What gets measured, gets valued...

I read this interesting article online by the London Business School on how small business could measure their impact on the environment, community etc. There were a few practical and helpful things we could do

And the first among these things is to ask yourself the right questions:

Who are the people that matter to my business?

Children, their families and communities they live in matter to my business in being able to be catalysts of change. The other stake holders will be schools, corporates who sponsor these activities and individual donors who like to pledge money for the environment.

How should I prioritise my stake holders?

Prioritising stake holders depends on whose objective is closest to the objective of the business. In this case I would say we are trying to motivate children to develop the same passion and love for the environment as our Organisation has. They will be the primary stake holders in this process.

What output indicators will illustrate how well I achieve my objective?

Output indicators

1. No of schools that have implemented our project
2. No of students participating in the project
3. Quantity of produce per week from the garden.
4. Amount of resources that are successfully recycled and renewed per term in the school.

• Can I measure the social return that results from our impact?

To measure social value creation four important elements need to be measured : input, output, outcomes and impacts.

Input : Time, Seeds, water, manure, gardening equipment , volunteer time

Output: No of plants planted, no of children participating in the schools, No of volunteers recruited

Outcome: Creation of a school garden, children become more aware of environment, children develop business skills, start caring more for the environment

Impact : Spread in awareness of environment sustainability amongst children, Increase in awareness of reducing, recycling and reusing principle

For social entrepreneurs we have to find external stake holders who might be interested in the output our projects deliver and be able to match the stake holders to the output. In this way we are at least sure we are delivering the intended result for our various stake holders. At this point in my venture I could only identify what the outputs and impact of my project would be since I am not sure of who could be potential stake holders.

Here is the link to the file on measuring social impact: http://sroi.london.edu/Measuring-Social-Impact.pdf

Can satisfying all stake holders mean we are delivering the best value we can ? How can we identify or understand that we can do more with our resources?

Measuring Social Value

This weeks article focused on measuring social impact created by an investment. Some of the tools prescribed to measure social value were indeed an interesting approach to quantifying something which I otherwise thought to be qualitative.

On reading the paper ‘Calculated Impact’ I realized (apart from the fact that some of the equations had not been printed clearly) that measuring social impact for your venture is essential but should not determine the path that your venture takes. The authors make an interesting statement by saying, '”If ambitious philanthropy is akin to sailing in uncharted waters, expected return is no GPS. But it’s a lot better that dead reckoning”. I guess this statement sums up the use of measuring social impact and its applications to my venture.

So I decided to apply these principles to my venture and see how I could measure the social impact of selling solar lamps. Now as I have said before (in my earlier presentations), the social impact for my organization is along three dimensions. The graphic given below illustrates these dimensions

.The challenge now is to figure out what are the measurable metrics along each of these dimensions.

1. Increased student learning –> Measured in hours

2. Income Generation –> Measured in Rs. ($)

3. Health and Environment –> Harder to measure. In terms of averted greenhouse gas emissions and average life expectancy.

Among the three parameters, I decided to discard the measurement of this dimension for the time being based on three factors:1. Hardest to measure 3.Uncertainty involved in measuring human health impact. 3. Time (and money) involved in measuring these impacts during the start-up phase of my venture may not be prudent.

However, I might measure this once my venture stabilizes and evolves over time.

There were certain points which did not bode too well with my quantitative, engineering mind. I list some of the ‘issues’ I had with this technique.

• Assigning a probability of outcome: How does one assign this? The article does mention that A to Z and Robin Hood (The Robin Hood factor) assigned probabilities of outcome but do not talk about why they assigned these numbers. Is it arbitrary? Or is it based on experience. If it is the latter, then what does a start-up go with? These are question I hope will be answered during this week’s lectures.
• Assigning a Philanthropic contribution: I might as well assign a factor of 1 since all the funds would go into the distribution of solar lamps. But the larger question really is a philosophical one. Does it mean that the social impact generated by my organization would be attributed in whole to the investment/philanthropic contribution? Does it discard the efforts of my employees and the board? How do we communicate this fact to the members of the organization? Would it be a demotivating factor? Interesting questions!

