{"id":3801,"date":"2022-03-25T15:04:33","date_gmt":"2022-03-25T15:04:33","guid":{"rendered":"https:\/\/www.ceo-worldwide.com\/blog\/?p=3801"},"modified":"2025-05-08T09:57:14","modified_gmt":"2025-05-08T09:57:14","slug":"seven-characteristics-of-a-highly-successful-social-business","status":"publish","type":"post","link":"https:\/\/www.ceo-worldwide.com\/blog\/seven-characteristics-of-a-highly-successful-social-business\/","title":{"rendered":"Seven Characteristics of a Highly Successful Social Business – by David Babington-Smith"},"content":{"rendered":"
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Introduction<\/u><\/h3>\n\n\n\n

Would your board like to transform your social business from average <\/em>to highly successful<\/em>? Are you unclear what this means in practice?<\/p>\n\n\n\n

First, some quick definitions and caveats<\/u><\/h3>\n\n\n\n

This paper is aimed at boards that wish to build an enduring <\/em>business for the long-term. By considering research which scans decades rather than years, it looks for the innate characteristics that drive long-term, sustainable out-performance rather than luck or just good timing.<\/p>\n\n\n\n

This paper does not seek to provide an A-Z of setting up a business \u2013 with topics like product, pricing, timing and strategy. Rather, it summarizes the characteristics which mark highly successful businesses as different to companies which are merely good or average.<\/p>\n\n\n\n

An additional challenge \u2013 Riding Two Horses<\/u><\/h3>\n\n\n\n

Social businesses are a relatively new phenomenon. Unlike businesses that seek to provide a socially beneficial product or service at scale (ethical businesses or low-cost providers<\/em>), social businesses are expected to ride two horses at once.<\/p>\n\n\n\n

Typically, up to half their budget comes from grants or donations. From this they are expected to give away products and services for free, or at a highly discounted rate. The balance of their budget \u2013 potentially in excess of 75% – needs to come from selling goods and services with a commercial return and in a commercially competitive environment. Not surprisingly social businesses are more complicated and harder to manage. A study by McKinsey1<\/sup> shows that that although they are less likely to fail in early years, they are significantly less profitable, grow less quickly and are less scale-able than commercial businesses. Furthermore, approximately half do not collect data on social impact for their grant funders and investors \u2013 principally because they don\u2019t know how to collect data or because they have no money to pay for it.<\/p>\n\n\n\n

Does this mean that social businesses cannot become great? Are they are condemned to a future of low growth, low performance and mediocrity?<\/p>\n\n\n\n

Seven identified characteristics<\/u><\/h3>\n\n\n\n

This paper attempts to outline a potential way forward. It synthesizes what we know about the performance of social businesses from the McKinsey report and other sources, together with the characteristics of what exists within truly great commercial companies2<\/sup>.<\/p>\n\n\n\n

Intriguingly the results are very similar.<\/p>\n\n\n\n

Being great is not for the cautious. It takes leadership, focus and clear decisions. If you want your social business to be great, these are the characteristics your board will need to adopt.<\/p>\n\n\n\n

1. Your level of Ambition<\/h2>\n\n\n\n

\u2018Greatness means you stand out above the crowd. Do you want this?\u2019<\/em><\/strong><\/p>\n\n\n\n

Good is the enemy of great. For example, why are there plenty of good schools but so few truly great schools? Ultimately being great is about being the best in your sector. It means showing ingenuity, being willing to take risks, doings things differently, wanting to go the extra mile. If you don\u2019t aspire to this leadership, you won\u2019t get there.<\/p>\n\n\n\n

Research shows that whilst its statistically rare for organization to achieve greatness, it does not require more work or suffering than achieving mediocrity.<\/p>\n\n\n\n

Indeed, the beauty of research shows that it requires potentially less work and can radically simplify our lives whilst increasing our effectiveness.<\/p>\n\n\n\n

