Soweto Funeral Services | A reflection of the two fatal flaws lurking in social venture business models

20th February 2016 Posted by: Kieron Kirkland

At Tech for Good TV, we're delighted to share recently written articles written by Kieron Kirkland, Co-Founder and Director of Cast, a UK-based company collectively helping organisations use technology to deliver their social mission and get early stage ideas to scale

In this latest piece, Kieron shares his solutions to the inherent glitches in the development of social-enterprise businesses

So, it turns out a business model is a pretty big part of building any successful business (who’d have thought it?) And social businesses are no exception. But there are two fatal flaws lurking in social venture business models that are almost intrinsic to their development. If they’re not addressed, they risk dooming any social venture from the start.

Firstly, Market Sizewhether the organisation is addressing a social issue so specific that there isn’t a big enough market to sustain the venture. And secondly, Product/Market fitwhether the venture is addressing a problem the customer cares about enough that they will pay for a solution.

These are both terms that are bandied about all the time in start up world. However, there are some really specific challenges in the way social ventures operate that make these problems particularly pertinent and deadly. Fortunately, I’ve got some suggestions to solve themthat we’ll go over later.

Let’s look at Market size first. One question that is regularly asked in commercial pitches is about addressable market size. However, this crucial information is rarely featured in the social venture pitches I seeor funding/investment discussions for that matter. The problem is that by identifying a specific and focused social problem, a social venture often ties itself in a tiny market that makes it unsustainable from the start.

A great example was an idea that emerged from a hack held at the amazing Jozihub recentlya great acceleration and incubation space based in Johannesburg. The hack focused on addressing social problems in the local area, and the venture idea was pretty specificfinding the right funeral, in Soweto, on a Saturday.

Now, if you’ve never been to Soweto on a Saturday, this will make zero sense to you. However, apparently Soweto has many funerals every Saturday, where lots of people are invited and it’s a real problem, and very confusing. People end up at the wrong funeral, which quite obviously causes a lot of upset and anguish.

This hack idea wasn’t developed for a good reason — it was felt that there wasn’t a big enough market to support it. The issue was so specific and solved such a comparatively small number of citizen problems, that the numbers didn’t stack up. This is not to say that the service couldn’t be provided, but the market alone wouldn’t pay for it.

This is typical of social venture models. They find a specific problem to solve. But this problem is often so unique, they struggle to build it into a business.

The second area, product market fit, directly connects to this. Given that most social or mission-driven ventures aim to support disadvantaged individuals, operating a B2C model is often challenging. Generally the service users don’t have enough money to pay for the service. Though it’s not always the case, for example the amazing Mesh Power in Rwanda sell prepaid energy credit as part of their rural electrification programme.

An installation in rural Rwanda from Mesh Power

An installation in rural Rwanda from Mesh Power

However, for the most part, someone else is paying. For example, schools pay for children. NHS pay for patients. And this is where the problems start. Social ventures often excel at building something users love, but the organisation doesn’t care about ‘the enough to pay for it’.

The most pressing examples of this I know are in health and education. I know many ventures which are operating in edtech, and keen to sell to schools. There’s all sorts of amazing ideas about things that would improve learning. However, when you talk to the people responsible for purchasing this type of service into schools, they frequently don’t say they need them. Their lives are perpetually governed by targets and exam results. So while great systems for enquiry-based learning are a fascinating issue—and no doubt needed—they don’t align with the priorities of the people paying for the service.

This is the ultimate clash in social venturing—between the world as it is, and the world as social entrepreneurs wish it to be. People often innovate because they are trying to change a sector, health/education/finance/energy etc. But their innovation is so different to the incumbent system, it’s unadoptable. This is a problem for social ventures. they need to have product market fit.

Solutions

But what about solutions? Here’s a few ideas. But I’d love to hear about your own experience of addressing these problems.

Let’s look at market size first, and think back to findafuneral.za (no, it doesn’t exist. Yet.) How could it address its apparently small market?

1. Replicate the service in other places that face the same problem

Though my point here is often the context social ventures operate in is so specific, replication is not an easy thing to do. For example, deploying the findafuneral model in other densely populated areas that have the same challenge.

2. Expand the services it offers, to broaden its income base

For example, instead of just finding funerals, the service could also help people in Soweto find other local events. More users is more chance to monetise. But this can be a difficult path for ventures to take because they risk building a product that is trying to be too many things and they lose sight of who the core users are.

3.Support the service through income outside of the core user group.

This can go one of two ways. Either getting funding, sponsorship or a contract from someone who has a budget and a shared interest in the results of the service,for example public sector contracts or charitable foundations. This is of course possible, but challenging given the demands placed on these organisations for money. Will the local municipality pay for findafuneral?

Alternatively, find how the service is creating monetary value for someone, yet is not related the end result. For example, someone who gets value out of the users for the product. This could be advertisers who might pay to reach that audiencefuneral arrangers perhaps, or health insurance salespeople. Or the data it produces on funerals (or those signing up to attend) might be useful. Obviously ethical use of data is an issue here, but it’s still a useful income stream.

                                                                                

So findafuneral.za maybe could survive, by replicating the service in other places that face the same problem (scaling the model), by broadening its user (and revenue) base, by getting someone to sponsor it, or lastly monetising a value emerging from it, either the social value it produces (if someone cares enough to pay), or through some of value that emerges from the service (eg access to that audience).

And product/market fit? How do we build things that make a change, but that people will pay for? As I see it, there’s two ways to reconcile this.

Either opt for evolution over revolution. That is build something adoptable that gets used. Even if it’s not the revolutionising catalyst you hoped. Better to get it adopted and working with users/customers over time to change, than not have anything being used at all. If an innovation isn’t adopted, its useless to your business.

Alternatively, operate in a market without incumbents. I am currently in East Africa connecting with social ventures. Those who have the most success are finding solutions that don’t have incumbents they have to work against. For example, rural electrification for communities that are off grid, and likely to stay that way for the foreseeable future. These companies don’t have to fight against the national grid, it’s simply not a competitor.

 I am sure that’s not of of the solutions. These are just my ways around it. Do share yours and we’ll have more social ventures growing beyond the excitement of startup and into mature, sustainable businesses.

Quote

"People often innovate because they are trying to change a sector, but their innovation is so different to the incumbent system, it’s unadoptable."

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