[MUSIC] We've talked about how a social entrepreneur decides which sector in which to operate, for profit, nonprofit or something in between. Let's now look more closely at the choices made by Carlos and Coco. In Coco's case, she began with a question of, what kind of equity did she want to create? And for her, it was very clear. She wanted to create public or social equity for others. And so, this first indicator pushed her towards nonprofits. But on the second indicator, she got a little bit of a different read. She sensed that there were, in fact, paying customers who would buy the water pumps. And this was a little bit more of a for-profit indicator. On the third indicator of what kind of person she was, she really came to the conclusion that she wanted to give back. This was not about creating wealth for herself but for others, and so she had a much more distributive approach. When you put those three factors together, she decided that the best model for her was in fact a nonprofit model with an earned income component. So, she ended up in the spectrum just a little bit below the pure, traditional charitable nonprofit, towards this more commercial or earned income nonprofit, because of that one particular indicator of the existence of paying customers. Let's now look at Carlos' model and the choices he made. He started out with a slightly different initial sense that this was a private equity approach that would make this viable. He wanted to create value for the investors and himself in this enterprise, so he came to that conclusion pretty quickly. He also saw that there were plenty of paying customers around that were ready to offer money for power. And the final distribution question, he also had a distributive orientation in a sense that he wanted to create value for others. Putting those three facts together he came to the conclusion that he should create a for profit but with a social impact. So he ended up just a little bit different place on the spectrum than Coco. And it's a function of that primarily that first big assessment that really private equity would be the way to drive this enterprise. That creating value for investors would be the way to mobilize the capital that we needed to get this thing off the ground. Carlos and Coco have both done this important work of trying to figure out the perfect sector position for their enterprise. I think they've come to slightly different conclusion. One a nonprofit with earned income, the other, for profit with a social mission. But the important aspect of this is that they have gone through this analysis, they've asked the big questions about the core idea, the core market and who they are as individuals. And they've come to, I think, appropriate conclusions about sector positioning. This challenge of finding the right position for a social enterprise is critical. It requires a serious analysis of all the factors. And when you make the right choice, everything else is a lot easier. Carlos and Coco are trying to figure out how their financial models will play themselves out in practice. Both of them have experimented with some analysis looking at the key drivers of their financial models. Let's take a look at both of their analysis. Coco starts out by saying what are the key costs involved in making this product?. And she's identified labor, marketing, rent, legal, manufacturing and other costs as the kind of key six elements that she's going to consider. And what she does is she starts to figure out what percentage of the total each one of these is and which one demands the most attention and focus, and then she's also then experimented with some pricing. She set the price at different levels and she's able to then determine what her margin would be at different pricing levels. So she has three models and generates three different conclusions about what her margin would be on each unit that she would sell. What's important here is that she's giving some careful thought to the financial picture that's going to drive her enterprise. She's asking what are the key drivers for cost? And at what price point do I make what margin? This is the starting point for good financial assessment. Carlos also is asking big questions about the financial model. What he's done is he's taken a moment to say, I need to pull out and identify those drivers that are going to make this enterprise either succeed or fail. And so he's focused on both the inputs that are going to be essential to making this power plant enterprise viable, and he's looked at the cost side, too. He's looked at money coming in, and where money might go out. This is part of the system of any good financial analysis. It looks at this flow, inflow and outflow of funds, and asks what do I have to do? Where do I have to focus my attention to make the system work? And Carlos and Coco have done this work because they know that without a viable financial model, their enterprises can't possibly grow at scale. We've talked about the significance of competitive analysis. And it lies in the fact that social entrepreneurs do not operate in isolation. There are other enterprises out there doing similar work in many cases. And a key challenge for the social entrepreneur is to differentiate and to show why and how their idea, their product, their service is different and better than what's already out there. So let's take a quick look at what Carlos and Coco have done to understand their competitive position. Let's look at Coco's analysis. And what we find is that she has figured out what two competitors are most close to what she's planning to do. She's put them in the grid and she's also put her enterprise, Drip Perfect, in the grid as a comparative piece. And across the four dimensions that she thinks are most important, she's going to rank each of the three enterprises in terms of their relative strength. And in this process she's going to be very realistic. She'd be tempted to say that Drip Perfect, her enterprise, is best across the all the dimensions but she's realistic enough to say no, there's a couple of areas where it has a major advantage. And that's where she's going to focus. So in her picture, the analysis shows the last two dimensions, she has a competitive advantage, she is stronger than the other competitors. This gives her a sense of what she should be communicating in her marketing and in her sales approach. So the competitive analysis that Coco does here is a first step for understanding where she actually excels most. Let's look now at Carlos'. He's taken a slightly different approach. Instead of a purely kind of positional analysis of who's higher and who's lower across critical dimensions, he's taken a slightly more fine grained approach, where he's assessed performance across different dimensions. And he's used Indicators of who's ahead, who's behind, red and green arrows. He's used rankings and he's used other assessments across the grid to say who does good work in which dimension and why. So, I think an important piece of his analysis is that it shows that you can go a different way. You can use competitive analysis to get, actually, real data into the schema. You can integrate not just relative position, but actual performance into the analysis. Across both Carlos and Coco's competitive analysis, one thing is certain. They have done their homework about where their enterprise fits in the broader landscape of other competing enterprises, and they know where they're strong, and where their weaknesses are. And this will inform them, not just as they implement their projects, but as they try to communicate them to the world. [MUSIC]
