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May 16, 2012

Forget about growth


The transition from being a grant dependent voluntary organisation to operating as a successful community owned social enterprise is something that many aspire to.  But simply trying to embrace business principles while staying true to a defining social purpose is to understate the scale of the challenge. There are certain strands within the DNA of any traditional for-profit company, that some believe need to be eschewed by social enterprises. An obsession with growth for example.




Written by Thien Nguyen-Trung on April 30, 2012 in Social Earth – Entrepreneurship

As a corporate strategy person, I totally get why traditional for-profit companies seek to grow: to make ever more money for their shareholders. Fine. But what I don’t get are social enterprises – however you define the term – when they talk about the “do-good equivalent” of the word “growth”, which is often referred to as “scale”. If the end goal of a for-profit corporation is to make as much money as possible (infinity + beyond $$$), what is the end goal of a nonprofit or for-profit social enterprise?

As a famous person once said: It’s the impact, stupid! And so the discussion becomes, in every single conference since the term “social enterprise” entered the mainstream a decade ago, about how we in fact can scale the impact of such organizations over time.

The interesting question for me is this: why the heck does everyone – from funders and media to entrepreneurs themselves – seem (so obsessively) to equate the scaling of impact with the scaling of the actual organization?

The Myth of the Heroic Company – Why do we care so much about organizational growth?

For one, those of us so excited about social enterprises have usually partially or fully taken our enthusiasm in seeing their traditional corporate counterparts’ success stories unfold, which at best goes like this: start-up, growth, IPO exit, ever increasing growth, world domination. Money and legacy for all. Happiness.

The equivalent dream for social enterprise enthusiasts must have been: start-up, growth, mysterious infusion of more money, mysterious “triple bottom line” business model moving from breakeven to profits, ever increasing growth, global scaling of the mission (feed the poor, provide healthcare, etc.). Honor and Nobel Prize for the founders. Widespread admiration. Happiness.

Now what’s wrong with this picture? For starters, it doesn’t seem to work!

Chasing Credit (is scale = growth?)

To this very day I do not understand why it is the dream of so many social enterprises to not only create the greatest impact but in fact to seek to BE CREDITED for the impact all over the world in whatever field they are targeting. While it is understandable to me why a corporation has a mission to put X brand television in every family’s home in the world, it appears somewhat ludicrous to me why social enterprises, who can barely make money, have the same ambition to be THE de-facto known provider of X social/environmental service to the world.

That brings me back to the idea that we in our culture seem too obsessed with the cult of the individual company reaching its heroic arc and spreading its message/product/service to the world. When we speak about “scaling impact”, we still tend to mean “scaling the company”. When we talk about scaling a company, we talk about how to make it bigger, set up more offices, hire more employees, receive more funding and spread its logo as far and wide as possible. Why are we then so surprised when we realize there’s not enough money (revenues + grants + equity) anywhere to make that dream actually happen (as fast as we’d like at least)?

Reconsidering the Role of Social Enterprises

What if we don’t need large social enterprises to achieve large scale?

Think about it. The role of the social enterprise is to introduce a disruptive, innovative way of achieving social impact in the most sustainable way possible. The role of the social enterprise has never been to become huge while doing so. In a way, think of social enterprises like inventors of new ways of providing energy. They find ways of extracting energy from the most unusual places, maybe even patent the approach, and hope to help many people in doing so. But the same people do not have the means – nor were they ever meant to have them – to transmit and distribute this energy to all those who need it. That is why we call utilities sometimes an “electricity offtaker” of energy produced by any number of providers (coal plants, solar farms, wind mills, etc.).

Question then: why don’t we consider more in the world of social enterprises the role of an “impact offtaker,” which takes existing innovation to scale far and wide, just like utilities do for energy producers?

The Role of the Impact Offtaker

Evaluation Criteria

What properties are important for an impact offtaker? Three come to mind for the right entity to possess.

1. Resource potential – must have lots of money and resources to make the scaling of impact possible

2. Permanency – must be around for a long time (preferably forever) since impact scaling also takes time

3. Mission alignment – must have an institutionalized reason to support social enterprises and not be too susceptible to the vagaries of changing leadership

Finding the Right Entity

Who could be an impact offtaker then, according to the three criteria above? How about…

Foundations? They like social enterprises. They’re around for a long time. Problem is, in order to be around a long time, they don’t like spending much of their money so they can hang around next year and the one after. That limits their ability to offtake or scale much impact.

Corporations? They have lots of resources. They may even like social enterprises. But their shareholders don’t want them go around paying for those things that produce no financial return. As they fight in the bloody market place, they are certainly not guaranteed to be around for the long-term.

Governments? They have lots of resources. They have high alignment with the “social” stuff that gets done. And whether you like it or not – they will be around for a very long time in most countries.

Key Objections to Government as Impact Offtaker

What are you already scared about as we consider governments as our preferred impact offtakers? Let me guess.

1. Inefficiency – bureaucracy, corruption or sheer lack of coordination/motivation capabilities risks poorly translating the brilliant models devised by social enterprises

2. Volatility – political vagaries and whims subject any program to risk of being downsized or even eliminated after every election cycle

3. Control – fear of losing control over program design and execution once a carefully developed change model is “given” to “Big G” to scale

In Favor of Passing the Baton

The idea of impact offtakers is a big one, and cannot be fully addressed in its complexities in a single post. Clearly, objections can abound and be legitimate reasons to fear the involvement of government. Nonetheless, I cannot see how continuing distrust and focus on making our tiny social enterprises a bit bigger every year with such increasingly limited funding available, will or should be the ultimate goal of social enterprises.

Whether government is the right player for this, or whether some other entity exists to play impact offtaker remains to be debated case by case. Meanwhile, those of us serious about spreading the best models far and wide would be better off to think hard about if they really care mostly about impact (reaching as many as quickly as possible) or credit/control (doing it all in small, controllable environment with satisfaction of getting credit by the fanbase).