The 3Cs of Business Plan

[NOTE: An abridged version of this post was published by the Business Times (Singapore) on Nov. 17. ]

One question I’m asked most frequently by budding young entrepreneurs is, “What does an investor look for in a business plan?” I get asked this in my various capacities – as an entrepreneurship educator, as the director of NUS Entrepreneurship Centre, which provides seed funding to entrepreneurial start-ups by NUS professors, students and alumni, and as an active business angel investor, having invested in about a dozen start-ups in Singapore, Silicon Valley, China and India over the last decade or so.

There are of course literally thousands of how-to books about business plan writing that will offer you checklists on what a business plan should cover. Having been pitched business plan hundreds of times, I have learned to distill the essence of what I personally look for in a business plan down to three core questions, which I have dubbed the 3 C’s. Just as many of you have heard of the 4 P’s of marketing (product, price, place and promotion), I hope that many of you will remember the 3 C’s of start-up investing after reading this -- whether you are (or plan to be) an investment professional evaluating start-up business plans, or an entrepreneur pitching plan to investors.

So what are the 3 C’s? Here they are:

How does the venture CREATE value ?
How does the venture CAPTURE value ?
How does the venture COMMUNICATE value?

At the heart of any new venture is the identification of a potential opportunity, and a plan of actions to exploit it. So any good business plan must tell us how good the opportunity is, and how and why the people behind the plan can exploit it better than others. I believe the 3 C’s help discipline our thinking about the opportunity and its exploitation, by providing three sets of tests for the viability of any proposed business.

Value CREATION

Every business, no matter what it does, can only exist because it creates value for some customers. So the opportunity that a business plan seeks to exploit must be translatable into very specific answers to the following series of questions:

• What is the customer problem (“pain”) or need that you have identified ?
• How big is it – how many such customers are there ?
• Who will pay for it to be solved/fulfilled, and for how much?
• What specific products/services are you going to offer to solve/fulfil these pains/needs?
• By how much would the value of these products/services exceed the total cost of providing the solution?

I’m afraid that many business plans that I have come across fail to pass even this first test – while they talked about the wonderful technical inventions or business ideas they have discovered, they either failed to demonstrate the existence of real paying customers who will want to pay for them, or they did not take into account the full cost of converting their ideas into actually usable products, which will render the venture financially non-viable.

Value CAPTURE

Many entrepreneurs, particularly techies, think that they have a viable business just because they have developed something that people actually want. Unfortunately, this is often not true, because you may not be able to capture much of the value that you create due to the existence of competition. And competition comes from not just other companies offering similar products or services – as Michael Porter has summarized it nicely, there are five sources of competitive pressures that any business needs to watch out for:

• Existing Rivals offering similar products
• Potential New Entrants
• Close Substitutes
• Powerful Buyers
• Powerful Suppliers

In combination, these competitive pressures drive your price down, or squeeze your margins to nothing. To pass the value capture test, a business plan needs to (a) convincingly show why some of these competitive forces are absent (AND will remain so even after you have entered the market) ; or (b) clearly identify the unique competitive advantages that your venture has to counter each of these competitive forces.

It is usually a bad idea for a business plan to proclaim that there is no competition, as many naïve business plans do. To the experienced investor, this may mean either that the entrepreneur has not done his/her homework, or that the business opportunity is actually non-existent or so tiny that nobody else bothers to enter. From an investor’s perspective, the existence of competition is actually a good thing, for it provides a validation that the market potential is real, not imagined. The challenge is for the entrepreneur to show that his/her offering is so good that it can capture a viable market share, despite the competition.

Value COMMUNICATION

Even after a business plan has passed the above two tests, we are still not home free yet – there is the remaining test of how the venture can communicate its value convincingly to its customers and resource partners. This is of particular concerns for new start-ups trying to offer radically new products/services that are not familiar to the customers.

