Making Social Ventures Work

Five guidelines can help you build profitable, socially beneficial new businesses in the face of daunting uncertainty.

by

James D. Thompson

and

Ian MacMillan

by

James D. Thompson

and

Ian MacMillan

From the Magazine (September 2010)

Summary.

Reprint: R1009D

Entrepreneurs can play a central role in finding solutions to the world’s toughest social problems. The failure rate for start-ups, however, is high. And new ventures in emerging economies face such challenges as uncertain prices and costs, nonexistent or unreliable infrastructure, and unpredictable competitive responses.

The authors offer guidelines for launching successful businesses in uncertain markets. One of those guidelines, discovery-driven planning (a well-known process developed by MacMillan and Rita Gunther McGrath), helps managers test their assumptions about preliminary business models and revise them on the basis of emerging data.

The remainder were informed by the authors’ efforts, with the Wharton Societal Wealth Program, to help launch socially beneficial ventures in Africa and the United States. Those guidelines include outlining the minimum number of people a venture should serve and the minimum level of profitability it should achieve; identifying important stakeholders; planning how to terminate the venture in an acceptable manner; and anticipating unintended consequences of the enterprise.

The lessons aren’t just for entrepreneurs. The management teams of multinationals, foundations, and NGOs can apply them to any challenging and highly uncertain business situation. In doing so, they can better control their costs, minimize the effects of surprises, and increase their impact on society.

The Idea in Brief

Many entrepreneurs go into emerging markets with fixed plans and the best of intentions: Launch a business, solve a problem. But the dearth of information about customers, cultures, and competitors often stops them in their tracks.

The authors offer five guidelines for creating markets in uncertain environments.

1. Define the ballpark—or the scope of the venture. What are you trying to do, and what constitutes success?

2. Attend to the sociopolitics. How will you mobilize supporters and neutralize opponents?

3. Emphasize discovery-driven planning. What will emerging data teach you about your proposed business model?

4. Plan disengagement. How can you exit without leaving a large footprint?

5. Try to anticipate unintended consequences. What kinds of second-order effects, both negative and positive, is your venture creating?

In recent years, we’ve all experienced considerable volatility—financial breakdowns, natural disasters, wars, and other disruptions. It’s clear we need new approaches to the world’s toughest economic challenges and social problems. Entrepreneurs can play a central role in finding the solutions, driving economic growth (building infrastructure, developing local talent, infusing struggling regions with investment capital) and helping hundreds of millions of people worldwide. If successful, socially minded entrepreneurial efforts create a virtuous cycle: The greater the profits these ventures make, the greater the incentives for them to grow their businesses. And the more societal problems they help alleviate, the more people who can join the mainstream of global consumers.

A version of this article appeared in the September 2010 issue of Harvard Business Review.

JT

James D. Thompson (jamestho@wharton.upenn.edu) teaches innovation, entrepreneurship, and corporate growth at the University of Pennsylvania’s Wharton School of Business. He is a cofounder and director of the Wharton Societal Wealth Program.
Ian MacMillan is the Dhirubhai Ambani Professor of Innovation and Entrepreneurship at the Wharton School.

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