Metric	Social Impact Units
Increased Study Time	Increased Hours / $ invested
Income Generation	Increased $ / $ Invested

Having clearly stated what I will measure and how I shall measure it, it remains to actually measure these parameters. Since my venture has no previous data for measuring the social impact, it would be prudent to conduct an experiment ( See last week’s readings – Disciplined Entrepreneurship) and use that as a base case scenario, and improve on this as the venture expands.

To conclude, measuring social impact is highly subjective (in my view) and can be measured in a way to suite desired outcomes. One must refrain from such a measurement, keeping in mind that these metrics are like props on a stage, to only help guide and better the play. The props cannot substitute great acting and a good script.  In the end, we must be honest to ourselves -  for an honest entrepreneur wants tangible social impacts. And metrics or not, we have something else -  a tool - far more superior to any of the above ones – its called common sense. Lets use it.

Calculating Social Value (relative to alternatives)

Although my venture is designed to start small, calculating the social value must go beyond just the number of cars that are delivered to customers. The goal of providing customers with transportation will be to foster employment and career growth opportunities to disadvantaged citizens in the Lowell area. Therefore most of the social impact the Driving Toward A Better Future will offer clients is actually realized over a long period of time, after our transactions have been completed.

In order to better quantify the impact of my venture, I have been thinking a lot about what metrics would be most telling of success or failure. The simple comparison between a cab ride everyday vs. the cost of operating one of my vehicles is a baseline, but that only provides value information about the transaction itself.

Instead, I will be using a generic lifecycle model that estimates the cost of operating and maintaining one of my cars plus the initial purchase price over a span of 5 years. My ‘success metric’ will depend on the client’s eventual success in finding a job with their new transportation resource. The data collection process will include interviewing clients about their increase wage and how much their dependence on public resources such as welfare and subsidies has changed since they started working.

Income and decreases in dependence on public resources will count as positive credits, with an estimated 5 year projection on their value. The projected costs of owning and operating one of my vehicles, spread over five years will count as debits. Similar debits will be calculated for competing means of transportation, such as the costs of taking a cab to work. The net benefit or loss of my service will then be calculated as a ratio relative to the alternative.

An example equation:

5 years*[(Income) + (Reduction in welfare)] – 5 year cost of owning vehicle/

5 years*[(Income) + (Reduction in welfare)] – 5 years of taking cab to work = % relative benefit of service

Assessing Social Value

Measuring social value is difficult, as people disagree with what values and goals are important to measure and there are several angles to look at the impact in terms of internal control and external effect. It is also complicated by time, as many social programs and ventures take effect in years. For my venture, there is one more complexity that the source of demand is different from the source of supply of fund. Thus social value to these two groups varies. This week’s readings put forward both qualitative and quantitative guidance on how to measure social value, which is helpful for assessing the social value of my venture.

It is a relatively structured approach to look at social value from the perspectives of external shareholders, internal operations and societal impact. I will measure social value of my venture by following the following metrics.

External Donors/Partners:
Tax savings for donors
Increased number of targets served
Cost savings for services delivered at Quality Health for ALL
Estimated value of marketing for partners
Annual Survey

Internal Operations:
Program Expense Ratio
Growth rate of service target
Return on Assets
Capacity Building Log

Societal Impact:
Medical cost savings for the uninsured
Change in the amount of health care received for service target
Change in annual salaries for service target
Change in unemployment rate in service region
Value of pro bono work
Customer satisfaction on Annual Survey

Calculated Impact
The impact of my venture contains several aspects, on service target, on donors and on partners. However, since the uninsured is what the venture is established for, I will calculate impact on service target. I will use the formula proposed in Calculated Impact. To do that, I need to make some assumptions first.
Incremental costs per Capita if the uninsured gain coverage: $1,595 , which will be covered by the venture;

Increased amount of health care received by the uninsured per Capita if insured: $2777;
Service number is 1,960 people, or 624 families;
Probability of outcome is assumed to be 1;
Insurance premium per family is $300 per month;

Given these assumptions, the value of providing insurance for the uninsured is estimated to be $8,569,120 for 1,960 service target. It is assumed that such service will be delivered effectively, thus probability of outcome is estimated to be 1. Since my venture is the sole agent of change, the philanthropic contribution is 1. With these assumptions, it is estimated that there is $8,569,120 worth of benefits.
Cost of insurance is estimated to be $2,247,102, and administrative and fund raising costs to deliver this service is estimated to be $150,775 and $123,407. Thus total costs are $3,182,591.