1.1 Set the aspiration<\/h3>\n\n\n\n

If you wish to your business to become high performing it needs to start with a conscious decision; \u2018Yes, we want to go down this road\u2019<\/em>.<\/p>\n\n\n\n

Once the decision has been taken at board level, then the pursuit of excellence has to permeate every aspect of interaction, decision making and action at every level of the organization. Everyone is united in the common aim.<\/p>\n\n\n\n

1.2 Define your ambitious social impact metrics<\/h3>\n\n\n\n

What metric makes you better than others?<\/em><\/strong><\/p>\n\n\n\n

If social businesses are about creating a social impact then this ultimately needs to be measured. To qualify as a great social business your results need to be better <\/em>than peer institutions.<\/p>\n\n\n\n

For example, the metrics for a school might be higher exam pass rates, perhaps even more impressive by demonstrating that the children predominantly come from poor families. For a green energy producer it might be higher carbon offsets than rival providers. For a museum it might be higher visitor numbers.<\/p>\n\n\n\n

Good impact data can help secure additional contracts and grant income, fueling further growth. Increased visibility also helps attract more entrepreneurial and technical talent. Everyone wants to work for a winner.<\/p>\n\n\n\n

1.3 Maintain an equal focus on high profitability and growth<\/h3>\n\n\n\n

Avoid the perils of \u2018friendly but lazy money\u2019<\/em><\/strong><\/p>\n\n\n\n

Great social businesses also <\/em>need to be explicit <\/em>about aiming for superior profitability and growth. After all, this will pay for achieving your above-average social impact targets. In the long-term it is also necessary for you to sustain excellence \u2013 retaining competent staff, continual product development and further growth.<\/p>\n\n\n\n

An example is a UK chain of schools. It achieves above average profitability by highly inventive and cost-effective use of classroom space, staffing schedules as well as other cost efficiencies. The cash savings enable it to acquire better and more teachers. Combined with a joint approach of improved classroom discipline this leads to improved academic results and higher student satisfaction \u2013 a virtuous cycle.<\/p>\n\n\n\n

The challenge of many social businesses is that they lack this drive. This is often because they start with concessionary finance such as grants, donations or soft loans. There is rarely a commercial investor pressing for a high return on investment, excess cash generation or ambitious scale growth and so they don\u2019t plan for it or feel any need to stand out above the crowd.<\/p>\n\n\n\n

The board needs to step in and ensure this attitude stops. The discipline and rigour of growth and profitability is essential3<\/sup>.<\/p>\n\n\n\n

1.4 Create a simple dashboard<\/h3>\n\n\n\n

If you don\u2019t keep a keen eye on this, you will likely fail<\/em><\/strong><\/p>\n\n\n\n

This is typically a one-page summary of KPIs around financial metrics and impact measurements. It provides the key data for the board on whether management is on track to achieve targets.<\/p>\n\n\n\n

Like an athlete in training you need to be continually on top of all the data sets, and the drivers of data that contribute to top-level performance.<\/p>\n\n\n\n

2. The company is the ultimate creation, not the product<\/h2>\n\n\n\n

The vast majority of companies with truly exceptional performance over the long-term do not derive their success from discovering a \u2018killer product\u2019 from inception. Instead, they build an engine which constantly turned out new killer products.<\/p>\n\n\n\n

Indeed, some of the most successful companies in the world ditched their initial products and under-went a long process of trial and error to find the right one. In turn-around situations with mature businesses, the highly successful ones also typically took up to four years to discover a sustainable long-term path to greatness.<\/p>\n\n\n\n

If you equate the success of your company with the success of a specific idea then you are more likely to give up if that idea fails. Or if it succeeds you are more likely to have an \u2018emotional love affair\u20194 with that idea and stick with it too long, when you should be moving rapidly to other things.<\/p>\n\n\n\n

