VA
Insights

In May this year, Venture Avenue in partnership with the Boston Consulting Group Social Impact team kicked off one year of hands-on consultancy and incubation services to the two winning social enterprises (SE) of Xinhu-Yu Venture Philanthropy Award. They are Beijing Migrant Workers’ Home (北京工友之家) and Shanghai Puki Coordination Agency for the Hearing-Impaired (上海小笼包聋人协力事务所).

After 3 months of close interaction with the 2 SEs, the consulting team found that the problems encountered are very typical among SE start-ups and developing SEs. Today, VA takes these 2 SEs as examples to illustrate common bottleneck issues among SE start-ups and developing SEs, and ways to unblock them to increase efficiency.

SE Start-Ups: Determining market position and business focus is critical to survival and growth

About 95% of the majors at 85 universities in China that recruit hearing-impaired students are related to design. But only 20 percent of the graduates find a job in design. With the mission to provide suitable internship and job opportunities for hearing-impaired graduates, Puki Coordination Agency for the Hearing-Impaired (Puki) was founded in 2010 in Shanghai. Puki realizes its social objective through two ways:

• Design Service (with a business model)：To recruit hearing-impaired designers and provide service to corporates and government sector
• “1+1”internship plan: To provide professional training to hearing impaired students and match them with suitable internship or job positions

However, both of the services encountered problems. In terms of design service, Puki team found that designers with hearing impairment are not very good at creativity thus the previous design service can not give Puki a competitive edge in the market. As for the “1+1” internship plan, graduates with hearing disabilities far outnumbered job opportunities provided, not to mention that not all interns had the chance to be employed.

The root cause, the consulting team thinks, is that Puki did not take into full consideration of its beneficiaries’ characteristics and needs when designing its service strategies, therefore, unable to establish a competitive market position. For a start-up, strategic positioning largely determines whether it can establish a fully functioning business after the incubation phase. It is the starting point of a viable business model. If a scientific market position is not in place, despite great market potential, an SE’s survival and growth are very likely to be in danger.

To solve the problems mentioned earlier, the consulting team guided Puki to delve deep into their businesses:

• Design Service: Compared with other designers, what are hearing-impaired designers’ advantage and disadvantage? What type of design service are hearing-impaired designers better at? Who need those service and what do they need? How can Puki meet their demand? What is Puki’s value proposition to those clients?
• “1+1”internship plan: How different are hearing impaired graduates in terms of professional skills, communication skills, and analytical skills? How different are they in finding a job? What kind of training do they need respectively? What are potential employers’ needs and requirements? What role can Puki play?

After beneficiary segmentation and identifying their needs, the consulting team guided Puki team to identify short-, median-, and long-term business focus and objective (both social and financial). The consulting team will also work closely with Puki team during the strategic planning process.

Developing SEs: Operation optimization lays the foundation of business scale-up

Different from start-ups, SEs that operate for 3 years and longer usually have established a pretty mature business model. For example, Migrant Workers’ Home runs second-hand stores that open exclusively to migrant workers in Beijing. They collect unused goods for sanitization and sell them at migrant workers’ communities at a price 80-90% lower than market price, which greatly reduces the living cost of migrant workers.

Since 2006, Migrant Workers’s Home has opened 14 second-hand stores in Beijing. At the beginning it expanded rapidly, with 6 or 7 stores at the most in one year, which ended with shortage of supply and unequal sales performance among stores.

The root cause, in the consultants’ view, is that various aspect of the SE’s daily operations are not in an optimal state, such as:

• Supplies are lack of variety, and logistics cost is high
• Store staff vary considerably in terms of professional know-how, work attitude and recognition of SE value, which have clearly impacted their sales performance
• Passive marketing leads to low public recognition and credibility
• Both partnership coverage and depth need to be improved

After a thorough discussion with the management team of Migrant Workers’ Home, the consulting team proposed preliminary thoughts as follows:

• Expand the number and type of partners
• Define organizational culture, and design incentive mechanism for staff
• Identify key messages for branding, refine marketing strategy and materials based on best practice study and literature review

Phase one of the consulting service centered on partnership development. First of all, consultants helped the SE identify resources that were in shortage, including sources of supply and other partnership resources such as media, logistics, storage, etc. Secondly, consultants helped define potential partners’ types and characteristics. Thirdly, based on the defined conditions, consultants gathered a list of potential partners with a prioritized short list. Lastly, consultants helped the SE tailor its value propositions to different types of partners and refine partnership proposals.

In summary, SE start-ups need to clarify their market position and direct their limited resources to a certain product or market segment, so as to mitigate competition and cultivate competitive advantage. Developing SEs need to optimize their operations to meet the demand of scaling up.

Additionally, it’s worth noticing that for SEs like Puki and Migrant Workers’ Home that have both business model and traditional non-profit model, there is a blind spot: making profit is to support other free services. However, this relationship should be a natural outcome, not an objective. Otherwise, SEs will become a cash machine instead of a value creator.