Expected social return is $2.7 for my venture. $2.7 worth of social return will be generated for each $1 of investment.

My question is: Is there a benchmark for measuring the level of expected social return on investment? Obviously, less than $1 of return for each $1 of investment would be regarded as not worthwhile, but is there a high benchmark for the evaluation?

An extension to the topic: Harvard Business School has an article on How Organizations Create Social Value. It provides several suggestions on how NPOs and corporations can improve their social value. http://hbswk.hbs.edu/item/4969.html.

Entrepreneurship and Risk

The college where I did my undergrad in India misused the word "Disciplined" so much that I somehow tend to refer it to it as something which is ideal and not attainable and hence even before I could start reading the article I had formed an opinion. Reading it changed my perception of what the authors meant in that context, I would rather call it Smart entrepreneurship though smart is not as enforcing as disciplined.

Coming back to the article, it had various ideas that we as entrepreneurs could implement on a daily basis. I would like to test the effectiveness of my business plan by having a test run in my city, Chennai. This will help me ascertain how much I should charge for my services, how the market responds and what changes I could make to my business plan.

One thing the article forgets to mention is Failure. Have you ever thought of failure as a good thing? This weekend I was at the Clinton Global Initiative University where I learnt a lot from the experience of others. I heard Anu Sridhar , Co-founder of Nextdrop, speak at one of the plenary sessions and she said she believed her success in her venture was due to what she learned when she failed. Failure teaches you more than what you would learn when you succeed.

As entrepreneurs we should not be afraid to fail and what will keep us going will be our passion for social good and making a difference. Ending on a positive note I would like to share some information on how you can kick start funding for your venture from family and friends using this website. http://www.kickstarter.com/

Considering everything we have learnt in the last 12 weeks about Social entrepreneurship, the question on my head now is "When is the best time to start with your venture?" , Will be once u develop a business plan, while developing a business plan or as soon as you know your idea is worth something?

Disciplined Entrepreneurship

One of the most ironic contradictions in the way we respond to

an increase in uncertainty and risk is the natural tendency of

most people and businesses to slow down decisions. Additional

time is typically spent evaluating alternatives and scrutinizing

threats. In short, every decision gets dragged out to the last

possible moment. The irony is that uncertainty actually decreases

the window of opportunity within which to make decisions.--A Business Architecture for Managing Uncertainty http://www.delphigroup.com/whitepapers/pdf/20050901-soa.pdf

Managing uncertainty is very critical for entrepreneurs, but taking positive advantage during this time of uncertainty is very crucial for success. Being able to differentiate between the big bets and deal killers. For example with my venture project, If i go ahead an partner with a pharmaceutical company that is not reliable and provides Nigerian Doctors for Change with fake drugs, this would be a big deal killer for me, because it would destroy my brand and reputation.

Designing and run experiments: this si something that has been key in many of our reading, always start of with pilot projects, this would help prepare for uncertainty. Knowing your customers and audiences and constantly doing research about your customers is also a great way to prevent uncertainty and learn more about your venture.

Barbara

Disciplined Entrepreneurship

We all seemed to have agreed that hypothesis building and testing is crucial to a successful venture. This said, I recently acquired access to a energy audit database formed by Diagnostic Energy Auditors of Western Pennsylvania (DEAWP). The hypothesis there is that there is a relationship between household parameters and energy efficiency measures' costs/savings. Such statistical relationships (if valid) will be most important in our algorithm.

We are in the process of hiring summer interns and will pilot EEme with 50 households upon completion of the prototype this summer. We have to understand how smooth the user interaction is. Also, whether we are presenting our customized solutions in a sufficiently compelling way. I believe this summer pilot can make or break our venture.

Other at first obvious (at least to me) but still questionable hypothesis to test are our revenue sources. So far, we have been making the assumption that retailers, contractors and utilities will perceive a value in our venture and pay for our services. To test this, I will be meeting with retailers and contractors very soon. Utilities being very conservative entities, may need a working product before they are fully convinced that there is value in EEme. This was implied in my phone conversations with utilities although I was wearing my student hat.