First of all, there is the liabilities of newness – if the new venture needs to sell to large enterprises (or to sell through large distribution channels), this is usually a big warning sign, for many of these establishments tend to be conservative and will not buy from an unknown entity with no prior track-records, no matter how good the product is. Secondly, when the product/service itself is novel, as is typically the case with new start-ups trying to commercialize new technologies or business ideas, a lot of educating of the users (as well as the relevant partners such as component suppliers and sales channels) is usually needed, which will not only raise the upfront cost, but also delay the revenue stream.

While the above examples highlight the go-to-market challenge, I have used the word communication to embrace the broader range of credibility and visibility challenges that a new venture needs to address – you may have a great product innovation, but unless people are aware of it, understand what it does, and have trust in your organization to deliver it, there will be great resistance to first adoptions – everybody is waiting for other credible reference customers to prove its viability first. What is worse, if your innovation disrupts the existing business ecosystem and requires new distribution channels or adaptations by existing suppliers, you are unlikely to get the complementary resources to help you get started. You will also have difficulty attracting top talent to join your venture if you cannot communicate a compelling vision to them.

Unless a business plan clearly addresses how it is able to overcome these value communication challenges – and still shows viability even after factoring these communication costs and time delays into its financial projection -- it is still not fundable even if it passes the earlier two tests. For example, I personally view more favourably a start-up plan that allocates stock options to attract credible people to join its board of directors and management team – besides showing that the venture is serious about attracting the right resources to enhance its execution capability, it also signals that the founders recognize the need to address its credibility challenges.

I use this 3Cs framework not only to screen business plan pitches, but also to monitor and advise the companies that I’ve invested in. I would be interested in any suggestion you have on how to refine it.

Global Entrepreneurship Week III

I managed to participate at 5 different events in the Week over the last 3 days, including speaking at 2 of them (the Microsoft BizSpark Launch and the BANSEA-Creative Community Singapore (CCS) Networking Event on Alternative Financing for Creative Businesses).

It is great to see Microsoft coming around to trying to work with early stage start-up companies, and I'm pleased that they have invited NUS Entrepreneurship Centre to be one of their network partners. While the free access to Microsoft software tools will certainly be very helpful, I believe one real beneifit for our Singapore-based start-ups would be to leverage their participation in BizSpark to gain regional and even global visibility. As a manifestation of Microsoft's power to draw media visibility, the event already gained coverage by Today, Channel News Asia Online, and Lianhe Zaobao, with more promised next week.

Although I have not yet invested in any "creative" businesses, this is not due to lack of interest on my part, just that I've not come across really interesting deal flows in this marketspace so far. Many entrepreneurial ventures in creative industries in Singapore have in the past tended to be run as social enterprises (depending largely on public grants/subsidies) or as lifestyle businesses that do not scale. But sensing that things may be changing, I took up the opportunity (as chairman of Business Angel Network Southeast Asia (BANSEA)) to co-organize the event with CCS as a way to get a better feel of the creative business entrepreneurial community in Singapore. I was pleasantly surprised by the high turnout -- over 100 participants -- and the level of energy during the informal networking. In my talk, I tried to highlight the need for creative business entrepreneurs to consider pursuing business models that are scaleable in order to make their businesses fundable by angel investors. I also highlighted some of the innovative financing methods that have been introduced in recent years in other countries (e.g. how a successful film production in Korea has received over 40% of its financing through micro-investments by online netizens) to encourage the creative business community to think more creatively about meeting its financing challenge. Through the event, besides meeting some very nice people, I've come to learned quite a bit about what CCS is doing to promote creative businesses in Singapore -- you can visit their website to learn more -- https://app.creativecommunity.sg/

The Technology Commercialization Forum (TCF) organized by the Industrial Liaison Office (ILO) of NUS Enterprise also drew a very high turnout (over 300 participants). I was particularly impressed by the keynote speech by the president of the Association of University Technology Managers (AUTM), where he made a passionate plea for policy makers to consider the long-term societal impacts of university technology commercialization, instead of focusing narrowly on licensing revenue generation in the short term. I truly agree with him that what really motivates some of us to do what we do (promoting innovation & entrepreneurship) is to try to make the world a better place. I would like to encourage you to read the Better World Project Reports recently produced by AUTM (downloadable from http://www.betterworldproject.net/reports.cfm) which provide interesting examples of university innovations that have truly made a significant impacts on the world.

