A Five-step Process That Can Help Social Enterprises Succeed

In their ebook, The Social Entrepreneur’s Playbook, Ian C. MacMillan, a Wharton management professor, and James Thompson, director of the Wharton Social Enterprise Program, offer specific suggestions to strengthen the effectiveness of social enterprises. In the second of a two-part interview, the authors discuss how two African social enterprises — one in the chicken feeds business and the other in the sanitation industry — used a five-step process to maximize the social and business impact of their operations.

An edited transcript of the conversation follows. Read part one of the interview here.

Knowledge@Wharton: I would like to talk through some of the chapters in your book and some of the things that social entrepreneurs should be thinking about. To begin with, you recommend that social entrepreneurs need to articulate the problem that they are trying to solve, as well as a solution that they propose to offer. Could you take us through some of the steps that they should go through to do that?

Ian (Mac) MacMillan: What we tried to do is push people into thinking beyond high-level problems — there’s a problem of nutrition or there’s a problem of education — and begin to think about what the so-called beneficiaries of this program are going to actually receive, what the problem is from their perspective and whether they recognize that they have a problem. For instance, one of the projects in India was the concept of taking sachets of disinfectant and distributing them in villages where the water was unhygienic and people were subject to all sorts of dysentery-type diseases, high death rates and so on.

When you arrive in the village, it’s not evident to the people in that village, who have very little education, of the connection between the diseases and the water. If you tell them that the water is bad and they can’t see the microbes or bacteria in that, they just don’t believe you. It’s really important to understand the problem, not just from a point of view of the benefactor, but also from the point of view of the beneficiary. What we do in the book is we give people very systematic ways of beginning to unfold what the problem is in the eyes of the person who is supposed to benefit.

Knowledge@Wharton: One chapter in your book refers to the need to segment the target population. Jim, I wonder if you could help explain how this process should work.

James D. Thompson: To your question, Mac mentioned this idea of finding a group of these beneficiaries or a segment of them that has a higher likelihood of early adoption of what it is that you are trying to do than others. We spend an entire chapter framing a method for segmenting the beneficiaries. It includes some of the typical segmentation instruments — geographic location, gender, all of that — but then there are also behavioral segmentation issues.

We then have a framework for people to use to segment their beneficiaries, which can be used to select one with which to start. We articulate the characteristics of a good wedge, if you will: a segment that is most likely to adopt in the shortest space of time at the lowest cost and provides a high rate of learning.

Knowledge@Wharton: Mac, as you have said before, sometimes a seemingly wonderful idea leaves the beneficiaries cold and unresponsive. Why does that happen? What could social entrepreneurs do to prevent their enterprises from falling into that trap?

MacMillan: The fundamental problem is that people come in with what I call the wild-eyed, Western solution to a problem where you are expecting behaviors to take place in defiance of deep-seated cultural behaviors. There are some things that you just don’t do. One of the projects that we looked at when I was in Cape Town a couple of years ago was the whole idea of beginning to distribute tricycles, three-wheeled bicycles, so that women, instead of having to carry their crops to the market, could actually peddle their crops to the market. That sounds like a wonderful idea. But when you arrive with the bicycles, you find out that the men have decided that women should not ride bicycles; it’s something only a man is allowed to do. By not paying attention to what the cultural factors are, they just wasted their time.

Going into an African country with condoms to try and prevent AIDS, you [must] take into account the fact that, in many of the African societies, fertility is extremely well regarded. A woman must be fertile. Secondly, sexual behavior [must be] taken into account. [If a] woman goes to her husband and says, “I expect you to use a condom,” … she can get thrown out of that house. She can get sent back to her original family and live the rest of her life in disgrace because her husband has banned her from his home. This lack of cultural sensitivity is often a huge problem.

Knowledge@Wharton: Why is it important for social entrepreneurs to identify the most competitive alternatives to the idea that they are trying to propose? How can they use this information that they gather to make their own offering more valuable?

Thompson: There’s always a competitor, even if it is what they are doing today. We stress this because it forces people to spend time with the beneficiaries they have in mind and the communities at large. By mapping out what the nearest alternative is to what the team has in mind, in effect, we’re forcing them to build insight into the realities of that sector of the population on the ground as it exists. That’s the first thing.

The second thing is it gives a methodical manner with which to compare, step by step, the idea that a team has for a social entrepreneurship activity versus what exists on the ground or could exist on the ground. We use that to force people to get the kind of information that they should have. Then they need to have a fairly hard look at what it is they propose and how it compares from the beneficiary’s perspective with what they are already doing.

Knowledge@Wharton: Mac, what operational issues do social entrepreneurs need to address before they can deliver their product or service?

MacMillan: This is so important that we actually have the would-be social entrepreneur develop what we call a deliverables table where you need to be very clearly focused on articulating everything that the beneficiary must go through in order to receive the benefit. Then, think a little bit about what it’s going to take for that benefit to take place. Let’s say you have got a program in which you are distributing product to village communities out in the boonies, as they say. You can’t just assume that there’s going to be a transportation system that will deliver that stuff. You have to think a little bit about not just how the product is going to be sold, but how is the product going to be transported to where you want it sold? How are we going to know that we need to send more? Do we have a logistical system in place?

In many of these situations, there just isn’t the infrastructure to do it. What we are looking at here is what specific operations — from the time that the beneficiary first becomes aware that they have a need and you can fix it, through the final delivery and consumption of that benefit — have to be documented. Then you have to sit down and say, what must happen physically? Because if the system isn’t there, it just isn’t going to happen.

To illustrate this, there was a program in Lesotho in which they were going to deliver medicines by motorbike, because Lesotho has very bad roads, but you can go on motorbikes to many of these places. They built this whole program with dozens of motorbike riders taking samples and medicines out to remote areas. Everything went fine until the motorbikes started breaking down. Then they suddenly found out that there was no one there to repair the motorbikes. What you now have is a mountain of unused motorbikes that have basically just gone to waste.