Managing Venture-Killing Risks

Because it has been suggested to me that the development of my venture's risk management plan will be the single most important task going forward, I decided to look into our potential risks a bit. The thing that struck me the most when I started doing a little research about risk in the development industry, however, was how ridiculously much risk firm's took before the recession started in 2008 and, by extension, how little they take now. I talked with a developer who told me that, one of the big problems that is in the process of being corrected (at something of a society-wide level as well) was the ease of obtaining bank financing for questionable and speculative projects. Whereas bank lending before 2009 was about 80% loan to value (meaning 20% of the value of the loan paid upfront as collateral), now it's more like 60-65%, a major deterrant to firms that don't have the cash. In addition, the source noted that banks are now focusing on lending only to those development projects that have the highest potential rate of return. The condition of the small-scale development market is, accordingly, "pretty much at a stand still." Not very encouraging at all. The innovative financial plan my venture seeks to utilize avoids this problem, in my estimation, because it relies on little if any bank financing (because we are assuming venture capital financing for our case) . Using historic tax credits and easements to offset 75% of renovation costs means that we're talking about a ballpark $1 million loan instead of a $4-5 million loan (based upon a rudimentary and incomplete operating budget I'm still working on). Questions have been raised about the potential of these incentives drying up or going away in the current political atmosphere. In reality, however, historic tax credits and easements don't actually cost the government anything and only affect tax revenue. They are always going to be there unless current tax laws are repealed or ammended, so as long as there is a buyer for the easements, our venture's financing plan seems sound. To this point I have mainly focused on coming to terms with the potential financial risks my venture poses. The good thing, I have found, is that the risk is not so much in financing the project through completion but rather in filling commercial and residential space after renovation- i.e. maintaining revenue over the long run. I have a target market, and I think I can offer a competitive renting price, but it remains to be seen what I will do if I can't fill the building after it's renovated. One potential option may be to contract with one of Downtown Pittsburgh's universities to give them either office or apartment space for students- this would at least firm up a customer for a given period.

Clear Uncertainty-An Oxymoron

This article sheds some light on my sometimes frustrating entrepreneurial situation. It pointed out all things that must be done that I am clearly the opposite of, and must learn as I go.

• Effectively manage uncertainty: This is difficult as I literally despise uncertainty! I must plan, plan, and do more planning. I do not know how to handle, or handle well, the unknown. Developing this venture has been a host of frustrations that has enabled me to learn how to handle the unknown; from thinking quicker on my feet to becoming more flexible in my way of planning and thinking.


• Pick your battles with a disciplined approach: This is extremely difficult as I am accustomed to being superwoman. I do not choose my battles, I usually just take them all on. With creating a venture, I must pick and choose the one that is worth fighting (as mentioned in last weeks article) as well as approach the battle with a plan.


• Do not overexert yourself: Once again because I attempt to be superwoman, I always overexert myself. I have come to learn more each day that it is acceptable to reach out for assistance and pass on tasks to those who can complete them more efficiently.

In formulating the working hypothesis of "The People's Station" I must ask myself how I will complete development of the plan I will pursue this venture?

Disciplined/Discovery Driven Apprenticeship

This week's article struck me as very similar to last week's Discover Driven Planning article--both focus on developing and testing hypotheses as the primary tool for venture planning. Overall, I think both have a great idea. There are definitely some key elements that need to be tested along the way to building and launching a venture, and planning to test these key elements allows an entrepreneur to effectively focus his/her time and energy.

That being said, however, determining which hypotheses need to be tested and in which order is difficult, especially early on in the process. In the beginning, almost everything has the potential to be a business killer. Unfortunately, the best way to determine which is a bigger risk than others is probably experience, which is something that the vast majority of student entrepreneurs lack.

I can see a solution to this as a pesudo-apprenticeship program for aspiring entrepreneurs that is based fundamentally on the ideas laid our in the last two readings. By having several experienced entrepreneurs/instructors who will work with students to critically analyze the biggest risks, determine how to test them, and organize it all into a coherent plan would not only be a great exercise for the business but also a great learning experience for the student. Regardless of how it turns out, this process has a lot of applicability in other areas as well.

A question for my fellow students: If a program such as this were offered as a summer program that would take the place of an internship, would you participate?

Understanding and Minimizing Risks

This weeks reading focuses on understanding risks as applied to new ventures and minimizing them. One technique suggested by the article is to conduct partial experiments and measure results before scaling operations. I thought this to be a very applicable to my venture and decided to apply these principles. So how might I set up an experiment, measure performance and incorporate feedback in order to be able to create a successful model that I might replicate in other locations?