Global Entrepreneurship Week II

The Global Entrepreneurship Week (GEW) has started this week. I have attended two of the many events organized in Singapore so far -- the World Cafe organized by Temasek Polytechnic on the first day, and the Opening Ceremony on the second day. As my centre is one of the co-organizers of GEW Singapore, I'm particularly pleased that the Kauffman Foundation has chosen Singapore as one of the selected countries outside USA/UK that they will give on the ground coverage. In fact, they actually sent two people to participate in Singapore's Opening Ceremony -- Jonathan Ortmans, the man in charge of the GEW world-wide, and Dr. Paul Kedrosky, who is doing videoblogging of GEW happenings in selected countries worldwide. You can see his blog post on Singapore's GEW Opening Ceremony at the main GEW website http://unleashingideas.org/.

At the World Cafe, I enjoyed the opportunity to interact with the primary and secondary school kids as well as polytechnic students, especially hearing their views on what they think are the most important traits of an entrepreneur. We were also asked to discuss the question on whether entrepreneurs are born or made, which I didn't like so much -- for reasons I can't fathom, many people seem to like to ask this question. Interestingly, the topic that seemed to have generated the most amount of participation among the kids (at least in the tables where I participated) was that of parents' reluctance to let their kids try anything entrepreneurial that detracts from their study, and the pressure on the kids to study hard and get a good job.

I was happy to note that there were quite a few new faces at the Opening Ceremony. I think it is important that our activities reach out to new people -- there is no point to keep preaching to the converted.

I am looking forward to attending more events during the rest of the week. In particular, I think the Speednetwork The Globe, organized by The Digital Movement (TDM) in Singapore, seems interesting and worth checking out -- visit www.thedigitalmovement.org/gew.

Global Entrepreneurship Week

The inaugural Global Entrepreneurship Week (GEW) will take place in the week of 17-23 Nov. 2008. Jointly coordinated by Kauffman Foundation in the US and Make Your Mark in UK, the goal of the week-long program is to encourage people from around the world to celebrate the spirit of innovation, entrepreneurship and creativity during one common week every year. To-date, organizations in 78 countries from around the world have committed to host a wide variety of events and activities during this inaugural GEW week.

I applaud this global campaign to raise awareness and interest in entrepreneurship, and am pleased to say that my centre (The NUS Entrepreneurship Centre) has taken the initiative to jointly host GEW in Singapore with the Action Community for Entrepreneurship (ACE). Together, we have engaged 35 other partner institutions to organize more than 40 events and activities throughout the GEW week. You can check out the latest GEW happenings in Singapore at this website -- http://entrepreneurshipweeksg.org. You can also find out what other countries are doing at this global website -- www.unleashingideas.org. A number of experimental global flagship events will take place to enable people from around the world to participate in simultaneously, including "Speednetwork the Globe" and the "Global Innovation Tournament".

Like any start-up idea, this year's inaugural GEW will probably be somewhat experimental and unpolished, but I believe that GEW truly has the potential to become not only THE annual platform for nations to celebrate the spirit of entrepreneurship in their respective countries, but also to emerge as an interesting global virtual platform for new entrepreneurial ideas from anywhere in the world to be paraded and tested on a global scale. I would therefore like to urge you to give this new initiative your support by attending events in your country that interest you, and by tuning in to the global website to see what is happening around the globe and blogging about them. More importantly, I encourage you to see the GEW as your opportunity to make your mark on a global scale, by unleashing new social networking ideas and novel events/games/activities that will capture the imagination and interest of the millions of entrepreneurially-minded people who will be tuning in from around the world. I look forward in particular to your suggestion on how my centre and ACE can work with you to launch your ideas in this and future GEW, not just in Singapore, but also to the world.

The worst of times...the best of times?

