341 Being Realistic About Social Enterprise Growth with Paul Zelizer

Hi. This is Paul Zalester, and welcome to the Awarepreneurs podcast. On the show, we dive deep into wisdom from some of the world's leading social entrepreneurs. Our goal is to help you increase your positive impact, your profitability, and your quality of life. Before we get into today's topic, I have one request. If you could hit subscribe and do a review on your favorite podcast app, it helps more people learn how to have a positive impact through values based business. Thank you very much. Today, I'm thrilled to be back doing a solo episode.

Our last solo episode was back in May, May 14th, but we took a 2 month break and didn't publish any episodes, and now we're at the end of August. So it's like 3 months since I've done a solo episode. It's so good to be here with you. And our title today is being realistic about social enterprise growth. So 2 questions lately that I've got asked by a number of different social entrepreneurs and wanna be social entrepreneurs. And those two questions seem like they would be batched up. They both have to do with the big how long questions. So specifically, the two questions are, how long does it take to grow a thriving social impact company? And number 2 is how long should I stay at it if my impact company isn't yet thriving? So one was a little bit more coming from several newer social entrepreneurs who are thinking of launching something or were in the early stages, and a couple of folks who've been at it for a while where things were up and running and there was revenue, but it wasn't thriving yet.

And is it time for a pivot question? Those are the kinds of questions I wanna play with today. Now to be fair, I think it's always gonna be the standard answer that everybody hates to hear but is always true which is the good old it depends. Now your situation isn't gonna be like other people's situation and trying to apply a cookie cutter answer to every situation is just guaranteed to bring a lot of pain and suffering. But in today's episode, I wanna unpack a little bit more, like, what are some of the very specific factors that can help you determine how long it might take to grow out your impact company, to be a thriving social enterprise if you are earlier in the journey, as well as does it make sense to continue on? And if so, how long should you be thinking about getting to a point where your impact company is financially viable? So we're gonna dive into 4 buckets today. I'm gonna tell you what those buckets are and then we're gonna get into it. Number 1 is understanding your customer and market. Every business is gonna be different, but every business that's gonna thrive has to have customers or clients that are really excited about it. And so we're gonna unpack a little bit what's happening there, how you can assess, and depending on what you're seeing in your assessment, how that can help you in that second question of, does it make sense to stay at it? And if so, how long should be thinking about it in terms of timelines? Number 2, knowing when to scale and when not to.

The scaling question, once you do start to get some momentum or you see the foundations are in place is a really significant factor in that how long. So we're gonna talk about issues in the knowing when to scale and when not to bucket. Number 3, we're gonna talk about the role of funding and investment on the pace of growth. If you're bootstrapping, the pace of growth is gonna be entirely up to you and your team. If you have private investors or VCs, they're gonna have some pretty strong opinions about your growth, and that's gonna be a different, you know, dance. And we're gonna talk about some issues in that bucket. And lastly, we're gonna talk about when does it make sense to reevaluate and perhaps pivot in a different direction if you're not yet seeing the growth that you want to see. So those are our 4 buckets.

Let's dive in and start with bucket number 1, understanding your customer and market. Now just because we're an impact brand, if you've been listening to the show, you know that I feel strongly that we still have to practice good startup or business fundamentals. And I see a lot of social entrepreneurs are like, but, Paul, I'm I'm here, and I'm working towards this great positive impact. And, you know, I don't know the market research or getting to know my target audience. I know that's important, but I haven't done a lot there yet. Okay. Stop right there. It's time for a mini rant that just because we're impact companies, we're impact focused, we care about the mission, and the communities wanna help, doesn't mean we get a pass, especially in 2024 where, you know, the global economy is a little wonky.

There's a lot less start up investment. We're down about 38% in 2024 in the US compared to 2023. Right? There's, you know, some concerns. We might be seeing some indicators of recession. Everybody's a little nervous. Inflation's been real high. This is not the economy, in my opinion, to not do your homework. And one of the most foundational things when you're thinking about either launching a business or growing a business is really understanding your customer and the market you operate in.

So to get nuance the very first thing about your ideal customer, who that is, who's gonna buy this awesome product or service that has so much impact based into it baked into it. Really being clear about who that is, both on the demographic side, what are some of the, you know, things that would show up in a census? Your age demographics, where somebody might live, are they rural or urban, maybe their income, their, you know, race, their gender. These things are things that would show up on a census, and they can be really helpful. In addition to those sort of outer characteristics or census characteristics, there's also something that's gained a lot of attention in the past, I don't know, 5 or 10 years called psychographics. How does your customer how does your ideal client think? And what are some of their mindsets and psychological common factors? And the example that I oftentimes use with clients is you can have 2 fitness brands. One's more like restorative yoga that's about, you know, building the person bad up back up, and the other might be a CrossFit gym. Now both might wear athletic clothes and maybe the age demographics are similar but their approach to fitness and wellness is very very different in a crossfit gym and in a restorative yoga studio. So psychographics are more of those mindsets, approaches to life, philosophies, and common factors.