Knowledge@Wharton: The next question is for both of you. One of the things I found most fascinating about your book is the examples that you give of two companies, Zambia Feeds and Ecotact, and how they went through the different steps that you have just outlined. Could you tell us about these two companies and what are the main lessons that other social entrepreneurs can learn from their experience?

Thompson: Zambia Feeds is a company in the northwestern part of Zambia that produces fairly high quality animal feed at relatively good prices. The company started back in 2000 and has systematically built an alternative production system for poultry rearing in that region. At the end of last year, they had nearly 2,000 customers producing really high-quality poultry fairly efficiently. Of course, this had to scale over more than a decade.

The first thing that we did, when we learned of this, was to sit down with the entrepreneur and say, “Alright, what is success for you? And how do you know when you are there?” As simple as that sounds, it turns out that a lot of folks don’t really think like that. The reason we did it was because of the huge uncertainty in the area.

We put in place a few parameters that the team needed to commit to in order for us to continue working with them. We didn’t want to commit ourselves to a team of people that was going to use the conventional “let’s come up with a great idea, raise the money and go and build it” approach. Fortunately, the team over there [committed to our parameters]. We can’t take all of the credit. We were working with a social entrepreneur from that environment, and she had been in commerce before.

They started small: picked segments, geographic location, accessibility, etc.; didn’t buy used equipment; didn’t buy buildings; and attended to the sociopolitics by starting it as an entrepreneurial venture within an existing company, a big company that could provide some defense from interference.

They then spent the better part of nearly seven years building an organization that systematically developed these new segments. In keeping with the philosophy of the book, they only began to accrue production assets when they needed to accrue those assets to produce higher volumes at higher quality. Fortunately for us, that case was the first one we took on and it has been very, very successful. In fact, they have impacted the whole industry in the country to the degree where the entrepreneur, when she retired last year, was on the national poultry association board. We use that case throughout the book as the golden thread from the beginning through the end as a way to show what was done. It’s the applicability of each of the tools and frameworks to the case.

Knowledge@Wharton: The other really interesting case you have is of a company called Ecotact. Can you tell us about that one, too?

MacMillan: Ecotact was not something that Jim or I actually worked on. This was a project that a Wharton student was involved in. When she took the course that we were teaching on entrepreneurship here, she [focused on] sanitation facilities for people [in East Africa] who were using the streets. The interesting thing there is the segmentation of the markets, because inadequate sanitation is a huge problem. Millions of people under the age of five die every year because of diseases caused by inadequate sanitation. Part of the challenge in the beginning was what we wanted to try to do was build toilets which were functional and were sanitary. But people were used to just using the streets and things like that. The entrepreneur’s problem was he had to charge money for people to use these toilets, and people were basically thinking to themselves, why should I pay when I can do it for nothing? So the perceptual breakthrough was enormous.

As he started to segment, he had to think a little bit about making a distinction between the many, many people in what they call the estates, which are basically the slums in the East African towns where there were hundreds of thousands of people who were exposed to unsanitary conditions; people in the towns where you had municipal toilets, but which were very, very badly maintained and just basically not kept clean; and then people who could not just avail themselves of facilities at night where nobody could see them.

The segment he chose was the markets, because people come to the markets and they are there all day. The people who come to markets tend either to sell or to buy, and that means they have some money. He got the whole thing started by building in markets.

Now the interesting thing about that particular project is that there were two unexpected outcomes. The first one was that these facilities that he built near the markets became attractive to women who were going to give birth to children because it was clean and it was sanitary….

The other thing that they found is that the places where there were congregations of people with money were not only just markets but also bus shelters, places where buses congregated, because large numbers of people go back and forth all the time, catching buses to and from the town. They, in a way, discovered what the true segment was for that particular form of enterprise, neither of which had been anticipated in the beginning. But fortunately, he didn’t go and build a huge network of toilets which no one was going to use.

Knowledge@Wharton: That’s a great example. To end, what would you like our readers and viewers to do to participate in your project, The Social Entrepreneur’s Playbook ebook, so that you can move it onto the next phase?

Thompson: Firstly, to read it. We have taken a slightly different approach in the publication of this book…. What we are trying to do is use the ebook in the spirit of the approach of the ideas in the book: start small and change fast. We would like to get responses from readers out there. We are going to use those responses [to shape the expanded edition of the book, which publishes in November 2013.]

If any of our readers are in the social entrepreneurship space, use the book to spread the word. If any of our readers know people in this space, please get the book out to them. We think it will be useful, and everybody we have tested it with has found it very, very useful in the field, nonprofit or for profit.

Knowledge@Wharton: Mac, any final words?

MacMillan: Our ebook is a free book. We want to give everybody access to it. [The first edition covers the first of three phases in a social enterprise start-up], which will help people really think through if they want to do something that’s going to do some good out there. Increasingly, people want to do that, particularly the younger generation. The idea is that if you know anybody who might be interested, just send them the ebook and they can download it. We don’t want to make money out of this. What we want to do is have impact.

Anybody who you know who’s making charitable contributions and may be a little concerned about how well those contributions are being spent and dispersed, send them the ebook and they can have a look at it. If I make donations, I want to be able to think that my donations are being spent well, rather than just being squandered. The idea would be that anybody who is making donations today might want to have a look at it and challenge the people to whom they are making the donations to see whether they are in fact following the disciplines we suggest. To me, this is not a popularity contest. We are not there to be popular, but rather to have impact.

To download the ebook or join the advisory group, visit wdp.wharton.upenn.edu/books/social-entrepreneurs-playbook.

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