Strong products and marketing are all well, but for the business to have longevity, it is crucial to look after the money.
I recently watched a TED talk by an ex aid-worker Ernesto Sirolli. They can be hit and miss sometimes but this one contained some powerful messages for social entrepreneurs. One of those was about the importance of listening carefully to your customers. It was accompanied by a beautifully funny story about his experiences with Zambian agriculture. It's a lesson learned early on by many entrepreneurs.
But I thought the best bit of the talk was right at the end, where the truth about entrepreneurship was revealed. To make any venture a success, Sirolli says, you must do three things brilliantly well. The first is to have a fantastic product, and the second fantastic marketing – in other words – 'make it' and 'sell it'. The third thing is to 'look after the money'.
Sirolli says that no individual is capable of all three activities – indeed, that no successful company in the world today was started by one person alone. In all my work in public, social and private sector, I have never met anyone that could perform all three tasks to maximum effect.
It's important for social businesses to get the balance right in their business model. The temptation is to put your efforts where your passion is – often in the 'make it' part. But it's the 'sell it' part where I have a weakness. Others are happy to shout about their organisation from the rooftops. I envy their creativity, communications skills and their confidence.
But, even in established organisations, I'm afraid to say, it's the money bit that people get hung up on. A kind of 'financial blind-spot' can plague many an emerging social enterprise. By this I mean a reluctance or inability to acquire and actually use, good financial information, in a strategic way to build a sustainable future business model.
I've lost count of the groans I get when I raise the subject of financial management. As far as I can see, no true social enterprise can both sustain itself and fulfil its social purpose without making a profit.
Financial management goes beyond book-keeping. It goes beyond compliance with statutory requirements – although this can be a major challenge in itself. Financial management is about whether the company leadership a) fully understands both the financial and the management accounts b) knows which services or products are running at a profit (or loss) and the implications of this c) manages the organisation like a business rather than a series of projects, d) thinks beyond the next year and puts some pound signs against future business scenarios and perhaps above all else e) has a good handle on cash-flow.
The deep cuts in public spending have spawned a new generation of social entrepreneurs whose survival depends on working with market forces to build businesses capable of making a profit. And for social entrepreneurs (whose social purpose is often specifically about trying to combat the impact of market forces) getting the right balance between making it, selling it and looking after the money is tough. Adopting strong business and financial principles can seem counter-intuitive, ruthless even, but it is vital if this quiet revolution is to embed itself and set the standard for future generations on what good business really means.
Posted by Secret Social Entrepreneur
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