Making Social Ventures Work

The discovery-driven process of transforming the uncertainty around a business venture into risk (which can be managed) allows leaders to experiment, learn, and either develop a plausible business model or abandon the project early and at little cost. The idea is to reduce uncertainty to the point where probability distributions can be assigned to expected outcomes, making them plannable—that is, you develop ideas to the point where it’s possible to use conventional methods of assessing risk. When you simply don’t know what will happen, when there are as many possible answers as there are questions, there’s a big opportunity for effectuation—that is, for just starting something inexpensively, for taking some sort of action that has an outcome. By analyzing these preliminary results, you can then further develop your ideas, monitor your progress, and exploit the evolution of any plausible model that emerges.

What Is Discovery-Driven Planning?

However, this method of planning is necessary but not sufficient to handle high-uncertainty ventures. In the following pages, we’ll look at how to combine discovery-driven planning with four other guidelines for building successful businesses in uncertain markets that developed during a sustained field program carried out by the Wharton Societal Wealth Program (WSWP). Specifically, consider four social enterprise projects launched in Africa and examine how the guidelines informed the work in each.

It’s important to note that the lessons here aren’t just for entrepreneurs. The management teams of established multinationals, foundations, large NGOs, and other nonprofits can apply them in any challenging and highly uncertain business situation. In doing so, they can better control their costs, increase their impact on society, minimize the effects of surprises, and know when to disengage from questionable projects.

The following are guidelines for creating new business models in emerging or other highly uncertain markets:

1. Define the ballpark—or the scope of the venture.

This is a three-part process. First, concretely outline the disqualifying conditions, the factors that would preclude the venture’s launch. These might include an inability to scale operations, an environment in which corruption is rampant and can’t be circumvented, situations in which the necessary equipment is of poor quality and is difficult to operate and repair, and a lack or shortage of suitable talent. Second, define your acceptability space: the minimum number of people the venture should serve and the minimum level of profitability it should attain. And third, after a thorough review of the economic, national, and cultural contexts in which the venture will operate, draw up the business’s rules of engagement. These might include tenets such as “no sales on credit,” “no transgressions of home or host country laws,” or “absolutely no payments of bribes.” All three filters will help you allocate scarce resources only to ventures that satisfy minimally acceptable outcomes.

2. Attend to the sociopolitics.

Before you even start, you must develop a fine-grained view of important stakeholders, their roles, and the resources they can provide. Identify beneficiaries —the (often reluctant) parties who stand to gain from the venture but could nonetheless be initially skeptical of it; potential allies —those most likely to support the project; needed indifferents —those unlikely to care much about the project but whose support may be critical; and meaningful opponents —those who will be adversely affected by the success of the project and have the wherewithal to obstruct it. With such an analysis in hand, you can figure out how best to mobilize supporters and neutralize opponents.

3. Emphasize discovery-driven planning.

From the get-go, recognize the evolving nature of your project. Of course, you must delineate the initial business model, the delivery mechanisms, and the value proposition for customers. But you’re probably going to be wrong. The idea is to start with a clearly hypothesized model for the venture, launch it at the lowest possible cost, and use the business data that emerge to continuously update your assumptions, systematically learning your way to the eventual solution.

First, specify both the unit of business and the unit of benefit. The unit of business is the transaction unit for which the customer pays—for example, a sack of grain, an hour of service, or a load of materials hauled. The unit of benefit is the metric by which societal impact will be measured—for example, a daily protein serving, a patient treated, or a person taught to read a simple book. There may be few precedents on which to base your assumptions about those factors, but developing and specifying initial assumptions will help you articulate your business and revenue models. Make sure to document your hypotheses and delineate a series of checkpoints at which you’ll test them before making major investments in the venture.

Second, anticipate the challenges of growth. One of the biggest obstacles to scaling up ventures in emerging economies, for instance, is the shortage of management talent and expertise. It’s difficult to attract experienced employees and partners (or even high-potential candidates for education and training) to an uncertain venture. This limitation alone can seriously undermine aggressive growth plans.

4. Plan disengagement.

There is more than just financial capital at stake in societal-wealth-generating initiatives; the livelihoods and well-being of hundreds, if not thousands, of people, also hang in the balance. Before you begin, you must plan how you could disengage with a minimal footprint. How could you exit in an acceptable manner? Could you sell off or donate equipment or other assets? Could you shut down until conditions (say, access to electricity) improve?

5. Try to anticipate unintended consequences.

Recognize that societal interventions (and, in fact, any form of commercial intrusion) in emerging markets can create unintended second-order effects, both negative and positive. For instance, when various NGOs and governments encouraged intensive growth in shrimp farming in order to bolster local economies and create new export markets, mangrove forests in parts of Thailand and China were decimated.

Taken together, the five guidelines we’ve derived from our fieldwork offer an effective framework for all organizations—not just entrepreneurs and social enterprises—seeking to create radically new and profitable markets. Large, incumbent organizations and startups alike can use them to create markets for their products. Nonprofits, NGOs, and foundations with limited resources can improve their odds of affecting society in the ways they intend. The discipline engendered by these guidelines—you’ll necessarily come back to the framework again and again as your business evolves—will ensure that you maximize limited resources in pursuit of your goals.