As I write, the global financial market has seized up, stock markets worldwide have plunged, investor panic is everywhere, and the global economy is fast sliding into recession, with the spectre of Depression 2.0 looming large indeed.

The chill had already frozen the venture capital investing market, with major VC funds holding back new investments. The mood is probably best captured in a presentation made at a recent partners' meeting of Sequoia Capital, one of the leading VC in Silicon Valley. The title of the presentation slides said it all -- "RIP: Good Times" -- you can view it at www.venturebeat.com (click here).

On a personal note, one of my investee companies (through my angel fund (BAF Spectrum)) had witnessed first-hand the chilling effect of this global financial meltdown -- it received a termsheet from an Asian regional office of a blue-chip, Silicon Valley-based VC firm about 3 months ago, and despite the fact that it cleared all their due diligence checking, the VC firm recently walked away from the deal. We found out later that their US headquarter had told them to hold all investment indefinitely, period. I have similarly learned from a friend who is a general partner of a VC fund that his institutional investors are asking him to put a hold on investing for the time being.

While there may still be a chance that some semblance of calm may return to the global financial market in response to the latest efforts by the governments of G7 and other nations to use tax-payers' money to shore up ailing banks and inject liquidity into the financial system, it is clear that, even in the best case scenario, this workout is going to take some time, and that the real world economy is already heading into a recession that is unlikely to be reversed within the next 12 months, even if we are lucky to avoid a severe and much longer period of negative growth.

In this worst of times, my best advice to entrepreneurial start-ups that have received seed-funding in the last 1-3 years, but have not yet reached steady cash-flow positive mode, is to move quickly towards a cash conservation mode with whatever cash you still have, for it will be extremely challenging to tap the venture capital market for your next round of funding over the next 6-12 months, if not longer. Find ways to reduce expenditure and explore interim sources of revenue to generate cash, and if it is possible, try to apply for some form of government grant for innovation to help stretch your run-way. It may be painful, but letting some people go may be the only realistic alternative to survive for some.

Thankfully, in Singapore, a number of government agencies like SPRING and MDA have recently launched new innovation grant schemes (e.g. the the first batch of POC and POV grant awards were awarded by SPRING this month) , so I would encourage our existing start-ups to apply for these. I also hope that the five new early-stage VC funds recently co-funded by the National Research Foundation (NRF) of Singapore will start their operations by early next year.

For would be entrepreneurs who are thinking of starting up your ventures, while the coming 6-12 months may seem to be the worst of times to do so, it could also possibly be the best of times, especially if you are convinced that you really have a great business idea, and your initial need for capital over the next 12 months is modest or you can self-fund/bootstrap a large part of it. When an economy is in recession, the cost of starting a business is lower than in normal times -- rent is down, input costs are lower, and the job market is soft, so attracting people to work for you becomes easier. It is true that venture investors will be extremely tight-fist and valuation is likely to be low, but hopefully you don't need to raise that much (yet), there is also less competition, and the entrepreneurs who are prepared to start-up at such a difficult time may get better noticed for their passion and tenacity. History has indeed shown that some of the most successful companies got going at or near the bottom of venture investing cycles -- both Cisco and Facebook got their first funding during the downturns of Silicon Valley. The ideal timing is that, by the time your product is developed and ready to go-to-market, the economy is turning up and the market starts to roar again. Better still, if your start-up idea involves substantial cost innovation, your product or service can still find a market in a recession itself -- by helping people or enterprises to survive recession better through cost savings.

The worst of times can still present opportunities, and thus becomes the best of times to start-up -- for the entrepreneurs who discover the right opportunities and are bold enough to act. As an early-stage angel investor, I'm still prepared to make seed investment in this period of gloom -- for the reasons stated above -- if the right start-up comes along.

Lessons from the Starting Up of StartUp@Singapore

I'm pleased that the annual StartUp@Singapore (S@S) business plan competition will enter its 10th year of operation when its official launch event is held this 22nd Oct. You can visit the S@S website for more details.