The essence of a highly successful company which survives in the long-term is one that it is able to translate its core ideology and ambitious goals into the very fabric of the organization \u2013 its goals, strategies, tactics, policies, processes, cultural practices, job design – into everything the company does. This means there is constant innovation and improvement. To use a well-known phrase, it means you are creating a company that \u2018builds clocks\u2019 rather than one which just \u2018watches clocks\u20195<\/sup>.<\/p>\n\n\n\n

For the board this means spending less time thinking about specific product lines and strategies and more time on organizational design. Is the quality of people high enough? Is there a unifying vision? Are there systems and processes in place that continually stress test strategy and profitability as well as incentivize innovation? Do you have a system to manage KPIs and are you monitoring the correct KPIs?<\/p>\n\n\n\n

Board\u2019s don\u2019t need a highly charismatic CEO to achieve all this. In fact, research shows that charismatic CEOs are negatively <\/em>correlated with high performing businesses. But you do need exceptionally able CEO and senior management team, which brings us to the next characteristic.<\/p>\n\n\n\n

3. Don\u2019t compromise – get the right team in place<\/h2>\n\n\n\n

\u2018Do we have a management team that can drive performance and growth?\u2019<\/em><\/strong><\/p>\n\n\n\n

All the literature agrees that having the right people is key. This means the board needs to ensure that not just the CEO but also an effective senior management team is in place.<\/p>\n\n\n\n

3.1 Hire the right people FIRST<\/h3>\n\n\n\n

It is essential not to skimp on hiring the best people. Don\u2019t compromise when hiring. If you\u2019re not confident then keep looking.<\/p>\n\n\n\n

Great companies will sometimes prioritize hiring great people even before deciding strategy.<\/p>\n\n\n\n

In a business start-up, good investors will ask probing questions on the quality of the founding team. If the team is incomplete, unbalanced or clearly weak they will typically walk away.<\/p>\n\n\n\n

3.2 Deal with or remove the weak performers<\/h3>\n\n\n\n

If you have the wrong people in place you won\u2019t get proper execution. Expect a litany of delays, conflict, things going wrong, endless excuses. If you are constantly worrying about how to manage someone, you may have the wrong person in post. Always be willing to give someone the chance to change but if they can\u2019t or won\u2019t, then act quickly.<\/p>\n\n\n\n

High performers are obvious and they will make a difference quickly. The CEO won\u2019t need to spend much time motivating them or keeping them focused. Furthermore, there is no systematic data to show that specific forms of compensation are correlated to performance. If you hire the right people they will motivate themselves6<\/sup>.<\/p>\n\n\n\n

3.3 Have a CEO that is collaborative, hard-working and conscientious<\/h3>\n\n\n\n

The majority of CEOs of companies that transformed from \u2018good\u2019 <\/em>to \u2018great\u2019 <\/em>were self- effacing people with a fierce resolve to do whatever was needed to make their company great. They had an incurable need to produce results. It is not that they lacked ego or self- interest, its rather that their ambition was more for their institution than themselves7<\/sup>.<\/p>\n\n\n\n

Despite the stories of mega CEOs being parachuted in to transform businesses, research shows there is actually a negative correlation of larger than life <\/em>CEOs taking a business from \u2018good\u2019 to \u2018great\u20198<\/sup>.<\/p>\n\n\n\n

Whilst it is true that a charismatic CEO can effect a rapid change in share price and performance, all too often this will be followed in subsequent years by a disappointing decline. In Collins study, in three quarters of comparison companies, CEOs set up their successors for failure or chose weak successors or both.<\/p>\n\n\n\n

The key to long-term greatness is the senior management team and the processes the CEO sets up with them, which brings us to the next key point.<\/p>\n\n\n\n

3.4 Strong Generals not Weak Lieutenants<\/h3>\n\n\n\n

There is an old Business School adage that CEOs should hire people who are smarter than themselves.<\/p>\n\n\n\n

