This section provides the social innovator with a simple template whereby they can assess the capital costs of establishing the business and the funds required.
They will also be able to plan for revenues and conduct sensitivity analysis (what-if / scenario planning e.g. increased or decreased levels of sales changes in prices, changes in costs, etc. By using the excel template and PPT guide (containing formulas) a social innovator will be able to do some simple financial projections for their business.
Cashflow Projections, P&L and Balance Sheet calculations undertaken as part of a business plan help the social innovator to identify start-up (capital) costs and potential sources of finance for same as well as identifying ongoing operational costs and revenue models.
A social enterprise must be approached with a business focus which needs to be constantly refined and developed. The following videos highlight some of these issues.
• Social Enterprise Business Planning – Dave Lane – Social Enterprise West Midlands –
• Enterprise (2013) – Social Traders
• Harvard i-lab | Developing a Social Enterprise Business Plan with Allen Grossman
As the social innovator progress they will undoubtedly encounter some challenges. They may have to review operations, costs and revenues – what they have already done and how they have done it and re-assess how they should proceed. This is a necessary step in developing a social enterprise.
Value Chain
In module 2, Unit 3, we briefly touched on the Value Chain that can be used to identify a set of activities within an organization which, together, create a product or service and help to identify where you can add value to your offering/activities and also where you can cut costs. To see how the value chain can be applied to the social innovation check the Explor Further section.
Using the Excel template (with built in formulas) for Cashflow Projections, P&L and Balance Sheet outline in the tools, a Social Innovator should be able to attempt an initial Cashflow Projection for their Social Enterprise. By all means some help may be required but if the entrepreneur does not understand the figures behind their business and take ownership / responsibility for understanding / managing them, then they faces serious challenges in terms of being successful.
Resources
Videos
Harvard i-lab | Developing a Social Enterprise Business Plan with Allen Grossman
The Nonprofit Business Model Canvas – Bryann Alexandros
How to finance a social enterprise with Doug Richard – School for Start-ups
Resources
http://www.forthsectordevelopment.org.uk/documents/New_BusPlanGu ide.pdf
Explore further
• The value chain describes the categories of activities within an organisation which, together, create a product or service.
• The value chain invites the social innovator r to think of their organisation in terms of sets of activities – sources of competitive advantage can be analysed in any or all of these activities.
The Value Chain is used to:
• Provide a generic description of activities – understanding the discrete activities and how they both contribute to consumer benefit and how they add to cost
• Identify activities where the organisation has particular strengths or weaknesses
• Analyse the competitive position of the organisation using the VRIN (see below) criteria – thus identifying sources of sustainable advantage.
• Look for ways to enhance value or decrease cost in value activities (e.g. outsourcing)
• Understand cost/price structures across the value network – analysing the best area of focus and the best business model
• Identify ‘profit pools’ within the value network and seek to exploit these
• Decide which activities to do ‘in-house’ & which to outsource – ‘make or buy’ decision
• Decide who to work with and the nature of these relationships.
The four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are:
• Value,
• Rarity,
• Inimitability and
• Non-substitutability
V – Value of strategic capabilities – Strategic capabilities are of value when they:
• take advantage of opportunities and neutralise threats
• provide value to customers
• provide potential competitive advantage
• at a cost that allows an organisation to realise acceptable levels of return
R – Rarity
• Rare capabilities are those possessed uniquely by one organisation or by a few others only (E.g. a company may have patented products, have supremely talented people or a powerful brand.)
• Rarity could be temporary (Eg: Patents expire, key individuals can leave or brands can be de-valued by adverse publicity.)
I – Inimitability – Inimitable capabilities are those that competitors find difficult to imitate or obtain.
• Competitive advantage can be built on unique resources (a key individual or IT system) but these may not be sustainable (key people leave or others acquire the same systems).
• Sustainable advantage is more often found in competences (the way resources are managed, developed and deployed) and the way competences are linked together and integrated.