Wouter Kersten On Building, Funding & Scaling Successful Social Enterprise Startups
Wouter Kersten is Innovation manager at Enviu, a social enterprise in the Netherlands which initiates social multinationals as part of a broader approach of creating system change.
He also works at Delft University of Technology, Faculty of Industrial Design Engineering, currently in the form of a PhD, on an approach that might best be described as “Design for Scalability”: embrace instead of fear complexity to intentionally develop ‘solution architectures’ that can be easily adapted across contextual borders.
Together with his diverse background (Masters in Industrial Engineering & Management and Environmental Science and previous career in Telecommunications) the mix results in his innovative thinking advice “Always Be Curious (ABC)”. He has also served as a jury member in several innovation competitions.
Wouter provides strong insights on social enterprise startups and the shift he has seen in the sector, as well as sharing experience about gaining funding, building the right culture and scaling.
Highlights from the interview (listen to the podcast for full details)
[Tom Allen] - To start things off could you please share a bit about your background and what led you down the path of social business and innovation? [2:17]
[Wouter Kersten] - After my first studies and job, I had a feeling I wasn't really working on things that were relevant to society... I was working to make a big company more successful and that wasn't really satisfying. I did more studies and looked for work opportunities. In part that was with Enviu, which was on the verge of being founded at that time (in 2004). The term 'social entrepreneurship' didn't really exist in the Netherlands yet. I don't consider myself to be an entrepreneur in the financial and risk-taking sense but I did consider myself entrepreneurial in the sense of tinkering with thoughts and concepts. That's what attracted me to Enviu. 10 years or more down the line and it all came together. I'm interested in innovation and creativity. How many times do you get the chance to go and develop new organisations? In parallel I've always stayed connected to a university and at the moment that is with Delft in the form of a PhD.
You’re involved in a range of interesting social business initiatives. Could you please tell us more about those which are delivering positive social impact and how you work with them? [4:41]
I'll tell you about the first one and the most recent one. The first one that we started was called Sustainable Dance Club and it's now called Energy Floors. The breakthrough thought was, 'what if we could capture energy of people dancing in the floor and power part of the club with that?' It seems obvious now, but at that point it didn't exist at all. Even more so, sustainability in the leisure (dance club) sector was non existent. In that sense it makes it a good example of how sustainability can be made to be cool and by doing that, open up the concept to a range of people that normally don't relate to that. We're talking 10 years ago, so at that point sustainability was more niche.
It is a good example of what I call the 'turn it on' mentality. Whereas a lot of sustainability speak is about reducing or using less, it's part of the 'turn it off' mentality (for example the light switch). I'm not convinced that this is the mentality that will create a critical mass. You want to create positive energy literally and figuratively. [Wouter explains more detail.]
The other example is one of our most recent ventures in Ghana which provides a way for people to put away money at times when they don't have economic income, for example during retirement. The social safety net in terms of family is eroding and so we started something called 'micro pensions.' That has been an exciting and long journey because in part we've had to create a system change in Ghana because this group was not served, saving was not popular, inflation rates were high etc. That venture has now started. The exciting part is that we foresaw that this was going to be relevant in more countries so we set up a 'social multinational' structure. So we can replicate the essence of that model to other countries and apply contextual variations, independent of what the venture in Ghana is doing. This way the entrepreneur in Ghana can focus on making their venture successful, in Ghana itself.
Normally scaling (especially social ventures) depends on the initial entrepreneur and their team and that can slow down scaling a lot.
That's part of our strategy on how we hope to create impact on a large scale.
What are some of the biggest challenges you’ve seen purpose-driven startups face and how did they navigate around them? [9:20]
As a sideline remark, you hear the terms 'purpose-driven' and 'mission-driven' and everyone sort of knows what that implies, but technically you could say that any company has a mission and purpose; maybe it's not a very social purpose. It implies distinction but it can also be confusing.
Coming back to your question, the first point is very basic and banal, and that's cashflow. In workshops I give about social entrepreneurship I use an abbreviation: CFIMITYM; Cash Flow Is More Important Than Your Mother. I always say, 'don't take this literally!' But it's something that is often underestimated. More so with social entrepreneurs because maybe they think, 'I have a social mission so someone will help me out financially and the banks will be easier on me.' That's simply not the case.
Just as lack of cashflow is a reason for failure for 8 out of 10 startups, it's the same for social startups.
I would say that social enterprise needs ideology and business acumen. Generally the ideology is fine, but the business acumen varies. It doesn't matter; no one can have everything on board themselves, but be aware of it. On your startup team, make sure that both elements are covered and that the there is still enough overlap for the people with different skill sets to talk and work together.
The third is the talk of impact - impact companies, impact investors etc.
There is still a lot of noise about what impact is and how you should prove it, measure it etc.
Your vision of it and the way you deal with it is relevant to how you will develop. Whereas entrepreneurs typically look for investors, consider that there are different types of funding available and the type of funding that is right for you often depends on the stage of your development. There is nothing wrong with getting subsidies and grants especially at the early stage.
