Moving Latin American Social Entrepreneurs to Scale

At an international conference earlier this year, one researcher complained, “I can’t find a single example of an excellent social entrepreneur in Latin America.”

In fact, there are many excellent entrepreneurs in Latin America, including fellows of Avina and Ashoka, the two leading supporters of social entrepreneurs in the region.

But the critique also holds a grain of truth. Information about Latin American social entrepreneurs—especially the extent of their impact—has been hard to come by. Despite producing many stories and cases, researchers have lacked concrete, statistical insight into this “species” of entrepreneur and its respective initiatives, particularly those in emerging regions—until now.

Over the past three years, VIVA—established by Stephan Schmidheiny, founder of the World Business Council for Sustainable Development (WBCSD), to provide guidance on achieving business sustainability goals—has executed an annual survey in collaboration with the Costa Rica- and Nicaragua-based INCAE Business School to analyze social entrepreneurs in Latin America.

In this article, we refer to data from the 2014 report, which is based on a survey that generated responses from 350 Latin American social entrepreneurs from 19 different countries.  According to our results, a high percentage (78 percent) of these social entrepreneurs served less than 1,000 beneficiaries and focused on a narrow territorial reach—bad news in terms of impact. The good news, however, was that the majority intended to scale their initiatives in the future. Thus, we analyzed whether or not these entrepreneurs were truly prepared to scale.

Leading Initiatives to Scale

It sounds simple enough: Scaling allows entrepreneurs to serve a greater number of beneficiaries through the accomplishment of their social mission, mainly through collaboration with others and being part of an ecosystem. But increasing the impact of an initiative is a highly complex endeavor. In Latin America, it seems that social entrepreneurs are prepared for the task—but the initiatives they lead are not.

Initially, we expected that the majority of the entrepreneurs surveyed wouldn’t have higher than a basic education level, in part because just 10 percent of Latin Americans ages 25-29 have university degrees (UNESCO, 2014). Our hypothesis was incorrect. We were astonished to learn that at an average age of 34 years, 77 percent of the respondents held university degrees, 22 percent of which had a master’s or doctorate degree. This indicates that Latin American social entrepreneurs have the intellectual capacity to face the challenges of scaling. The survey also showed, however, that their respective initiatives possessed both strengths and weaknesses in relation to this goal.

Strengths of Latin American Entrepreneurs

A diverse set of strategies: All of the social entrepreneurs who responded to the survey implemented their initiatives and/or innovations through continuous experimentation. This helped them identify strategies that best fit their mission and is a useful learning approach when searching for scaling strategies.

Diversification of economic risk: 65 percent of survey respondents had more than four sources of income. The most common included membership fees, the sale of products and services, and donations. Hence, whether intentionally or not, these entrepreneurs were diversifying their economic risk.

Use of online tools for scaling: 88 percent of respondents used online tools such as Facebook to promote their initiatives. This favors scaling strategies, as these are essential platforms for communicating an initiative’s mission, particularly in an international arena.

Execution of accountability practices: Respondents demonstrated positive accountability practices through the use of accounting software (62 percent). However, impact reporting (39 percent) is an accountability practice that isn’t as strongly adopted by the initiatives as the accounting software. As scaling implies changes within the initiative, accountability is an important practice for legitimizing scaling to stakeholders.

Weaknesses of Latin American Entrepreneurs

Collaboration with only local-scale initiatives: Respondents affirmed that the stakeholders most important to the success of their initiatives were individuals (21 percent) and local organizations (14 percent). Thus, many entrepreneurs were missing the opportunity to collaborate with other actors, such as governments, international organizations, and established entrepreneurs who generate large-scale impact.

Lack of scalable economic resources: 73 percent of respondents felt that the most significant barrier to scaling their impact was an acute lack of economic resources. This has consequences—44 percent reported that they did not generate any paid employment opportunities, and only 10 percent employed more than 10 professionals. It is difficult to imagine significantly scaling impact without increasing the quantity of paid staff.

Use of metrics focused on the number of beneficiaries: 66 percent of respondents declared that their metrics were based on the number of beneficiaries served. They used no metrics to measure the success of scaling, such as indicators to show the effectiveness and efficiency with which their business model was multiplied.

Decision-making focused on the social entrepreneur: Although 87 percent of respondents represent formally registered initiatives, only 52 percent have a board of directors. The lack of a board typically correlates with a decision-making model focused on the social entrepreneur. This likely hinders scaling, because entrepreneurs must effectively delegate responsibilities as the initiative grows.

Focusing on Strengths

Latin America is composed of emerging countries, often with badly functioning governments and market institutions. Social entrepreneurs emerge, therefore, as important actors for strengthening social progress. Nevertheless, poverty, inequality, the complexity of managing megacities, and other urgent challenges in the region are vast, and these large-scale problems require large-scale solutions. Social entrepreneurs possess, according to our survey, scaling intentions that could meet these challenges. But their initiatives lack the appropriate structures, strategies, and focus to deliver concrete solutions to the problems they intend to tackle. The results outlined above invite Latin American social entrepreneurs to rely on their strengths to overcome these weaknesses in four different areas: strategies, financing, metrics, and accountability (see figure below).

 

As the table shows, effective social entrepreneurs collaborate with large-scale initiatives. Although diversification of revenue sources reduces risks, they create a financial strategy to get access to bigger investors. The use of online tools creates opportunities to measure scaling more effectively and efficiently, and finally, constructing a board of directors helps in leading highly complex challenges when the initiative scales.

Scaling is a challenge anywhere in the world. In emerging countries, however, it is all the more urgent. This framework for preparing for scaling is drawn from statistical data regarding Latin American social entrepreneurs and aims to serve as reference for social entrepreneurs in the region who wish to scale their impact. 

Read more stories by Felipe Symmes, Arturo Rodriguez & Urs Jäger.