Lively and prolonged debate between gifted senior managers invariably leads to better decision-making than and this requires strong generals not weak lieutenants. A classic example is Wells Fargo Bank in the USA. As it became clear that impending new regulation in the USA was about break up the old profitable banking models, Wells Fargo deliberately went on a hiring spree to recruit outstanding people. This was before <\/em>the CEO knew what the new regulation was going to be and therefore what his new strategy ought to be. When the changes finally came the financial impact was brutal. This sector of the banking market fell 59% below the general stock market.<\/p>\n\n\n\n

However, Wells Fargo outperformed the market by over three times<\/em>. Why? Because the Wells Fargo team acted as equal partners, ferociously debating in the search for the best answers.<\/p>\n\n\n\n

As a result, they came up with the smartest strategies. Competitors like Bank of America had weak lieutenants who would just wait for directions from on high. Strategy was ill informed and poorly thought through. As a result, their profits and share price was hit accordingly9<\/sup>.<\/p>\n\n\n

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\"Successful<\/figure>\n<\/div>\n\n\n

4. Find your passion and do it exceptionally well<\/h2>\n\n\n\n

\u2018Transcending the curse of competence\u2019<\/em><\/strong><\/p>\n\n\n\n

Just because something is your core business, and perhaps you\u2019ve been doing it for years, does not make it the right thing or does not mean you can be the best in the world at it. To be truly successful your board and management need to find one thing you can do better, faster, or cheaper <\/em>than anyone else.<\/p>\n\n\n\n

Truly great companies do one thing exceptionally well and stick to it. They don\u2019t waste time and money on unrelated activities and acquisitions. Jim Collins calls this the hedgehog <\/em>process and it creates a virtuous cycle of profitability and growth. The hedgehog spikes protect you against constant attacks from competitors (the foxes) so that no one can actually match you on performance and passion.<\/p>\n\n\n\n

For a board simply to have a strategy per se is not an indicator of greatness. Indeed, there is no evidence that great companies spend more time on long-range strategic planning than good ones.<\/p>\n\n\n\n

4.1 What can you be the best at \u2013 but only within your area of passion?<\/h3>\n\n\n\n

Great companies do not just focus on what to do, they focus equally on what not to do <\/em>and what to stop doing<\/em>10<\/sup>.<\/p>\n\n\n\n

If you cannot be the best in the world in your core business, then your core business can\u2019t form your hedgehog concept. Once you have found this then stick to it, don\u2019t divert. Be ruthless. Sticking to your hedgehog concept does not restrict growth, rather it ensures that growth is only within profitable spheres and that when this happens it is more likely to be exponential than incremental.<\/p>\n\n\n\n

Curiously research also shows that great companies are typically not in great industries. Some are in terrible industries but they still thrive and outperform11<\/sup>.<\/p>\n\n\n\n

Finding what you are best at is likely connected to what you are passionate about. In seeking this out don\u2019t ask \u2018what should I be passionate about\u2019 <\/em>but \u2018what am I passionate about<\/em>\u2019. When passion is excited you are in flow and things become easier and clear\u2026<\/p>\n\n\n\n

Another approach is to ask yourself what work makes you feel compelled \u2018to try to create greatness<\/em>\u2019? If you have to ask \u2018Why should we try to make it great? Isn\u2019t success enough?\u201d then you are probably engaged in the wrong line of work!12<\/sup><\/p>\n\n\n\n

4.2 Reach for the stars, push yourself<\/h3>\n\n\n\n

No athlete won a race by aiming to come second. High performing companies deliberately set ambitious goals that are unambiguously do or die.<\/p>\n\n\n\n

These goals are sometimes called \u2018Big Hairy Audacious Goals\u2019 (BHAGS). They are designed to excite staff to achieve the almost impossible. They are simple but profound. People \u2018get it\u2019 right away; it takes little or no explanation\u2019, and the purpose of the BHAG is to engage staff and drive them to go the extra mile\u201913<\/sup>. <\/p>\n\n\n\n

Examples of BHAGs include:<\/p>\n\n\n\n