Entrepreneurs or Idiots?
Don't let the social overtake the enterprise.
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As I sit at my desk in Guatemala reading the business plans of the finalists of our Guateverde competition (http://www.guateverde.com) I keep thinking about my start in social enterprise and all the mistakes I made in getting AIDG to the point where we will now invest a few million USD in local enterprises over the next five years. I also think about all the other social enterprises I have seen over the years that have closed down.
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I am routinely heartbroken by seeing good small international programs close down, putting kids back on the street, ending that production of biodiesel, stopping the youth empowerment program, because the social entrepreneurs that started them lost focus of some of the basic fundamentals of managing an enterprise. It is easy to get swept up in the mission but don’t be a “buro” and have to watch the doors on your program close.
Talking to major donor early in my program he did not seem impressed with my metrics or organizational strategy. My quick repartee? "But you have to take into account I only started with $800 and a bag of tools" His reply "I will take that into consideration". Translation: “Honestly you were a well paid programmer and you started with only $800? You aren’t an entrepreneur, you are an idiot.”
Fortunately if you are starting a new program abroad you don’t need to be an idiot like I was. Here are ten “rules” of starting an international service organization that would have helped me if I had known them a few years ago, and maybe can help you. To anybody running an organization they may seem obvious but it is amazing how many early stage entrepreneurs ignore them while focussed on the mission of trying to just get the school built, the pollution reduced, the farm running, etc. With these rules maybe you can start an enterprise that is as much enterprise as it is social.
Rule number 1: Don’t start a new organization
There are literally millions of established organizations globally that are in need of support. Before you start something new ask yourself: “What can I do to help something that is already here become more effective?” There are several programs I know of now that if I had learned about them earlier and applied to a management position it could have likely saved me a few years in getting my program running.
Rule number 2: Clearly define what you do and stick with it
So in the face of massive unmet need there is always the temptation to run the feeding-housing-water-sanitation-ecotourism-renewable energy-child education-dolphin saving program. But unless you are say putting up a millennium village presenting this type of program to funders can be a tough sell. To draw an example from my experience at AIDG donors may not see the clear link between a program in say ecotourism and a program in say light industrial fabrication. Don't be a swiss army knife. Do one or two things well and be selective about program expansion.
Rule number 3: Clearly define your budgets and cash flow, and track your variance
Put down your shovel, or wrench, or blackboard and pull out an excel sheet (A great template from the for profit world is available here: http://caribbean.smetoolkit.org/caribbean/en/file/195?1194044785 ). Figure out what your budget is month by month, your cash flow and income, set targets and track the variances. If you are living month to month do everything you can to cut your burn rate to the bare essentials, and then build your cash reserves. It does nobody any good if your program closes because that grant you were expecting in January doesn’t show up till March. And without getting it all down you will never see that dry spell coming.
Rule Number 4: It costs more than you expect, get more than you need
Honestly don’t be afraid to ask for enough money to really have impact. If you have a well communicated business plan, have made the right connections, have the right board and advisors you have a better chance of making your impact by starting with enough resources to actually enact your mission at some scale instead of constantly being stuck dealing in trials.
Rule number 5: Get legal, and stay legal.
In developing countries this can sometimes mean months and even years in bureaucratic limbo. But you want to be formal from day one. This also might mean paying yourself according to US labor laws if you are a US charity, getting insurance, getting title to that truck you picked up at the border. Get it all in writing, your contracts, your grants, your projects, your partnerships, and keep those records. The sooner you are clean cut and can show all the proper documents the sooner you will attract capital.
Rule number 6: Pay yourself and your staff from the beginning
Everybody wants to volunteer for a good cause but many early stage Social Entrepreneurs volunteer for months or years without compensation or on base living stipends. I've seen more than a few programs shut down or almost shut down because the social entrepreneurs were so flat broke/in credit card debt they had no choice but to go back to work again in the states. The worst service you can provide a community is to start a program that is good and then force it to close suddenly because you put yourself at financial risk.
Rule number 7: Communicate openly with your staff and board, and have clear roles and responsibilities
It is important from the point of hire to be clear with people what their roles and responsibilities are, who is accountable, and who has the final say in decisions. I have seen an organization lose a million dollar grant because of conflict between staff, board and management about goals with no clear deferment to one party.
Rule number 8: Treat both constituents and donors as customers
Most NGOs when they are small lose track of their donors while they are wrapped up in providing good services for their constituents. It is an unfortunate donor as ATM mentality. With some large NGOs this switches and the donors tend to take priority. To be successful treat both donors and constituents as customers you want to keep happy. If you talk to both donors and constituents on a regular basis you have a good shot of creating an effective organization.
Rule Number 9: Play nice with others
Partnership and collaboration in the Non-profit world is always better than competition. In fact if you ever want to work with multilaterals it may be your only way in the door (many multilaterals use partnerships as an introduction mechanism for funding). Start early and figure out how to leverage the strengths and experiences of other more established groups instead of doing everything yourself.
And the final Rule: Don't be a non-profit.
Bogo light, Tom’s Shoes, SKS Microfinance, there are plenty of examples of organizations that can scale quickly in providing services to people because they are for profit entities. Investment can be easier to find than donation and making money with each client served is always more scalable than losing it. While sometimes, like the case with AIDG’s training services, there is a need that it would be difficult to establish a profit model around, there are plenty of social ills that can be met in a for profit model. See if your cause fits.
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