As the original founder of S@S way back in 1999, I must say that I do feel a sense of pride that the competition has not only survived, but has indeed grown to meet my original goals. Firstly, while I and my centre (NUS Entrepreneurship Centre) had played a lead role in the organizing of the events in the earlier years, the event has been fully run by NUS students since 2 years ago. Secondly, the number of participating teams in recent years had consistently exceeded 200, and indeed last year recorded the largest number of participating teams ever. Thirdly, the event had also been able to raise sufficient corporate sponsorship to become fully self-funded last year, and I am cautiously confident that the new student organizing team will be able to achieve the same this year, despite the distinctly harshier funding environment this year. Last, but not least, I believe the venture had now evolved to become more than just a business plan competition, but a highly effective program to get people to learn experientially about entrepreneurship by engaging in the early stages of the start-up process itself -- writing a plan, building a team, learning networking skills, and pitching to potential investors and getting mentoring feedback.

Looking back, I think the start-up of StartUp@Singapore itself may serve as an interesting case study about the entrepreneuring process -- opportunity recognition, brand positioning, fund raising, team building and execution. It all started in Q2 1998 when I was asked by the then deputy vice-chancellor of NUS, Prof C.C. Hang, to lead a task force to develop a plan on how to promote technopreneurship education in NUS. The vice-chancellor subsequently approved our plan in Q4 1998, and I found myself being asked to start up a new centre at the end of 1998 to implement the plan. (Incidentally, I decided to call the centre by the name of Centre for Management of Innovation & Technopreneurship (CMIT), since I'm from MIT...).

Although the main mission for the new centre was to introduce the teaching of technopreneurship to NUS undergraduates (this was how I got the mandate to start the Technopreneurship Minor Program...), I knew that I had to go beyond the classroom to raise awareness and interest in entrepreneurship in NUS. Being an MIT alumnus, I had vaguely heard of the MIT $50K business plan competition, and realized that there was an opportunity to start a similar business plan competition in NUS. (I actually knew I was going to do this when I was chairing the task force, but I did not mention it as a "to-do" thing in the task force's plan, as I didn't want to be stuck with it as a KPI in case I could not pull it off...). So as soon as I managed to get the Technopreneurship Minor Program successfully rolled out in July 1999, I went to visit MIT to talk with the MIT student organizers of the $50K Competition. After the meeting, I was quite confident that I knew enough to organize such a competition in NUS. But on the flight home, I became convinced that I had the opportunity to do more than that -- I saw the opportunity of having a competition that catered to not just NUS, but the whole of Singapore, because no one was doing any such competition in Singapore then.

So the first thing I did was to recruit an NUS student leader to join me to form the core management team. The student leader -- Ong Kee Sing -- was at that time the president of the NUS Entrepreneurship Society. He had earlier been trying to develop a business idea competition primarily among business school students, but I convinced him to take on something much bigger. We effectively divided our roles, with me playing the salesman & fund raiser role, while Kee Sing took on the COO role to actually build the NUS student team to run the competition. Between Kee Sing and me, we also came up with the name and logo-- I came up with the StartUp@Singapore name, while Kee Sing got the logo designed (which still largely stands today). I deliberately wanted a name that had Singapore in it to give it the right brand positioning, and even tried to get it trademarked (which I couldn't as there was some rules at that time about us not being a legal entity to own a trademark...).

The next thing I had to tackle was fund-raising, which involved selling the whole idea to some corporate sponsors. Those of you who know me personally would know that I'm a terrible salesman, but what saved the day was the lucky timing -- if you remember, Q4 1999 was close to the peak of the dotcom boom, so despite the bad salesman that I was, when I made the round to call on all the venture capitalists and government agencies that I knew (or had someone I knew to introduce), I actually managed to convince sufficient numbers to pony up enough sponsorship money -- I got NSTB to match the S$50K prize money, and several VCs to fund the operational costs. I must credit a venture capitalist friend, Mrs. Chin Tahn Joo, for helping to open the doors to some of her VC contacts for me. It is only after I had gotten some confirmed sponsorship funding that I went to my boss Prof Hang for his blessing.

