements for Serving Marginalized Populations

Value Creation

Market Creation

To Recap

Background Resources

Chapter 3    Paradigms for Social Venture Business Plans

The Purpose of Business Planning

1.    Gaining Venture Capital Funding

2.    Developing an Operational Business Plan

3.    Business Model Generation

4.    Formulating Business Strategies (The Social Entrepreneur’s Playbook)

The GSBI Paradigm: An Alternative for Building Better Social Ventures

What Is Unique about Social Ventures?

Social Venture Snapshots

Grameen Shakti

Sankara Eye Care Institutions

GSBI Innovators

To Recap

Background Resources

PART II   MANAGING A SUSTAINABLE/SCALABLE SOCIAL BUSINESS

Chapter 4    Mission, Opportunity, Strategies

Process

Mission Statement

Opportunity Statement

Key Strategies

Social Venture Snapshots

Mission, Opportunities, and Strategies for Grameen Shakti

Mission, Opportunities, and Strategies for Sankara

GSBI Innovator Fundacion Paraguaya Self-Sustaining Agriculture Schools (SSAS)

To Recap

Exercises

Background Resources

Chapter 5    The External Environment

Institutional Voids

Process

The Economic Environment

The Legal/Regulatory Systems

Technology and the ICT Environment

The Community/Cultural Environment

The Natural Environment

Social Venture Snapshots

External Environment Analysis for Grameen Shakti

External Environment Analysis for Sankara

External Environment Analysis for GSBI Innovator Build Change

To Recap

Exercise

Background Resources

Chapter 6    The Target Market Statement

Process

Step 1: Estimate the Total Available Market

Step 2: Define the Addressable Market

Step 3: Identify Market Segments

Step 4: Develop a Marketing Plan

Social Venture Snapshots

Marketing Plan for Grameen Shakti

Target Market for Sankara

GSBI Innovator Digital Divide Data

To Recap

Exercises

Background Resources

Chapter 7    Operations and Value Chain

Process

Partnerships

Value Chain

Social Venture Snapshots

Operations and Value Chain for Grameen Shakti

Operations and Value Chain for Sankara

GSBI Innovator Equal Access International

To Recap

Exercises

Background Resources

Chapter 8    Organization and Human Resources

Process

Form of Organization

For-Profit

Nonprofit and Hybrid

Cooperative

Governance and Boards

Key Employees (Management)

Staffing Plan (Employees and Volunteers)

Organization Strengths, Weaknesses, Opportunities, and Threats

Social Venture Snapshots

Organization and Human Resources Planning for Grameen Shakti

Organization and Human Resources Planning for Sankara

GSBI Innovator Industree Crafts

To Recap

Exercises

Background Resources

Chapter 9    Business Model

Process: The Four Elements of a Business Model

Value Propositions

Income (Revenue) Drivers

Expense (Cost) Drivers

Critical Success Factors

Unit Economics

Social Venture Snapshots

Grameen Shakti Business Model

Sankara Business Model

GSBI Innovator Kiva

To Recap

Exercises

Background Resources

Chapter 10  Metrics and Accountability

Process

Financial Resource Metrics

Organizational Resource Metrics

Transformation (Activity/Process) Metrics

Outcome Metrics

Impact (and Return on Investment) Metrics

Social Venture Snapshots

Metrics Dashboard for Grameen Shakti

Metrics Dashboard for Sankara

GSBI Innovator Vision Spring

To Recap

Exercise

Background Resources

PART III  EXECUTION

Chapter 11  Operating Plan

Steps in Developing an Operating Plan

Strategic Initiatives and Measurable Outcomes

Tactics

Timeline and Resource Requirements

Budget

Cash Flow

Social Venture Snapshots

Operating Plan for Sankara

GSBI Innovator Video Volunteers

To Recap

Exercises

Background Resources

Chapter 12  Financing

Funding Sources and Amounts

Valuation

Documents Used in Fund-Raising

Due Diligence

Investment Readiness

Social Venture Snapshots

Grameen Shakti

Sankara Investment Profile

GSBI Innovator Ziqitza Health Care Limited

To Recap

Exercises

Background Resources

Chapter 13  The Path Forward

Completeness of Vision

Mission, Opportunity, and Strategy (Theory of Change)

External Environment

Beneficiary (Market) Analysis

Ability to Execute

Operations and Value Chain Innovation

Organization and Human Talent

Business Model

Entrepreneurial Adaptation

Social Venture Snapshots

Discontinuous Change in the Angaza Business Model

Entrepreneurial Adaptation at Husk Power Systems

Metrics, Accountability in Operating Plans, and Financing

Metrics

Operating Plans

Financing

Overcoming Market Failure

Combinatorial Innovation

Background Resources

Notes

Acknowledgments

Index

About the Authors

Preface

Bangladeshi social entrepreneur Muhammad Yunus defines a social business as an enterprise that creates goods and services that produce social benefits where any cash surplus generated is reinvested in the business.¹

He also argues that a social business should operate like a profit-making business with positive cash flow (income greater than expenses), and, rather than offering equity to its investors, it should return any invested funds (investment capital) to its investors (in an amount, possibly zero, agreed to by the investors). Thus, a social business could be a for-profit or a nonprofit organization from a legal (or tax) point of view but would have a social impact mission and would reinvest all operating surplus in the business (after repaying the original investors an agreed-on amount).

Yunus cites Ashoka executive Bill Drayton’s definition of a social entrepreneur as one who applies creative, innovative thinking to a previously intractable social problem.² Yunus also posits that a social venture is a form of social entrepreneurship. He argues, however, that social ventures make up a new category of business—one grounded in a focus on social impact that represents an alternative rationality to the private wealth maximizing logic of capitalism. In a sense, a social venture truly seeks to create a virtuous cycle—the greater the surplus generated, the greater the benefit to society.

Accepting the premise that social ventures are essentially businesses with social missions and profit-reinvestment financial goals, the Global Social Benefit Incubator (GSBI®) at Santa Clara University was founded to help social entrepreneurs learn to manage their ventures in a way that would improve both financial sustainability and the scalability of impact.