If you can generate your own revenue sooner rather than later, all the better.
Getting all of this right is the challenge.
What are the biggest changes you’ve seen in the social enterprise sector in the last 5 years and where do you see social enterprise heading into the future? [13:20]
10 or 15 years ago the term 'social entrepreneur' (at least in the Netherlands) didn't exist. It had a bit of an image of being 'hippy' like and the 'social' part had more emphasis than the 'entrepreneur' part.
In general you see social entrepreneurship becoming much more mainstream. Even in multinationals. It used to be just talk, but times have really changed, especially in the last five years.
What are the biggest changes you’ve seen in the social enterprise sector in the last 5 years and where do you see social enterprise heading into the future? [13:20 continued from below...]
It's positive because it means that there is much more open-mindedness for entrepreneurs with a social mindset. If you look at it cynically, it's also making it more difficult for 'real' social entrepreneurs because so many more companies are claiming to do socially responsible and purposeful things, so where is the distinction? That causes what I call 'positive friction.' And I use that term to say that...
If everything is smooth sailing, you're probably dreaming.
It's a constant exploration as everyone sees what place they'll take in this landscape.
What advice would you give to someone who is looking to get sustainable funding for their initiative? [15:35]
Many entrepreneurs might secretly be going for the big bang investment, but I usually say that this can also lead to a big burst disappointment. You need to be realistic in your assessment as to whether you want to chase a big investment at a certain time or go for it later.
It's really about the right type of funding at the right time. It's more important to get that right than going for the one type of funding that will remain with you for eternity.
In the end, it's about whether you are providing something that is so valuable that you get a sustainable and hopefully growing customer base, because that is what the most sustainable funding is about. People paying for what you provide.
How can organisations best structure themselves to keep the right culture alive? [17:10]
Structure and culture to an extent go hand in hand. A culture is not a given anyway, but you might have some DNA that you want to safeguard.
In recruitment, really pay attention to getting insights into the motivations of the people that join. In Enviu, we have learnt that the actual expertise in the study background, may matter less than the type of person you get in.
That's almost impossible to get out of CVs and LinkedIn profiles. So that require face to face communication and giving people enough opportunities to paint their picture and derive from that whether they are suitable for your team.
Especially with growing organisations, there is more attention to efficiency. That sounds good, but it also has downsides and risks. There is a certain need for redundancy. Especially in social enterprise and related to culture, the element of relevance, 'is what you are doing relevant?' may be more important to ask than to a regular company. Social enterprise needs to keep reflecting on its relevance and this is more culture related than structure related.
Prevent having 'islands'. A culture is formed by the connections between people. It doesn't mean that people need to work in the same way, but they need to feel connected and islands are not connected. Make sure that you are putting effort into that.
Are there any particular tools you use which have proven to be invaluable in the development and daily running of your different projects? [19:55]
We use an applied form of lean startup. We have some tools, but you have to be careful about the tools. Especially in the line of work that we do, you really have to use your own judgement and experience and rely more on discussion with others and analysing that, than relying on set tools. If we use tools, it's more in the form of lists of questions we need to ask, than checkboxes.
From my point of view, my main view is don't rely on tools alone. Building an enterprise is not mathematics. In a way things will be the same to other enterprises, but they'll also be different so don't over rely on tools.
What other inspiring projects or initiatives have you come across recently which are creating positive social change? [21:57]
Every day, I find examples that are inspiring. Close to home in Rotterdam there is Blue City 010. It is based in what used to be a tropical swimming pool. A long story short, it's now the hotspot for blue economy entrepreneurs. [Wouter explains in further detail.]
Another one is called Ghana Think Tank. What they do is connect groups of people in emerging economies (bicycle repairmen, market salespeople, nurses etc) and connect them to stakeholders in developed economies that have a problem. [Wouter provides more details about the project and why he likes it.]
I saw an article of an initiative in Yemen, where women have become involved in using bicycles; where women don't have much freedom to move around and where there is less and less gasoline available. [Wouter explains how he was inspired by solving this mobility shortage and how the women responded.]
To finish off, what are the top 3 books you’d recommend to our listeners? [25:33]
[Wouter talks about the books listed below. He thinks Guy Kawasaki is an excellent presenter. He talks about books mainly related to innovation and an example that uses simple concepts to explain what it is about.]
Based on experiences of a former colleague who started a company that didn't work out. One thing he said was that...
you have to be very wary about taking advice from people who don't have skin in the game.
Without them either, investing or shareholding or having financial or reputation skin in the game. It's very easy for me to say these things, so I'm saying feel free to do anything with what you've heard today but also realise that I could be wrong 100% of the time!
- The Art of Start by Guy Kawasaki
- Small Giants: Companies that Choose To Be Great Instead of Big by Bo Burlingham
- Where Good Ideas Come From: The Natural History of Innovation by Stephen Johnson