Updated: Feb 8, 2022
In a recent conversation with a fellow social entrepreneur, I realized that there are several common mistakes that entrepreneurs make when they start their business. Not only do the entrepreneurs need to know where and how they can use their resources to help solve the problem (which is hard enough), but they also need to understand what makes an idea sustainable over time.
1. Not knowing what your customer wants
Social entrepreneurs are often so passionate about an idea that they fail to take the time to understand why people would want it. Many social enterprises fail because their products or services do not meet real needs in the marketplace, which is just as bad as creating a product that no one wants. Ask your customers for feedback and use this information to guide your business decisions.
2. Creating a product that no one wants
I have seen many well-meaning social entrepreneurs create unique products with great technology only to find out nobody cares enough about their problems to buy their solution or support it financially through donations or buying subscriptions. The best way to truly understand if your idea will find takers is by talking to potential users and buyers and putting your product in the hands of potential customers who have been surveyed or tested. In addition to identifying if your target market exists, this approach will help you understand how viable it is for that particular segment.
3. Having unrealistic expectations about how fast you can grow
Trying to scale a social enterprise too quickly without ensuring a sound business model has been established can prove disastrous. Social entrepreneurs often assume they'll be able to attract vast amounts of money from major donor organizations without first verifying their ventures are sustainable and scalable financially. Many social entrepreneurs also make the mistake of thinking that all they need is one big win; one huge customer who could buy all their products or service since they don't know exactly what demand will look like once scaled.
4. Focusing too much on funding and not enough on making money
Many social enterprises focus all their energy on getting funding without first establishing a revenue stream or even setting up basic business systems for running day-to-day operations. I have seen many entrepreneurs fail because they spent months, if not years, chasing the wrong investors who don't fit with their profile or are unwilling to give back in any shape or form. It's also very common for social entrepreneurs to spend way too much time trying to get 'free' media coverage instead of devoting efforts to engaging customers and creating quality products/services that will sell over the long term. Many new ventures also wrongly assume they need millions of dollars before they can start to make money.
5. Adding features or functions that customers don't want or need, or not doing so quickly enough to keep up with competitors' products
It is very easy for social entrepreneurs to get too attached to their ideas and ignore that they are falling behind because of their reluctance to innovate continuously. The idea is often the biggest differentiator in the early stages of a startup, but it becomes much more complicated as others copy your model or even try to improve upon it. Social entrepreneurs have a tendency to believe that competition will only arise once they become successful, which makes them reluctant to spend time on research and development, which eventually causes them major problems down the line because by then, they would have lost their competitive edge.
6. Shiny Object Syndrome
Social entrepreneurs often get distracted by shiny objects that they see others using and fail to see the forest for the trees. They try to imitate what other successful companies do without considering whether it makes sense for them and whether their customers will buy it. It is difficult for social entrepreneurs when no one in their network has ever successfully built a company like theirs; this lack of trust in themselves can make them doubt their instincts and add more complexity than necessary, such as trying to add too many features, functions or products to their product mix.
7. Spending too much money on sales and marketing or hiring the wrong people to do it
Many social enterprises prioritize fundraising over actually making money; they spend way more effort trying to attract donors or investors than spending time engaging their customers. It's very common for social entrepreneurs to spend lots of time finding the right salespeople without understanding that no amount of money spent on hiring the perfect person will be efficient if they are not allowed to do what they were hired for, i.e., sell.
8. Taking the wrong partnerships with the wrong organizations
Many social entrepreneurs take partners who are good at giving money but have very little expertise when it comes to helping them develop a sustainable business model. Social entrepreneurs often assume that partnering with an organization can provide them with access to donors when it only gives them exposure and credibility, which takes much more effort and work to convert into tangible results.
9. Not being flexible enough to change your vision to fit with your abilities
Sometimes a social entrepreneur will have a very clear idea of how they want their business model to work and where they want it to go. Then they develop the business around that idea without paying attention to whether or not it is actually possible or realistic. In most cases, this strategy does not work. A social entrepreneur who wants rapid growth will probably have great difficulty growing if their primary source of revenue comes from one regional organization instead of a variety of organizations in multiple regions.
