Moving Early-Stage Social Enterprises from Proof of Concept to Scaling
Viitor Plus, a social enterprise in Romania that produces environmentally friendly shopping bags to educate consumers about conservation, faced a dilemma when contemplating its growth strategy. To multiply its impact, the enterprise wanted to reach as many consumers as possible by ramping up production. At the same time, the board of directors was committed to employing at-risk employees who had only partial access to the job market. This caused incessant production challenges, as employees were limited by the tasks they could perform and number of hours they could be on the job.
Viitor Plus’s challenges are not uncommon for early-stage social enterprises (which we define as entrepreneurial, self-sustaining activities designed to solve critical social problems) wanting to scale their impact. Preparing a social enterprise for scaling comes with a host of implications ranging from the development of the appropriate vision and strategy, design of an adequate governance structure, balance of impact and business model (as in the case of Viitor Plus), and attraction of the right funding mix.
In our more than 15 years of supporting the growth of social enterprises in emerging market countries, we have provided $8 million in technical assistance and financing to 130 early-stage social enterprises. We have mapped out our vast experience, the broader landscape, and best practices for supporting social enterprise growth in our new book, Social Enterprise in Emerging Market Countries: No Free Ride (Palgrave Macmillan).
In this three-part blog series for SSIR, we outline lessons from the book to move social enterprises from proof of concept to scaling, a process we call first-stage scaling, as it is the first true attempt of the enterprise to grow or replicate.
Lack of definition around social enterprise scaling
We found that scaling has a wide array of meanings that are often the topic of heated debate. For some, scaling may mean adoption of the model in public policy; for others it may mean large societal impact through behavior or cultural change; and still for others it may mean reaching a specific number of beneficiaries or enterprise revenue level.
In our experience, scaling is a gradual process that happens over many years. As TechSoup co-CEO Daniel Ben-Horin noted, it is not uncommon to see social enterprises needing at least 5 years, and more often 8 to 10, to scale. It is important to understand how we can support social enterprises to succeed during that lengthy process.
This blog series addresses one aspect of scaling—first-stage scaling—and specifically how to prepare enterprises to approach first-stage scaling and succeed. The emphasis on first-stage scaling is significant: An enterprise that has incubated its operations for two or three years and has a demonstrated proof of concept will not be able to scale with its current governance, team capacity, and financing. Scaling requires the careful design of an appropriate first-stage scaling strategy, which leads to the right model and puts the enterprise on course for large impact.
The figure above depicts the positioning of first-stage scaling in the enterprise development process. During this phase, social enterprises evolve their model to grow within their communities and/or replicate from one community to a select number of additional ones. This process leads to significant increases in the level of impact and activities compared to incubation, typically in the order of magnitude of four of five times. While this growth is impressive, it does not meet the exponential growth definition of typical scaling initiatives reaching hundreds of thousands or even millions of people. Nevertheless, first-stage scaling is a pre-condition to reaching these higher numbers.
The path to scaling requires approaching the process in stages, as social enterprise offerings are adapted to new users and/or new products are developed to reach the same users. Moving too quickly to reach very high beneficiary numbers can be detrimental in cases where the beneficiary group requires training to use the product.
Preparing for first-stage scaling
Social enterprises need to have a number of elements in place to become ready for first-stage scaling. There is a set of readiness factors and best practices that are fundamental, and the greater the degree to which these are in place, the greater the capacity and readiness of the enterprise to move toward their first growth strategy.
- First, the social enterprise must have great leadership and vision. The need for a strong, capable leader committed to scaling is probably the fundamental driver of first-stage scaling success. The vision for scaling should be shared internally, among leadership, staff, and board.
- Second, the enterprise needs to be performance-driven. We like to have at least two to three years of data to make an assessment of an enterprise readiness for first-stage scaling. That track record needs to demonstrate increasing sales (and preferably profitability), and perhaps more importantly, it needs to show that the enterprise has created the impact it set out to accomplish.
- Third, a scaling opportunity and interest must exist. While this may seem obvious, sometimes what looked like a viable market during incubation may not be enough to sustain the business to grow. In our process, we ask social enterprises to develop two business plans within their first four years in our portfolio: initially a startup business plan to map out the idea and first five years of the business, and later a scaling business plan that demonstrates the market need and demand for first-stage scaling for years four through eight of the business.
Balancing impact and business performance
Preparing for first-stage scaling can be daunting—particularly balancing impact and growth. Some enterprises have costly social programs that involve training clients, and it is important to decide how much of those programs should be included in the scaling strategy, and what should be separated out or perhaps streamlined.
In Peru, La Casa de Panchita trains and provides employment for low-income, migrant domestic workers. During incubation, the business created more than 1,000 fair-paying jobs for low-income women, showing a great potential to change practices in a country where an estimated half a million people work in this sector. La Casa de Panchita trains domestic workers before placing them with employers, and this training is required to supply domestic workers who match the specific expectations of prospective employers. As part of its first-stage scaling process, the enterprise reduced the length of its core training from one week to two days, which allowed facilitation of placements without losing the quality of training, and gave flexibility to many women who prefer to participate in a core curriculum and continue with additional training in the future. Now that the business model is efficient, La Casa de Panchita can grow to other cities in Peru and eventually the rest of Latin America.
Part two of this series analyses the implications of first-stage scaling on social enterprises by looking closely at how to manage leadership and team issues, governance and legal structures, and the enabling environment.