I decided to myself head out to the villages (as I have done before) along with a colleague or two and establish my business model in a single village. The experiment shall run for 3 months and complete the lifecycle of

1. Selling the solar lamp to vendors at the local market.
2. Training the vendors to install and sell the product.
3. Receive any solar lamps for repairs and bring it back to the local market.

The on-field interactions shall happen once a week, typically Friday or Saturday, when the local market is active. The rest of the week shall be spent in measuring performance. Possibly travelling with the vendors as they push their carts from village lane to lane, shouting out their products. Observe people’s reactions as they are introduced to the product.  How do they react to a new technology? Do they have any fears or concerns? Can they afford it? What are the possible barriers to adoption?

Measure sales and identify areas of improvement, new methodologies of marketing the product in case of a failure. Interact with NGO, participate in their daily operations in the villages and see how they go about in distributing the product.

At the end of 3 months, compile the results and have a group discussion. How many lamps were sold? Are these numbers in line with our projections? Can the current sales met our targets and projected earning? What was the social impact? (Although this is hard to measure in 3 months). Do the rural denizens perceive the social impact or is it something we perceive? What were the challenges faced in the 3 months. Are these challenges replicable in other areas? How were they overcome?

Such questions will be addressed and the learning incorporated into the business system of Light my Home.

Outsourcing Financial Risks via Auto Loans

One of the primary goals of my venture is to provide a much cheaper transportation alternative to those citizens of greater Lowell without access to a car. Currently, the best way to get around without a car is to use a cab service which is prohibitively expensive. There are several Lowell based taxi companies and some even offer 24 hour per day service, but relatively low utilization and the dangers of running cabs at night significantly increases prices. There are few opportunities to pick up passengers outside of the city, making travel to nearby towns exceedingly expensive.

For example, a 20 mile trip to nearby Marlborough, MA where a number of factories are located would cost over $100. Even if Lowell residents travelling 20 miles outside of a city were to car pool, they would still spend at least $40 per day travelling to and from work in a shared cab. If they were travelling alone, the cab to get to and from work would cost over $200. A worker would need to be making $25 per hour over an 8 hour workday after taxes just to break even on the cab ride to and from work. That level of income is unreasonably high.

One challenge is that target customers will also probably lack the initial capital to but the car outright. There are several credit unions located in Lowell such as NMTW Community Credit Union and Jeanne D’Arc which could be valuable as financial collaborators to get customers used auto loans. Both credit unions offer loans up to 6 years for the full book value of a car. Assuming a 5 year loan on a $3,500 car with 10 percent interest, this could be relatively affordable. A loan of this nature would cost roughly $90 per month, which is significantly cheaper than using cab services. A monthly payment is about the cost of single day’s worth of commuting in a cab for someone travelling 20 miles each way.

Additionally, partnering with a credit union will be a key component of helping customers get back on their feet. Regular loan payment could drastically increase a person’s credit rating. Along with steady employment, even a bankrupt client could conceivably develop the financial stability and resources to look at purchasing a home within that same 5 year time span. The goal of provide transportation will also augment their long term financial stability. I still need to determine the level of financial counseling that will be offered, which is something that may also be best left outsourced to a credit union. Ideally, a credit union could be used to manage my venture’s banking services as well, helping establish a strong relationship that will benefit all parties. The loan system will ensure that my venture is paid immediately and will shift repayment risks to the credit union.

Romancing the Risk

Keep it Fluid. As a venture, it is pertinent to not solidify your product/positioning in one stance for too long. If you become rigid in your business model, you may never get past the stages of early launching. Until you get out and really understand which assumptions were accurate and which were completely inflated and miscalculated, you do not know your real success rate. Even when the cash flow commences, that doesn't mean your meal ticket will be there tomorrow. This point of keeping it fluid, especially in the development stages can be a bit haphazard though.

If you are developing something new (i.e. a product or service) you can't let the current world utterly influence your product development. Something brand new or with a unique spin to it hasn't been brought into market for some reason. If all the data aligned with your idea earlier, it would have come to be sooner than your inception. In my opinion I argue that keeping your idea fluid can be harmful, for the sake of possibly losing sight of the original concept and adapting it to be too much like an existing product. Yet to argue with myself I see a lot of value in preparing your product in its infancy to be the most successful for the sake of delivering you the least amount of risk and suffering.