You know, when you walk into a CrossFit gym it has a certain flavor to it. Right? That flavor is what psychographics is trying to get to you. So I really encourage you, if you haven't already, to conduct some thorough market research and get a sense of the demand for your product and service and where it's high, where it's low. And really get real world data. Talk to a number of people. If you're unsure if you have the foundations and growth to support the growth that you're looking for, then go deeper in your market research. Really get a sense of where there's a strong yes, where there's an maybe, and why people are either excited or not excited about your product or service. Right? Also work on iterating if you're starting to see that there's some engagement, that people are excited, or they're pretty excited but maybe it's only a 6 and a half out of a 1 to 10 scale and 10 would be like off the charts enthusiastic.

Then see what kind of tweaks and what kind of new features or how you might, you know, change something to make it more interesting to a particular audience. And that's when you really can be more certain that you're onto something and that growth is gonna be something that's viable for you in your business as opposed to it being lukewarm. And again, in 2024, when people have a lot on their minds in terms of the economic realities that they're working with, somebody who's lukewarm about your product or service, that wouldn't be my preference for you. It certainly isn't my preference in my business. I want more than that for you. And the last thing I'll say about this is to really understand the trends in your sector, right? So what's happening in terms of is this a sector that's growing, is this a sector that's really crowded, is this something that's new, and there's not as much competition, right? But what do you need to do to stay relevant and to be competitive? Sometimes people get started, but even a couple of years in, you know, today's economy, things can move quickly. So maybe you had some traction coming out of the gate, but here you are a couple years into it, and maybe things have changed a little bit. So things like understanding your ideal client, your ideal customer, and paying attention to market trends will help you really stay current with what the foundations are in your business, what the found what's going on with your ideal customer or client.

And as those are moving and everything's moving in 2024, That'll help you be more informed in terms of some of the other issues that we're gonna be talking about today. Okay. Let's move on. So knowing when to scale and when not to. Let me tell you a story. There was a brand of, like, kind of a beer cooler. Like, take this was back in the day before, you know, high end coolers and things with even batteries in them, you know, these little coolers that were basically refrigerators. Back in, like, 2018, 2019, there was a Kickstarter campaign for something called the coolest cooler, And they did a Kickstarter.

They had over 20,000 people back it, and they raised more than $13,000,000 on this Kickstarter, and it was setting records. Right? More oh, I'm sorry. Altogether, over 62,000 people backed it, but more than 20,000 people backed it at an high enough level to get one of these coolers. The cost was a $185 plus $15 shipping and handling. So they had to contribute at least $200, and more than 20,000 people did. The thing was that Coolest coolers didn't do their homework, and they underestimated what the actual cost to produce was, and it cost them way more than $200 to produce and ship the schooler. And what happened was that miscalculation bankrupted the company before it ever existed, before it ever really came into its own. And even though they raised $13,000,000, they just went under and basically never delivered a cooler to over those 20,000 people.

Now that's a risk on Kickstarter, but needless to say, there were a lot of angry backers. So this is a story that can help you sort of wrap your brain that, you know, when to scale is a really important question, and getting it wrong or missing some important datasets can be painful to your reputation and your finances. So a couple things to think about about scaling. Number 1, if you're seeing indicators like you have a clear idea of who your ideal customer is or your client, you're seeing consistent demand. People really want your consulting services or your, you know, sustainably sourced beauty products or your solar panels or whatever it is, you're seeing strong demand, and you're seeing that there's good profit baked into what you're doing. You know? So start small and get the data. And sometimes what startups need to do is really get some sales going and really crunch the numbers and see, oh, wow. This is costing us more.

We missed some things in our projections. Right? If you can do that before you get to the 20,000 people backing you and you have to produce really quickly because everybody's clamoring for their cooler or whatever your product or service is, that's where we get in trouble. This is the second point I have here under knowing when to scale. The risks of premature scaling. Right? Coolest cooler went to Kickstarter, did this big thing, didn't really understand the economics of what they were doing. They just saw that people were really excited about it, and it was a fairly catastrophic failure. So look for consistent demand, strong profits on what you're already selling or at least decent profits, and look at your operations. Do you have the systems in place that if you were to scale, that you could do so relatively smoothly? There's always gonna be some bumps when you're scaling, but do you have at least enough robustness in your systems that you could scale at your chosen rate and, you know, go relatively well.

