Rich Leimsider and Cheryl Dorsey| 18 February 2013 | HBR Blog
“Would you take a look at my business plan?”
Some member of our staff at Echoing Green, an angel investor and grantmaker in social enterprise, hears this request every week. And we are often happy to review these start-up plans — which include the typical elements such as a product description, competitive analysis, estimate of market size, and projected financials. But we are interested in much more than these traditional plans. We use other criteria to find new people and ideas that can create large-scale social change.
In short, the business plan is overrated.
Like the vast majority of start-ups, most new social enterprises are bootstrapping efforts. As Amar Bhide said in “Bootstrap Finance: The Art of Start-ups” (a 20-year-old HBR article that is an uncanny precursor to today’s “lean startup” meme), traditional business planning processes are less relevant to bootstrappers — where resilience trumps planning and energy trumps experience.
Applying a formal spreadsheet-type analysis to an early stage concept can be “disastrous.” Instead, we look at eight broad rules for success, half of which are about the entrepreneur herself (not her business plan). These are lessons we’ve learned from investing $30 million over the last 25 years in 500+ social start-ups about what make a promising social entrepreneur, but they are equally applicable to any entrepreneur.
Purpose and Passion. Do they care deeply about this issue or community? Do we understand why? In 2012 Echoing Green invested in 28-year-old Marquis Taylor as one of our Open Society Black Male Achievement Fellows. Marquis created an organization called Coaching For Change to engage young Black men as entrepreneurs pursuing business opportunities related to basketball, football, and other sports. His passion was evident from his initial application — as the child of a single mother in South Central Los Angeles, basketball was his ticket to college. But he also understood that while a career as a professional athlete was extremely unlikely, sports itself was a multi-billion dollar industry with great opportunity as coaches, trainers, even youth camp organizers.
Perspective and Resilience. Will this person bounce back from the obstacles they will surely face in building this business? According to official statistics, more than 50% of new enterprises fail in the first 5 years. But in our experience 100% of new entrepreneurs face partial failure regularly. Even when a particular challenge doesn’t end the business immediately, the ability to bounce back is crucial. Although this is Marquis’ first entrepreneurial endeavor, his journey from academically struggling high school student to graduate student at Smith College demonstrated the grit and tenacity to consistently overcome obstacles.
Point of Entry and Leadership. Can you envision this person entering a field in a transformative way and inspiring others to action? All leaders must demonstrate authenticity and legitimacy with their customer base and other stakeholders. Marquis is building his organization in Massachusetts, a far cry from the Los Angeles of his youth. But his authentic presence and open attitude have given him access to the insular industry and geography where he now works.
Power Source and Resource Magnetism. Can this person attract money, people, and other resources to their cause? At Echoing Green we’ve learned that more important than charisma is what we call resource magnetism. Whether or not the entrepreneur has a thousand-watt smile (and it just so happens that Marquis does!) it is much more important that she is able to quietly persuade people around her to volunteer their time, talent, and treasure. Somehow Marquis is able to use the most tenuous of connections to arrange a conversation with a busy but influential leader, and then walk out with a financial commitment or five more introductions.
Even the most entrepreneurial leader, of course, needs a great idea. Here are our four rules we use to evaluate the underlying business concept:
Innovation. Has it been tried this way before? There are hundreds of organizations that use athletics as a way of engaging low-income teenagers. But too many of these organizations fail young people by neglecting to make the connection between athletic success and professional success. Marquis found a way to do this. Coaching For Change asks young people to build their own businesses around youth clinics, summer sports camps, and coaching. The kids develop discipline and focus, but also practical, marketable skills.
Importance. Does this organization tackle an issue that matters in the world? Our Fellows must not only have a clever idea — they need to tackle one of society’s major pain points. Marquis reminds us that nearly half of all young black men who start high school will not graduate. His work matters.
Potential for Big, Bold Impact. Could this organization directly, or by example, change a big system? Truly great organizations don’t merely grow, they also influence their field. Marquis is ambitious and he hopes Coaching for Change will work with as many young people as possible. But reaching scale through copycat businesses is just fine and if Marquis can demonstrate the viability of his model, we believe it will be adopted more broadly and faster than Coaching for Change can spread it.
A Good Business Plan. Does the start-up plan (budget, timeline, staffing, etc.) seem thoughtful? Of course, the business plan remains an important element and we don’t neglect to look at it. While Marquis’ plan today is well-structured, the truth is that when we met him it was not the strongest part of his overall presentation. But we invested in him because we believe that helping an early-stage entrepreneur articulate a detailed plan is one of the ways that risk-tolerant investors can be most helpful.
Coaching for Change is by no means an established success. And even the most promising social enterprise take wrong turns. We are proud to have made early investments in the work of Andrew Youn, who founded One Acre Fund; Wendy Kopp, who founded Teach for America; and Vikram Akula, who founded SKS Microfinance. Each has led their start-up to massive impact for hundreds of thousands of people and influenced the way resources are deployed in their fields. But we’re equally proud of Angel Taveras, whose Echoing Green-funded mentoring program never reached scale, but who now pursues social change as the Mayor of Providence, Rhode Island. So while we know that Marquis Taylor meets our eight criteria and has a better than average chance of success, we’re still buckled in for what might be a bumpy ride.
The point is that a business planning process can be extremely valuable to an entrepreneur. But if we’re going to truly see change through entrepreneurship, we have to focus on the person first and the business plan second.