Suppose a social entrepreneur is working in an industry that requires certification in order for businesses in that field to be viewed as credible. In that case, she can expect it will take time before she has earned the certification. This may mean that the social enterprise does not grow as quickly as she had hoped, but it is better than trying to compete without the certification.
A key part of being flexible is allowing time for transformation in your business model so you can realistically achieve your goals. If you try to force your model to work in a way that doesn’t align with what is possible or practical, then you are setting yourself up for failure in the long term.
10. Not focusing enough on business development and opening new markets
If you think about how most companies operate, they need revenue coming into their company to stay around and provide their services or products. The same goes for social enterprises; they need the revenue in order for them to survive. Social enterprises need to grow their customer base and open new markets, just like any other business.
A social enterprise that relies too heavily on one source of revenue will struggle when that source of revenue fails or the market is saturated. You may be able to bring your costs down temporarily by cutting expenses, but if you are only bringing in a small amount of money through donations, grants, or fundraisers, then it will not cover your expenses for very long.
11. Having Unrealistic Expectations about How Fast You Can Grow:
Young entrepreneurs are often enthusiastic about their idea, especially once they've got the ball rolling with momentum. But this is when they need to be realistic about how fast they can grow and realize that it's not easy getting the attention of donors or investors. Investors are looking for something special with a great team behind it—they're not investing in ideas because someone asked them to do it. Therefore, young entrepreneurs need to understand what is required to keep their organization afloat rather than becoming discouraged by the lack of immediate growth.
It's never too early or too late for any young entrepreneur who wants to start a business that has a social impact. But it's important to remember that you need an idea and the right strategy, and resourcefulness to make your business sustainable over time.
12. Not understanding the financials of your business model before you build a social enterprise
The majority of social entrepreneurs do not look at the numbers- they make assumptions about how much money they can generate based on what they think their service or product is worth or how much they think people will pay for it. This leads them to make unrealistic business plans that are not based on reality.
a. Mistaking revenue for profit
Revenue is money coming into the company, but profit is what you have left after all of your expenses have been subtracted from the money coming in. If a social entrepreneur spends all of their time collecting revenue instead of finding new ways to keep costs low so there is more profit, then their enterprise will not last very long.
b. Underestimating time and effort
Social entrepreneurs who start businesses with minimal resources sometimes do not accurately estimate how much work it takes to run a successful business or what kind of commitment is required. They fail to plan realistically for the amount of money they will need or how much time is necessary for them to reach their goals.
Suppose a social entrepreneur cannot afford to advertise and has no idea about marketing. In that case, they can expect it will take longer than they thought for their product or service to become well-known enough to bring in adequate revenue. Start-ups often underestimate what it takes in terms of effort and time to succeed.
c. Not having a budget
A lot of social entrepreneurs believe that once they have funding, they do not need another source of income because the grants and donations will be able to sustain their enterprise. This is dangerous thinking because when you rely on one type of income, you leave your business vulnerable if that income fails or dries up.
d. Underestimating Time and Effort:
Social entrepreneurship is not easy; many times, young people end up quitting because they want immediate results without realizing all the time and effort required to see those results. It requires significant effort and time outside of work or school. Many young social entrepreneurs don't realize how big of a commitment it takes to launch and defend an idea while you're trying to get momentum within your organization.
Many social entrepreneurs fail to see the forest for the trees. They try to imitate what other successful companies do without considering whether it makes sense for them and whether their customers will buy it. Social entrepreneurs have a tendency to believe that competition will only arise once they become successful, which makes them reluctant to spend time on research and development, which eventually causes them major problems down the line because by then, they would have lost their competitive edge. It's very common for social entrepreneurs to spend way more effort on finding the right salespeople without understanding that no amount of money spent on hiring the perfect person will be efficient if they are not allowed to do what they were hired for, i.e., sell. Many social entrepreneurs prioritize fundraising over actually making money; they spend way more effort trying to attract donors or investors than spending time engaging their customers. Many social entrepreneurs take partners who are good at giving money but have very little expertise when it comes to helping them develop a sustainable business model.
So, what do you think? Do you think that you will be able to avoid these 12 Mistakes in Starting or Growing Your Social Enterprise?
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