If you are looking at things like, wow, we're already incredibly stretched to be where we are already, or you're starting to see so much of your organizational resources going to just staying afloat, just getting enough parts to build that next cooler or to get that next, you know, beauty line product out, and you're losing focus on your mission and your impact that might be signs that you're not quite ready for a quick growth scale. Maybe you know work on your systems, maybe a little bit of investment, maybe some mentoring, maybe somebody who has some operational and systems experience to help you build those things, so you can scale in a more sustainable way. Another frame that I think can be really helpful is the difference between strategic and opportunistic scaling. Right? Coolest Coolers was a bit opportunistic. They saw, wow. The market really likes this thing. Basically, the idea was it had wheels on it. You could wheel this cooler down on the beach and not it it wasn't ice cooler.

It had battery, and it was really a little refrigerator in a cooler back when this was not a common thing, right? That was opportunistic scaling and they tried to rush it. Strategic is really honestly looking at how are our sales right now, how are we doing in terms of our capacity, can we scale up and if so to what degree, given our resources, giving our team, giving our systems, and being much more strategic about it. And then the last point is, we're impact entrepreneurs, so paying attention to impact during growth, the harmful thing that can happen sometimes when we scale before we're really ready for it, is we lose sight of the impact. Why many of us started our businesses to begin with in that, you know, opportunistic scaling, and suddenly things get wobbly, and it's kind of an all hands on deck moment, and we lose the opportunity to really bake impact into what we're doing, which over time, I think is a much more sustainable way to scale, because people really like to support. That's what research tells us. People really like to support, especially on the younger end of the demographic, brands that make the world a better place. So if you can keep the focus there as you're scaling, it's going to be much more beneficial over the long haul. Though.

The 3rd major bucket is the role of funding on the pace of growth. Now again, as I said in the intro, if you're bootstrapping, in other words, if you're growing at a pace that, you know, basically you sell some coolers or your beauty product or your solar panels, and then you turn around and reinvest some of the profits back into the growth of the business as opposed to getting lots of private investment, that's what we call bootstrapping. You're bootstrapping, then you can really pay attention to the pace of growth. If you take private investment, you have some friends, family, some angel investors, VCs involved, Then one of the big things I suggest is to really be in honest conversation with your investors about what you're gonna be looking at and what kind of factors are growing in to your strategic growth plan, and ideally to have those conversations before you take any funding. Let me say that again. Ideally, you've had these conversations about the pace of growth, about the pace of scaling before you take any funding because funding almost always comes with some, you know, expectations about growth. This is what BC is. We give you money.

Ideally, bc investors are looking for like 10 x growth or more in 5 years or less. That's how they get their money back. A bunch of the companies that high risk investors invest in are gonna fail or return very little. They're looking for a few what are called unicorns. People who you know they invest and they have a sale or an exit and they get very large like a 50x or a 100x return that's the VC dream. And if you haven't had good conversation, very nuanced conversation about the pace of growth, about what scaling looks like, and there can be a really strong push pull and it can be very painful. So my suggestion is if you already haven't had those conversations as soon as possible to check-in with your investors and have some honest conversation about what the, you know, about what they can expect and how you're grateful for the investment and that you're balancing the return that you're committed to giving them on their investment with the impact focus of the company. Ideally you're going to have investors that understand impact investing sometimes has a different rate of return, sometimes the pace of growth is different, and hopefully you've already had some conversations.

If not this would be a really good time to start them. And what you're looking for here is you want to balance the financial growth and profits and sustainability with your impact and the mission of your company. A big part of this when you do have outside investors is managing your investor expectations. So you want to learn how to communicate and align with your investors to have a sense of how your particular business is looking to do both. Create returns as well as grow your impact. Lastly I want to talk a little bit about when to reevaluate or pivot. If you have been at this a little while and you're not yet seeing the growth, the profits, that you haven't been scaling in a way that you had hoped. A couple of things that it might offer as suggestions.

Number 1, sometimes just an honest recognition of, oh, wow. Let's just name it. Hey. We are maybe stagnant or, you know, we didn't come out of the gate that strong. We haven't yet seen the profitability that we were planning for. So to really identify the signs that your current strategy isn't working in the way you had hoped, things like stagnant growth, you're seeing the market conditions change. Maybe you had some strong growth but then suddenly that flattened out or went down. Right? Or your customers just aren't raving about what you're doing and it's a little flat in your relationship with your customers.

The first thing is let's be honest about that, and let's go into a reevaluation process. Once you are in that process, I think the question here is is this about tweaking a few things? Right? Are there a couple of features that sometimes people put features onto a product or service that customers don't really want? Or something that you launched with? You know if you were a I I was talking I I run an impact podcast accelerator, right, for podcasters who are duly excited about, you know, having impact and using podcasting as a medium to connect with more people and get their message out there. If in that space, you know, back in the day, there was a service called Libsyn, which is liberated syndication. And I use Libsyn, and it was the first service of its kind. You put your audio into that one place, and it went everywhere. It syndicated that. Right? It would go to Apple Podcasts, and it would go to Spotify, and it would go to SoundCloud and all the players. It was an incredible innovation.

