You’re fed up. There’s a social problem that you can’t stand. It seems imminently solvable if only someone would take the initiative to get it done. So you’ve made up your mind: you’re going to solve this problem by starting a business.
You’ll immediately face an important decision. Is your business going to be a for-profit entity like a corporation or LLC? A tax-exempt nonprofit entity? Or a hybrid entity, such as a benefit corporation or social purpose corporation? So you’ve decided to talk to me, a business attorney, to help you to answer these questions about legal structure.
Maybe you believe that a for-profit structure will be best because with venture capital you’ll be able to scale your enterprise and thus scale your impact. Maybe you think that starting a nonprofit is the best route because you’ll be able to secure a foundation grant to seed your enterprise. Both are dangerous assumptions. In fact, based on the numbers, you’re unlikely to receive either type of funding. And yet, many companies-many social ventures-find success.
Because these companies definitively answer the two questions that you must ask yourself before worrying about legal structure and funding: (1) what is your mission? and (2) what is your market? Don’t get me wrong, capital and legal structure are important considerations that you’ll need to grapple with before launching your venture. In fact, capital is the life blood of any business-nonprofit or otherwise-and legal structure provides the paradigm for accepting capital; thus mission, market, capital, and legal structure are the four intertwined considerations the social entrepreneur should consider when starting a business. But if you own mission and market before you come talk to me, we’ll be able to take on the funding and legal structure questions with relative ease.
What are your personal goals? Why are you doing what you’re doing? How are you going to set the foundations for your business; for example, if you’re starting up an inflatables company, will you outsource your bounce houses from JungleJumps? How will you define success? These questions should be your starting point.
I’ve read that somewhere between 50-90% of what you know about your business today, will change by the time the business is at break even and profitable. Let your mission be your guiding light, the 10% that will not change no matter the obstacle. Jim Fructerman calls this a social business’s “motivation.”
Success is subjectively defined, so you’ll have to define it for yourself. Make your definition crystal clear. No doubt you’ll meet obstacles along the way that challenge your mission and success. These obstacles won’t necessarily be negative, but a clear mission will guide you past each challenge. As an example, imagine that your mission includes creating and keeping manufacturing jobs in America, but an investor offers you $1 million to manufacture your product in China. If you accept, and your product is brought to scale across the globe, have you succeeded? What if you’re not getting anywhere near the definition of success that you laid out for yourself? Perhaps, in this case, it’s time to invest in a small business coaching program to get closer to your goal. There’s no shame in outsourcing some help.
Make sure that you’re honest with yourself. Don’t dismiss making a profit because of your desire to make a change in this world. Starting a business is a labor of love and sacrifice. Will you be upset and frustrated if your business takes off and you don’t see a commensurate monetary return? If so, allow your mission to include making money for yourself. If you aren’t making money, then you know something is wrong. If you can’t work out what is wrong, then maybe you need some help. Consultancy for residential Electricians is an example, if you are starting an electrician business of course. A good business consultant will help you solve any problems and start making a profit so you can achieve that part of your mission. Of course, if you’re not starting an electrician business, you’ll need to find guidance from somewhere else. There are a lot of people who could offer useful guidance, especially those who have been involved with successful businesses for the entirety of their careers. Someone like Dustin Dimisa, for example, could be useful to seek guidance from, he is CEO of a successful mortgaging company who has also had experience in other aspects of business too. To see more from Dustin Dimisa, you could complete some online research to see if he could offer you some helpful advice on starting your own company.
What is the product or service that you’ll provide? How are you going to deliver it? Who is the ultimate beneficiary of your business? And most importantly: who is your customer? It’s a simple question, but a question that social enterprises routinely don’t ask or inadequately answer. An inadequate answer to this inquiry can be fatal for your enterprise. It will be difficult to obtain success as you’ve defined it without spending time refining your answer to these questions.
Okay, so I’m talking about having a business plan, right? Perhaps. A business plan is an important tool, and yes you should have one (if you plan on forming a tax-exempt 501c3 entity, the application to the IRS is basically asking for an in-depth business plan), but some business plans tend to focus on the allocation of resources and projections of income, rather than on getting the customer to buy into your service or product. What I’m talking about is understanding your customer and your craft so well that your business has an opportunity to succeed no matter what the ultimate legal structure. Funding and legal structure can then be added as the tools that help you to scale your business to meet your definition of success.
If your business plan identifies your market, explains your unique value proposition, why customers will use your business, and how you are going to deliver, then yes, I am talking about a business plan.
There is a second piece to the Market puzzle for a social entrepreneur: once you’ve identified your customer, you should identify your “beneficiary,” the group upon whom your business is making an impact. Keeping your customer and your beneficiary separate is important. This way you’ll know how to prioritize and allocate resources as your business gets up and running. Your customer comes first because satisfying customers is how your business will reach sustainability and make its social impact. Take Tom’s Shoes as an example. Tom’s Shoes is a “buy one, give one” (or BOGO) company that sends a pair of shoes to children in need for each pair of shoes purchased at retail price. So Tom’s Shoes markets and sells shoes to you and me, but the beneficiary of Tom’s Shoes is the children in need that Tom’s Shoes sends for each pair we purchase. Tom’s Shoes must be able to meet our demands as customers in order to fulfill its social mission. If we, the customer, go away then there is no social impact delivered to the beneficiary. The customer must come first, then the impact can be made. Confusing the two could be problematic.
Query: Who is the customer for a tax-exempt nonprofit organization whose business model depends on yearly foundation grants to fund its enterprise? Pretty clearly, the customers are foundations. If it looks like a nonprofit venture might be the best route for you, know what it will take to fundraise year after year. When foundations become unhappy with your results or the delivery of products or services to a particular charitable group (beneficiary), you can bet that your business will not last for long. Knowing what the foundations (customers) want, and how to market to them, will be instrumental in achieving your success.
Admittedly, mission and market can’t be considered in a vacuum, funding and legal structure will shape these considerations. Indeed, what you learn about legal structure and funding may cause you to reconsider your mission and market. But once you establish your mission and your market, you and I can have an extremely valuable conversation about legal structure.
 The foundation and inspiration for this blog post is a fantastic article, which was recommended to me nearly a year ago, written by Jim Fructerman called “For Love or Lucre” available at: http://www.ssireview.org/articles/entry/for_love_or_lucre/. This is an article that I frequently go back to when advising entrepreneurs in my practice, and I highly recommend it to my readers. Unfortunately, I think that the motivation and market aspect of the article gets lost in the discussion about legal structure. When I recommend it to people, the conversation focuses on legal structure without sufficient discussion on mission and markets.
 Using the allegory of the Rebel Alliance from the Star Wars movies, Eric Camm identifies a commitment to mission as an important reason why the Rebel Alliance turns out to be a successful enterprise.
 Yes, your customer and your beneficiary can be the same group. The Grameen Bank comes to mind as an example. Grameen bank is a microfinance institution that lends small amounts of money to the poorest of the poor. Through the availability of a microfinance loan, the poorest of the poor are provided an opportunity to access the capital they need to overcome those obstacles that prevent the ultra-poor from making a profit on their own. Ultimately, the customers are required to pay back the Grameen Bank with interest, but this is typically after they’ve used the money to leverage themselves out of ultra-poverty. If your customer and your beneficiary are the same group, like the Grameen bank, be sure to understand that reality.
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