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In the field of social entrepreneurship we can often learn as much from failure as from success. Which is why last week’s announcement of the closing of the The Hoop Fund — once called the “Kiva of Fair Trade”— is both a time for mourning and a teachable moment.
The Hoop Fund was built on a truly innovative premise: Allow consumers to purchase premium goods from small businesses in the developing world, while simultaneously supporting those businesses with microloans.
Unfortunately, the model didn’t pan out. There were likely many factors that brought about the company’s end, but CEO and Co-founder Patrick Donohue highlighted the core one in his farewell announcement: “Recently many of our brand partners confirmed that microloan projects + product deals are very difficult to market and there’s a high-level of education required for purchase.”
First, I’d like to point out that The Hoop Fund did several things right, namely: Creating a model with both social outcomes and business returns for the donors; integrating social network-like functionality into its website to encourage sharing; and executing beautiful, confident design. I also commend them in using this opportunity to help others learn, as they will be posting lessons learned on their blog in the coming weeks: www.jointhehoop.com/blog.
But Patrick’s statement confirms what many had noted about The Hoop Project—that the model suffered from critical gaps in marketing strategy, which made it almost impossible to achieve scale. There are several lessons for social entrepreneurs here:
Sell products where customers are looking for them
People buy clothes because they need or want them, not because they want to make a social impact. Which means if we want to get clothes to market, and don’t have a dedicated customer base yet, we should focus on the outlets people go to when they have those needs: Amazon, Zappos, Etsy, Google Checkout. Social entrepreneurs who want to attract a customer base to a new website have their work cut out for them—why not meet your customers where they’re already spending money?
“Feel good” cannot be the entire value proposition
One thing we’ve learned in measuring consumer behavior as it relates to a “feel good” value proposition is that the link is light and limited. Social impact can enhance the value of a product, but it can’t be the entire value proposition. Customers are more likely to buy a product that has a social benefit over one that doesn’t, but only when price, quality and convenience are at or near parity. If social entrepreneurs want to achieve scale, their value propositions needs to be rooted in price, quality and convenience, with social impact as an enhancer.
Market product attributes
I first came into contact with The Hoop Fund at a conference in 2010. I had left my laptop bag at home and was in need of one to get me through the rest of my trip. This being a social entrepreneurship conference, I found a small shop run by The Hoop Fund, which was selling laptop cases made entirely of trash from a developing country. Their marketing was built around the altruistic benefits—that I could feel good and be part of a movement if I bought this bag. As I explored the product further, I noticed it had all the attributes I needed—impeccable quality, durable, stylish. Yet none of those attributes were promoted by the company that was selling it. The lesson here for social entrepreneurs is simple: Market to your customers’ needs and wants.
If we want to build sustainable enterprises, social entrepreneurs must be businesspeople first. And that means thinking like a business. The end of The Hoop Fund is both a loss for the remarkable entrepreneurs they supported and a valuable lesson for others seeking to bring about similar social change.
This blog post originally appeared in Next Billion.