Identify the Big killers. This tip I heard worded a bit similarly from my godfather. Mike Mollitor told me "Most people don't know when to cut your losses." That is where most people get caught up, hanging on too long and not letting go. If something goes sour, don't wait for it to turn around or lose more before you let it go. Your first loss should be your only loss. If you lose money from your venture or your idea fails once, it could be the market or bad luck, but the second loss is your fault. If you don't know a deal killer or don't move on after an initial loss, you are only shooting yourself in the foot. This concept is more of a safety than a progress and potential growing point but it is important to wear a belt when flying on the seat of your pants.

"No business plan survives reality" This quote sounds cold blooded but it resonates with me. Nothing is really as it seems and until you hit market you can't predict sales and who your affected target audience will be etc. You can plan as much as you want but the real learning and development of a successful business model comes from putting your product out there and

Back to my first point about fluidity, what is too much? At what point should the threshold of fluidity in your model and plan be? How much should you let the current world/market shape your venture/product? When do you lose ownership of your original idea because of the massive influence from current systems?

Disciplined Entrepreneurship

As we I move forward on planning, the following topic to consider is risks and opportunities. Specifically, how to handle (minimize) risks and maximize opportunities.

The article “Disciplined Entrepreneurship” talks about how can entrepreneurs and managers cope with the uncertainty when running business. Instruments and strategies such used by investors such as syndication, insurance or diversification is not available as option for entrepreneurs.

The paper provides a model to manage the uncertainty inherent in trying something new:

1. 1. Formulate a Working Hypothesis. Define the opportunity, the resources required to pursue it, the value that would be created if successful and a plan to pursue it. The hypothesis will contain assumptions about multiple variables including technology, customer demand, competitive response and the availability of resource.
2. 2. Assemble Resources. Assemble the necessary resources for the experiments.
3. 3. Design and Run Experiments. Validate the hypothesis. Common examples include conducting customer research, building prototypes, launching scaled-down services, etc.

Applying to my “Senior Force” venture

Working hypothesis

• Opportunity: Attract the niche market that represents well-experienced senior citizens that are willing to work. These people include retired engineers, consultants, business person, politician that can provide high experience-based work.
• Resources required: web-hosting, internet domain, web site
• Success Value: Will create a large resource pool base attracting businesses and members.
• Assumptions: senior citizen are willing to work, and uses internet.

One of the deal killer would be if an existing company, for example monster.com, can start providing service focused on senior citizens.

Design and run experiment

A partial experiment could be cost-efficient. For the experiment, a simple mockup page can be built, and have 10 senior citizen to use it.

The mockup page would be a survey form for entering willingness to work, interested field of work, and particular condition needed to work. Also marketing related questionnaire such as how easy the form is, how useful will be Senior Force site, and whether s/he will recommend to other person,

As any new venture, the Senior Force has depends on key assumptions. I believe experiments are a good way to tackle those unknowns.

- Young Suk Ahn

More Information on Pilot Programs

As indicated by this week’s reading, one key aspect of Disciplined Entrepreneurship is launching a pilot/experimental program. The purpose of such a program is to make “contact with reality” in order to test out venture assumptions before launching a full-blown venture (Sull 2004). I agree with the article’s writer that a venture must “take the plunge and test their plan in the real world through an iterative series of experiments” (Sull 2004). Thus, I decided to research more tips on the best way of launching such experiments. My findings include the following:

· Listing of steps to launching a pilot program: http://www.brasstackthinking.com/2010/04/7-steps-to-executing-a-pilot-project/

· Description of the important attributes of a pilot program: http://blog.mountaingoatsoftware.com/four-attributes-of-the-ideal-pilot-project

Unfortunately, I could not find as much information as hoped for in my search. Does anyone know of any other information out on the web that could of use on this topic? If so, please share.

Sources

Sull, Donald N. "Disciplined Entrepreneurship." MIT Sloan Management Review, 2004: 70-77.