Marketing the competition to students and the general budding entrepreneurial community turned out to be relatively easy once I had the prize money (and several prominent VCs to agree to serve as judges) -- the dotcom euphoria certainly helped to draw in a lot of interests. We ended up receiving over 200 business plan executive summary submissions, twice the target that I promised my boss. I was also lucky in my choice of COO -- Kee Sing did a great job marshalling a team of dedicated NUS students, and despite some minor hiccups, their execution was great. (One of the things I have learned as an educator working with young talents over the years is to hold my tongue -- it is often better to let them try and do something that you knew would likely fail, instead of stopping them from doing so (so long as it does not have serious consequences) -- people learn from their mistakes much better than if they didn't try in the first place. )

Despite the good start, the following year the competition nearly died -- just as the dotcom boom made the start-up at the end of 1999 easy, the dotcom crash in 2000 made everything difficult -- sponsorship from VCs dried up, NSTB was transitioning out of its stewardship of the T21 initiative, and entrepreneurial interests among Singaporeans nosedived. We had enough of foresight towards the end of the first competition to know that the second year would be tough, and I prudently stashed away some surplus funds from the first year to roll over to the second year. I was also able to rope in a long-term strategic partner -- the NUS Business School Alumni Society -- to help in the organizing effort. Their help in securing sponsorship from their alumni networks was crucial to make up partially for the loss of VC sponsorship. The number of participating teams dropped by half, but to cut the story short, we managed to persevere and survive.

In the intervening years, we had the good fortune of finding a succession of capable and passionate NUS student leaders to take the helm of S@S, and over time the student leads themselves had developed a very effective peer-to-peer process of grooming their own successor. My mantra to each student lead team is to try something new each year, and over the years, we have indeed seen a continuous streams of experimentation and innovations to the competition (e.g. introducing a youth category, reaching out to the heartlanders, bootcamps, advertising on buses, etc) . Some of these worked, some didn't, but I believe we all learned a lot in the process, and the fact that there's always something new kept the excitement up and made it fun. While my actual role in S@S had reduced over the years (even though I had continued to serve as co-chair of the steering committee), I must say that it has always been a privilege for me to have the opportunity to work with such entrepreneurial young talents -- it is they, collectively, who have taken ownership of S@S and built it into what it is today.

If I may draw any lesson from my own involvement in the early founding of S@S, it is the following: Borrow ideas from others, but define your own unique opportunity; use your first mover advantage to stake-out a clear brand positioning; recruit a self-motivated team; under-promise so you can over-deliver; emphasize execution & experimentation over endless debates on ideas; and last, but not least, recognize that lady luck gives, but also takes away, so be prepared for both.

In closing, I would like to link back to my last blog entry about double social entrepreneurship: I believe that StartUp@Singapore has the potential to become a double social entrepreneurship model. Indeed, my wish is that S@S will be copied by others around the world, for our ultimate goal is to get more people, especially those from the developing world, to learn experientially about entrepreneurship. So here's my suggestion to our future student leads of S@S: make it easier, not harder, for others in the developing world to copy us!

"Double-Social" Entrepreneurship

You all know the saying -- give a man a fish, he lives a day; teach him how to fish, and he lives a lifetime. There is certainly profound truth in this -- that imparting knowledge does more to improve lives than charity -- and I am not knocking it. The world needs more of both.

But reality is a bit more complicated. First, teaching someone fishing can be time-intensive and difficult to scale, unless one invents a better teaching methodology. Second, if fishing requires the use of a fishing equipment, then knowing how to fish is not enough -- you have to get the fishing equipment as well, which may be costly, especially if someone owns the intellectual property behind it and can charge a monopoly price.

What I am getting at is that doing good is not just a matter of good intention, it requires a good understanding of the role of innovation and scalable business model. This brings me to the concept of social entrepreneurship. Or, shall I say, the common misconception of what social entrepreneurship is about.

