Of the 13 publicly traded technology companies worth more than $100 billion, six are headquartered in Silicon Valley. Yet as models for nonprofits seeking to scale up quickly, the lessons we can glean from them aren’t so much about geography, local cultures, or even stunning technology. Rather, they are about blazing-speed business model innovation—a process my co-instructors and I call “technology-enabled blitzscaling” in the class we teach at Stanford.
You could argue that nonprofits are fundamentally different from for-profits when it comes to scaling—that they don’t face the same competitive pressures and potential for massive investment (and returns). They do, however, sometimes face the need and have the opportunity to scale up rapidly. Think about the following examples:
- A sudden, major event in the world (such as a natural disaster or unexpected election result) causes donations to flood in to an organization at an unprecedented scale, requiring a massive, immediate response.
- An organization receives a philanthropic “big bet” to significantly expand its efforts (such as George Soros’ $100 million gift to expand Human Rights Watch into the developing world in 2010, or UK Department for International Development’s £12 million investment in Camfed, which allowed it to quadruple the number of destitute girls it supported to attend school in Zimbabwe).
- There is some massive need, and an organization hits upon a business model (such as microinsurance) that can solve it at scale and can grow rapidly.
- An organization builds a platform for social good that requires network effects to be effective, such as the Janaagraha Centre for Citizenship and Democracy’s I Paid a Bribe reporting platform.
Situations like these can open the door to dramatically growing impact in a very short time. But to do so, nonprofits often need a radical new business model or an innovative new approach to scaling their existing one. They also need to be prepared to manage quick growth, and be willing to accept the risk and a lack of efficiency that come with it.
Seeking a better model
So what defines business model innovation? Let’s discuss two examples. The first involves “network effects,” where the value of a network increases with each additional node. Contemporary examples include Facebook with social networking and eBay with online auctions; the more people who use a given platform, the more valuable the platform becomes to each user. Facebook, for example, knew that saturating its first college campuses required that most students were already on board at launch; it made school networks available only after it had enough student requests to guarantee that more than half the campus would be on the system from day one.
A second type of business model innovation revolves around distribution strategy. When Google was a tiny start-up, for example, it struck a deal with America Online (AOL) to take over ad sales on the network by guaranteeing AOL $150 million a year in minimum revenue. It was a huge risk for Google, but it wanted access to AOL’s massive traffic, so it took the chance. Once Google had access to that traffic, it used it to learn and improve its services much more quickly than it could have if it had tried to grow slowly. The nonprofit MicroEnsure similarly found a great way to quickly scale its microinsurance program by working with cell phone companies to provide insurance as an incentive for customers to buy more time on their networks. Rather than incrementally build its own distribution system, MicroEnsure piggybacked on an existing, large-scale system.
Growth from “family” to “nation”
Blitzscaling also requires that organizations change radically at five different stages, which we think of as family (with a handful employees), tribe, village, city, and nation (with tens of thousands of employees). At each stage, organizations evolve new layers of management and lose direct connections between people. Under normal conditions, organizations grow slowly through these stages, giving them time to make adjustments and apply common approaches for managing the growth. But that’s not possible when you’re blitzscaling. During rapid expansion, organizations experience these stages quickly, one after the other, and need to “hack” their way through the challenges as best they can. Instead of tried-and-true rules for growth, organizations need a set of guidelines to help make decisions and learn on the fly.
When PayPal started, for example, the banking industry was driven by the idea of protecting against fraud, which prevented traditional banks from creating anything like PayPal. PayPal’s ignorance of the importance of fraud allowed its team to be far more aggressive with customer acquisition and grow much faster. However, fraud did become a major issue, and the company had to be flexible enough to fix problems on the fly and try new things frequently. Paypal’s willingness to try the unconventional also paid off in other ways. For instance, the banking industry’s average customer-acquisition cost through advertising at the time was around $200. By contrast, PayPal offered customers who recommended a friend $10 and gave the new customer $10, an incentive that expanded the customer base at 90 percent less cost.
Speed trumps efficiency
Organizations also need willingness to sacrifice efficiency for greater speed. In hiring, for instance, a quickly scaling organization may need to get as many people on board as quickly as possible. And a normal hiring process isn’t designed to do that. To use another PayPal example, in early 2000, it was growing rapidly but didn’t have nearly enough customer service capacity. Rapidly building a customer service center in Silicon Valley, however, would have been difficult, so the company convinced the governor of Nebraska and the mayor of Omaha to hold press conferences about how PayPal was going to open a customer service office in the state, prompting a flood of job applicants. For four weekends straight, PayPal sent people to interview the applicants, and within six weeks, it had 100 active customer-service employees.
Even as organizations grow and change, they need to constantly think about the institution as a whole, and consider: How will we allocate and grow talent? How will we communicate? How will our competitive landscape shift? How will we hold on to our culture? No matter how the answers to these questions change, finding innovative ways to scale greater social impact—blitzscaling for good—will always be relevant.
All this may sound daunting, and it is. Blitzscaling isn’t for every business, and it’s certainly not for every nonprofit. But by studying its principles, nonprofit organizations seeking to scale quickly may find answers they might not have otherwise imagined.
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Read more stories by Chris Yeh.