Visualization of business model

Some of you may be interested in visualizing your business model:

How to build any business model with only 10 blocks: http://www.boardofinnovation.com/2009/03/19/how-to-build-any-business-model-with-only-10-blocks/

3 tools to visualize your start-up's business model: http://www.boardofinnovation.com/2010/04/22/3-tools-to-visualize-your-start-ups-business-model/

Managing the Uncertainty

All businesses involve risks, some big and some small. People do not like risks, as a single risk can devastate the business entirely. However, businesses with big risks, like start-up ventures, tend to bring higher financial outcome, if risks are well managed. As the article Disciplined Entrepreneurship suggests, “The critical task of entrepreneurship lies in effectively managing the uncertainty inherent in trying something new.” For social ventures, it is even truer. I believe that social entrepreneurs bear more responsibility in managing the uncertainty of his or her venture well, as the opportunity cost of failure is too much, both financially and socially. We cannot bear the loss that could have been a benefit for some people.

This article maps out a disciplined approach for entrepreneurs to manage the uncertainty. There are a few steps that are helpful for me to test the uncertainty of my venture.

Formulate a Working Hypothesis
Identify deal killers and big bets

Deal killers: responses from competitors, lack of donations coming through
Big bets: alliance with doctors, partnerships with local health organizations and agencies

I need to watch out reactions from competitors. It could mean a lucrative business for insurance companies, deprivation of donations from other not-for-profit organizations, over-occupation of resources from hospitals or government agencies, or others. Anything that does not work out well with supposed “partners” of the venture may turn to be agony that they hold against the venture. To tackle this, I need to rely on my big bets, which are doctors that serve as glue that connects the venture with other organizations. Also, good nurture of partnerships is also important, which can be attained through arrangement of “win-win” situation.

Assemble Resources
Raise enough money to fund the next round of experiments-The venture relies on donations from the public, so it can only begin its mission when donations are coming in. In my case and in many other social enterprises’ examples that depend on contributions, it is more challenging to draw VC’s investments, and thus harder to raise “enough” money to fund the experiment. Instead of waiting endlessly for “enough” money to come in, why not start when a certain level of capital is raised, so that the influence of venture can be illustrated to the public and more people would know about it? In return, more funds will come in and bigger influence will be exerted to the needed.

Design and Run Experiments
Thanks to so many previous articles that stress the importance of starting small, I would not find this point surprising. And thanks to Professor Zak for pointing out the importance of concentration and focus for social enterprise.

I will start my venture in Pittsburgh, testing all the uncertainty including known unknown uncertainties, e.g. reactions from competitors, sustainability of funds, customer attraction and retention, feasibility of partnerships, and viability of business model. Also more uncertainties that I do not know that are unknown.

Back to question on resources. For for-profit ventures which have VC, it is a relatively direct fact that how much money has been raised and how much is needed to keep the experiment running for a year. However, for social ventures that bear many characteristics of not-for-profit, i.e. donation supported, how much is “enough”? How long should entrepreneur should wait till it is relatively “enough” for the experiment?

What’s The Most Difficult CEO Skill? Managing Your Own Psychology.

http://techcrunch.com/2011/03/31/what%E2%80%99s-the-most-difficult-ceo-skill-managing-your-own-psychology/

9 Women Can’t Make a Baby in a Month

http://techcrunch.com/2011/03/30/9-women-cant-make-a-baby-in-a-month/

Bottom up is key

Yes, this is my main conclusion: Bottom up is key. Everything else mentioned in the articles revolve around it.

I cannot agree more that throwing arbitrary assumptions around is not very insightful (e.g. even if tap into 1% of the total market...)

Another key point that was emphasized was being lean and staffing "hungry" people. It was argued that a dream team is not necessary. Although I see their point, I am not 100% convinced. I agree that you don't want to bring people who you clash with on a personality level just because they are experts in their field. But there is value in having the "right" executive team. I also remember from another article that team comes first and idea second... Open-ended discussion here...

Also, I liked the idea of starting as a service business. Do some consulting work to generate some cash flow to keep the engine running and also get more hands-on experience by doing so and improve your value proposition with the gained insight.

I'd like to conclude with uncertainty modeling. Discovery-driven planning is all about it. I think all entrepreneurs should have a model of some form, preferably a spreadsheet and a fancy software (@RISK, Crystal Ball, Analytica, etc.) installed to illustrate how uncertain assumptions affect your bottom line and constantly revisit the model. One thing I learned in my research career is that deterministic assumptions do not lead you to meaningful results too often.