Social entrepreneurship has become a big buzzword these days, but like all buzzwords, its meaning has become vague and (as I will argue) potentially misleading. Generally, the term has been used to mean entrepreneurial activities directed at addressing some social problem (doing good), instead of making money for the entrepreneurs (doing well). In this sense, some have equated social enterprise with non-profit organization. There are some who believe that one can do good while doing well at the same time, and distinguish social entrepreneurship as having this characteristic, vs. the traditional non-profits that can do good but cannot do well, and thus need to rely on charity to fund its do-good activities. There are of course further distinctions -- some use the term to mean only a venture that can do good and do well at the same time, while others would include a venture that makes money in some conventional profit making activities and use the profit to subsidize its social (non-money making) activities. Regardless, most people seem to agree that the label "social" in social entrepreneurship refers to the intention of the venture -- trying to do good.

While this definition of social entrepreneurship (let's call it SE1) is certainly useful in highlighting its difference from conventional, purely profit-seeking venture in terms of its goal, it is in another sense not very helpful at all, because it doesn't tell us how social entrepreneurship actually differs from conventional entrepreneurship in terms of its entrepreneurial process.

I would like to argue that there is actually another meaning of social entrepreneurship that focuses on the process, not the goal. In this interpretation (let's call it SE2), social entrepreneurship is about a process of entrepreneuring that essentially socialize the core innovation or knowledge asset, versus conventional entrepreneuring, which emphasizes keeping one's core innovation or knowledge asset proprietary or private. In other words, in social entrepreneurship, the entrepreneur creates a new innovation or knowledge-asset, then allows (indeed, encourages or empowers) others to replicate it, whereas the conventional entrepreneurial model would have the entrepreneur trying to protect its innovation (e.g. seeking intellectual property rights protection with the aim to prevent others from imitating it).

The open-source model is essentially an example of social entrepreneurial model in the SE2 sense. Another example is the Wikipedia model. What makes the open-source and Wiki models powerful is that it encourages not only others to use its innovation, but also to contribute their own innovation or content which in turn is freely distributed. In other words, an SE2 entrepreneurial model unleashes and multiplies many more entrepreneurial contributions. Now, the open-source or Wiki model does not actually do away with the concept of intellectual property rights -- it just defines it differently from the conventional proprietary right, and involves a different form of licensing. It also involves a different entrepreneurial process or model for managing future innovations on top of the prior innovation, one that is social in nature (community of volunteer coders, user contents aggregation).

In my view , the really powerful social entrepreneurial ventures are therefore those that not only seek to achieve social goals (SE1), but also do it with a socialistic innovation process (SE2). If I may come back to the fishing analogy -- a social program to get volunteers to teach people how to fish and a chairty program to dole out fish both have social goals (SE1), and the former is certainly better than the latter. But even better would be an entrepreneur that invents a better way to fish that dramatically reduces the cost of the fishing equipment compared to existing technologies , then gives his or her invention away to the people to not only encourage them to use it (at the much lower cost compared to existing technology), but also to make their own improvement, and to have such improvements freely diffused as well. An alternative example would be an entrepreneur that invents a more scalable model to teach fishing, such that people who learn how to fish can easily (and are motivated/obligated to) become teachers of others.

There are actually a growing number of examples of such "double-social" entrepreneurship emerging in the developing world. One of the best examples I know is that of the Aravind Eye-Hospital in India, well documented in C.K. Prahalad's book, The fortune at the Bottom of the Pyramid. In essence, Aravind not only pioneered an innovative product technology (low-cost lens) and an innovative process technology (low-cost eye-surgery process), but literally make them available to a vast number of poor patients who could not otherwise afford it, using a business model that charges a small margin on more well-off patients to cover patients who cannot pay at all, or very little. The Aravind hospital system includes innovating a highly scalable model for training village girls to become effective nurses that handle most of the work conventionally done by doctors and surgeons, leaving the latter to concentrate only on work that truly require their critical skills.

The world needs more entrepreneurs with social goals. But what is truly in short supply are the double-soical entrepreneurs who have the vision and innovative know-how to create a venture that combines social entrepreneurial processes and social goals.