I still love Libsyn, but now there are many, many, many tools that do this, many platforms that do this. Right? So sometimes you, like, start with something and there's a lot of energy and you're really innovative. And then a year later, sometimes 6 months or sometimes 5 years, there's quite a few people who are doing something similar. So let's be honest about where your company is, and let's start to do some evaluation and some planning about a pivot if that indeed is what's necessary. So, again, you're gonna reevaluate. You're gonna say, this is what we were originally thinking. What was your traction like coming out of the gate? Again, if it was flat from the moment you launched, that's gonna be one set of data. If you were getting good traction, but then it levels off or dipped, then that's gonna be another set of data.

Right? Doing some market analysis and then starting to plan. Right? If you are gonna pivot or make some major adjustments, then please take a look at your mission, look at what you started with in terms of your impact, and how can you stay true to your desire to have positive impact even if you do need to do some fairly significant changes to your product or service. You launched as a social entrepreneur. You launched with an impact focus. If you're gonna pivot and then you, like, don't even, you know, touch or pay attention to your mission or your impact, now are likely to start to confuse people and maybe, you know, do some harm to the relationships that you've developed. So as you're in this reevaluation process, as you're planning for a pivot, if that's indeed the direction you're gonna go, Make sure that your mission and your impact are deeply a part of any reevaluation and pivot plans. Otherwise, you're likely to leave your community behind as opposed to engage them in this process. People understand pivots for the most part.

People understand that we when we're new or when we're, you know, in the impact space and we're trying to both have positive impact, make the world a better place, and create a product or a service that people really like and that sustains the company financially, that's, you know, quite a few things to balance. If we're honest with people and let them know that we need to make some changes, we're paying attention to the mission and the impact during that. They'll come with us. They might even participate. They'll give feedback. And when it's redesigned and you launch that pivot, they'll go out there and tell their friends and help you market it. If you just change it and don't pay attention to the mission or the impact while you're actually doing it and then you kinda throw on a thing coat of paint of impact onto some completely redesigned product or service, that's not likely to go as well for you. Lastly, please try to learn from failure and setbacks, not just your own, but other people in your network.

I'm a big fan. I like to say to my clients, let's go out and make new and different mistakes as opposed to the same ones over and over again. There's lots of embodied experience in the entrepreneur world. I've made several pivots. Well, most, if not all of our guests, 340 plus episodes, you know, lots of guests in that, you know, 7 years of doing this podcast. Almost everybody I've interviewed has made a pivot or 2 or 5 or 20. But are we learning from that, or are you kinda making some pretty predictable experience mistakes as you're going through your pivot, as you're going through your reevaluation process? Let's try to strengthen your business as you're refocusing your efforts as opposed to, you know, confusing and announcing multiple iterations. Oh, we're gonna go this way.

No. No. No. No. We're gonna go this way. No. Actually, we're gonna go this way. Right? Or I've seen businesses.

It happens. Not sure it's a crisis, but I wouldn't recommend it. Oh my gosh. Things aren't working, so what we're gonna shut down? Well, actually, no. Only kidding. We're not gonna shut down. Right? That can do real harm to your relationships. So try to have a sense of giving yourself time and to learn from the failures and setbacks of others and to plan as best you can the new direction you're gonna go or the changes you're gonna make and how that fits in with your mission and the impact that you created the company to have and to really bring all of that into the conversation about any changes you're gonna make, especially if those are larger changes.

Lastly, I just want to say if you could use some help in thinking about pivots, I offer a strategy session package and that is a opportunity to do a deep dive into your situation. It's a 90 minute session where we really get to gather up some data, take a look at your unique situation, and what the factors are that might be contributing to where you're going, and do some of this research together and have a thought partner. You know, whether you're gonna grow fast, grow slow, whether you're gonna stay in the same tracks that you're on, or are you gonna pivot, these are big decisions. Again, the coolest, cooler story. Right? $13,000,000, and they wound up not delivering to 20,000 people who had invested and trusted in them. So that's a, you know, that's a big decision. Now not all of us are making decisions that involve 20,000 people, but all of us, every single listener, you have something going on in your world where people are invested. People care about your mission and your impact.

And to have a thought partner, that's something you could use in, you know, making sense of what's realistic about your growth and your scaling choices as a social entrepreneur. You could use a thought partner. Take a look at my strategy session patch packages. The link is in the show notes. So lastly I want to say we love listener suggested topics and guests. If you have an idea, please go to the AwarePreneurs website, and on our contact page are our 3 simple guidelines, give you a sense of what we're looking for. If you feel like it's a fit, please send your ideas on it. Lastly, I wanna say thank you so much for listening.

Please take really good care in these intense times. And thank you for all the positive impact that you're working for in our world.