When planning a new social enterprise business, you will want to eliminate bad business ideas early on in the process. Conducting a pre-feasibility analysis will help you to do so. The following diagram illustrates the entire social enterprise business planning process, the first two sections of which are the pre-feasibility assessment:
The first step of the pre-feasibility assessment is to clearly define both the social and financial objectives for your social enterprise. Once you have done so, you can begin assessing a variety of business ideas on whether they will help you meet those goals, identifying weaknesses and red flags and eliminating bad business ideas. The overall aim of this assessment is to quickly “get to no” on bad business ideas before you begin a more in-depth feasibility assessment, saving you a lot of time and effort in the business planning process.
In this learning guide, we will demonstrate the steps to perform a pre-feasibility assessment.
1. Define Goals
Why is it important to set goals?
It is important to set clear goals for a number of reasons. For this purpose of pre-feasibility assessment, a main reason is to provide a clear criteria by which to evaluate different business ideas. This criteria (often referred to as the “venture criteria”) will continue to guide the business planning process throughout.
Second, it ensures agreement between the various stakeholders. When setting your goals, be sure to gain agreement from staff with different roles, the board, and any other stakeholders on the objectives of the enterprise. Once established, the goals can be referred back to as a reference.
Third, clear goals help guide business operations. Clear social and financial goals help the enterprise manager make operational decisions. Finally, they will help you evaluate whether the enterprise is successful. Tracking financial and social metrics against initial goals shows whether the enterprise is fulfilling stakeholders’ expectations.
What sort of goals do social enterprises have?
By definition, employment social enterprises have both social and financial goals:
The social outcomes expected from the enterprise
The financial targets set for the business
The social goals are the outcomes expected from the enterprise, such as the number of people employed or the skills the employees will gain from employment. On the other hand, the financial goals are the financial targets set for the business. This can include things like maximum start up costs or the amount of money the social enterprise business will contribute to a parent nonprofit agency. Clearly, these goals can co-exist, but organizations will need to prioritize among them and be aware of trade-offs.
How do you communicate enterprise goals?
For the pre-feasibility assessment, start by communicating specific, quantifiable goals in a simple framework. Below is an example set of goals a social enterprise might decide upon:
|Minimum number of transitional employees||15|
|Minimum number of permanent employees||0|
|Skills that employees must be able to learn||teamwork, computer skills, communication|
|Opportunities for career advancement||At least 2 opportunities to move into supervisor roles|
|Hours that the job must fit into for transitional employees||10am – 4pm|
|Maximum shift length for transitional employees||5 hours|
|Maximum start up costs||$50,000|
|Maximum business losses per year||$20,000 in the first year, no ongoing subsidy|
|Maximum number of months until the business breaks even||12 months|
|Minimum amount that the business must contribute to the agency||The business does not need to contribute to the agency|
Each social enterprise is different and will have unique social and financial goals. What is most important is that you gain agreement from staff with different roles, the board, and any other stakeholders on the objectives of the enterprise. For more information on setting goals, we encourage you to read our learning guide on venture criteria.
2. Find the Deal Breakers
How do you use goals to filter ideas?
Once you have clearly articulated your goals, they can now be used to evaluate potential business ideas, identifying the most and the least promising among them. You do not need to look for external data at this stage – just use your judgement. Assess each business idea on whether it would likely meet, partially meet, or not meet each of the different goals.
Social and Financial Goals
|Minimum of 15 transitional employees|
|No minimum number of permanent employees|
|Employees must learn team work, computer skills, communication|
|Must be at least 2 opportunities to move into a supervisor role|
|Hours for transitional employees must be between 10am and 4pm|
|Maximum shift length for transitional employees is 5 hours|
|Maximum business set up costs is $50,000|
|No business losses after first year|
|Maximum of 12 months until business breaks even|
|Business does not need to contribute to the agency|
|Meets criteria||Meets some criteria||Doesn’t meet criteria|
Continuing the example from above, the social enterprise has listed out its goals, both social and financial, and has assessed 5 different business lines relative to these criteria. In reality, social enterprises often evaluate many more than 5 business lines in this stage of the process. Once complete, they can create a shortlist of the most promising ideas.
How do you decide whether to move forward with the top ideas?
For the top business ideas identified in step one, you will now want to identify potential “deal breakers” in the following areas:
As before, the key at this point is to focus on high level issues and not get into the details yet – there will be plenty of time for that in later steps in the business planning process. Below, we outline the key questions to be asking for each of the above areas. Focus on the key deal breaking questions for each idea and eliminate ideas that are unlikely to work.
Deal breaking questions: what is the market opportunity?
|What is the market landscape?||Where are the best opportunities in this industry?||Will a business in this niche enable you to meet your social and financial goals?|
|What do customers need?||Is there a specific niche that your organization could fill?||Is the opportunity large enough to meet your social and financial goals?|
|Why are customers buying the product/service?||Could your organization meet customers’ needs in this niche?||How many people can be employed in the market niche?|
|Who would your competitors be?||Could you provide the product/service better than your competitors?||How big is the market? (# products, annual $ value)|
|Would you be able to compete against them?|
|How difficult would it be for you to enter the market?|
|Is the market growing?|
Deal breaking questions: what is the operational feasibility?
|How do businesses in this industry work?||What are your current capabilities?||What are the operational implications?|
|What are the operational keys to success in this industry?||Does your organization have the capabilities needed to operate this business?||Does your organization have the technical expertise to operate this business?|
|What are operational pitfalls that a new business could face?||Will the business operations need to be modified to fit your social criteria?|
|How do businesses in this industry grow?||Is modification possible? How will it affect the success of your business?|
|Is additional labor needed as the business grows?||Will this business provide enough of the right type of jobs?|
Deal breaking questions: what are the financial implications?
Start Up Costs
- How much will it cost to set up this business?
- Are there costs such as equipment, store fit-out, or consulting fees?
- Does the potential social impact justify the upfront investment?
Break Even Assessment
- How many units will you need to sell to cover the fixed costs?
- What are the fixed costs of operating the business?
- What is the margin per unit sold?
- Could your business ever sell the break even number of units?
What resources can you use?
For each set of deal breaking questions you can use a range of information sources to answer them:
- Talking with similar social enterprises
- Business owner interviews
- Visiting similar for-profit businesses
- Interviews with potential customers
- Interviews with industry associations
- Industry magazines
- Small business associations
- Discussions with suppliers
- Business directories (to understand the competitive landscape)
Having completed the pre-feasibility assessment, you should have narrowed down your list of potential business ideas to just one or two. You can now you can begin the feasibility assessment process, which will help you decide whether to launch the business by performing in-depth analysis of the market, operational, and financial viability for your ideas.