Scale in most industries has a fairly clear definition and includes a range of options, such as franchising, joint venture partners, or a centralized organic structure. In the field of social enterprise, however, scale is a more elusive concept.

Scale requires a meaningful growth in the volume of what an organization produces and delivers, with a corresponding impact on lowering the production or delivery costs of providing goods or services. Scale also means thinking about replicating the delivery of products and services in other locations, either through direct replication, franchising or partnership with other organizations. How can this be achieved?

Debating Scale

Academics agree that scale presents a challenge to all enterprises, especially those in the social sector. Published articles offer advice on appropriate organizational structures, the value of networks, how to consider national expansion and tailoring solutions to local contexts. We think that an article by Dees, et. al., “Scaling Social Impact”1, may offer a simple but effective framework for the critical issues to address prior to scaling, which they term the “5 R’s”.

While this framework is not exhaustive, Acumen Fund would like to test this theory against the reality of your experience. We hope that your practical knowledge of working at the forefront of social enterprise can deepen our understanding of common challenges. We also hope that, by sharing solutions to these challenges, we can contribute to each others’ progress and growth.

Readiness - Is the innovation ready to be spread?

Before spreading an innovation, you should ask yourself whether there is sufficient evidence of success: i.e. are you sure it will work anywhere? Your success may be dependent on unique leadership or local conditions that may not be present in a new location.

To determine readiness, you should articulate your project’s “specification”: what factors contribute to its success and how each factor relates to the goal. The aim is to standardize the innovation so that it can be implemented without the presence of the founder.

This specification should be simple, containing as many elements as needed, but as few as possible. It might be helpful to begin by calculating the unit cost of impact (e.g. dollars/house) and determining whether that level of efficiency can be achieved elsewhere. If not, why not?

Receptivity - Will the innovation be well-received in the target communities?

Even if you carefully define your target market, each community will respond differently to your efforts. Will all your customers or recipients understand the innovation and what it has to offer? Does it represent a major change for them? Are there already existing alternatives that you will have to compete with or address?

Innovations must consider the social context of new communities. Will the residents trust you and your representatives? Will there be resistance, and if so, how can you overcome it? Are the target communities willing and able to invest time and resources in adopting your innovation?

Resources - What resources are required to get the job done right?

Some ways of scaling up require fewer resources than others. Often, working with partners can reduce your cost and increase your capacity, without giving up too much independence or control. If you choose not to collaborate, your ability to recruit and train capable staff may determine the rate at which you can expand.

Lack of funding often prevents organizations from scaling up. How long will your current source of income last? Do you need to develop short-term (donor) funding to scale up? And will you be able to generate income after that funding runs out?

Risk – What are the chances that things don’t turn out as expected?

It is difficult to predict the future. Entrepreneurs should consider the possible outcomes of their expansion and have a plan for each course of events. For example, some communities may implement the innovation incorrectly, or worse yet, abandon it entirely. You can reduce this risk by maintaining control over new parts of the organization, but this might also prevent new branches from adapting to their particular situation. What can an organization do to grow rapidly while minimizing its risk?

Returns - What is the bottom line in terms of quality and quantity of impact?

You should decide how you hope to balance the quantity of impact (i.e. how far the innovation is spread) with the quality of impact (i.e. how well the innovation is implemented or delivered). There is usually a trade-off here: a more loosely controlled organization may yield a greater quantity of returns, whereas tighter management may increase the quality.

Questions for discussion

1. How does an organization decide if its innovation is ready to scale?
2. How do you determine whether your innovation will be well-received in other communities?
3. How can you ensure adequate resources for scale and replication?
4. How do you assess the risk of attempting to scale and replicate your organization?
5. What organizational structure (branching, collaboration, franchising, etc.) would increase your reach without compromising your service?

1: "Scaling Social Impact: Strategies for spreading social innovations" by Gregory Dees, Beth Battle Anderson and Jane Wei-skillem, Stanford Social Innovation Review, Spring 2004.

Jacqueline Novogratz - Jul 5, 2005 3:57 pm (#1 Total: 17)
CEO, Acumen Fund


The Acumen Fund staff is looking forward to an interesting dialogue with all of you over the next week. In addition to responding to the kick-off questions above, please feel free to raise any other issues you feel are relevant.

Warm regards,

Jacqueline

Cgasca - Jul 6, 2005 2:50 pm (#2 Total: 17)
Social Entreprenuer


I liked the 5 R's as an outline for exploring if an organization is ready to scale up as theorical framework.

On the ground I would however, look at the effectiveness of organizational operations. How many staff do you have? Can they communicate effectively and make difficult decisions even if it means conflict? Is the link between operational performance and meeting mission goals clear? Does staff demonstrate entreprenuarial problem solving skills? What are the organizational decision making processes and do they match the nature of the project, for instance consensus versus entreprenuarial decision making models.

In addition one could consider the financial sources of funding, do they match the uses? Do the funds have the right characteristics and longevity to complete the scale up phase? How does the balance sheet look? Does the organization have the financial capacity to take on risk without loosing existing programs and service?

I was also happy to see the warning that what is accepted in one community may not be in the next. In Canada we started a micro enterprise fund using the Grameen bank model. However, it did not work in the Canadian cultural context so we modified to fit. It is important to understand that best practices or models are not always transferable to other cultural contexts.

I visited your website and was very impressed by the scope of your work. I am trying a similar approach but operating North America and utilizing joint venture agreements with the private sector. I am avoiding nonprofits as their decision making cycle is too long and funding sources are often too restrictive, unreliable(short term) and with poor timing (it can take too long to obtain funds).

However, being committed to community well being I am exploring how to achieve the same results using private sector methods and incentives. I have chosen to focus on the needs of the secondary labor market (working poor).

mitra - Jul 7, 2005 3:59 am (#3 Total: 17)
Natural Innovation


This article is thought provoking. I am interested in scalability, both for innovative ideas, and organisations, because without the scaling it is hard to have a real impact. I'm a big believer in the three-stage process for solving a problem.

1: Do it once - prove an idea works in the real world 2: Replicate, or scale it - make the effects multiply 3: Leave it - because any idea or organisation dependent on its founders isn't sustainable.

Back in 1988-89, some of us took a project we were working on, and scaled it internationally. So I thought it might be interesting, to apply the points from the article retrospectively. I believe the thinking behind the replication may be applicable to other situations.

The project was introducing the NGO world to online communication and information sharing, the first two cases being GreenNet (www.gn.apc.org) (which I started) and IGC/PeaceNet/EcoNet. The scaled project became the Association for Progressive Communications (www.apc.org) and it spread to Australia, Canada, Nicaragua, Brazil in that first year, and now to maybe 25 countries.

I should say, this is my personal opinion, and everyone involved in the process will of course have seen it differently!

1: Readiness: Is the innovation ready to be spread. "Before spreading an innovation, you should ask yourself whether there is sufficient evidence of success: i.e. are you sure it will work anywhere? Your success may be dependent on unique leadership or local conditions that may not be present in a new location."

We were confident that our idea was NEEDED everywhere, not that it would definately work. It was certainly dependent on leadership, so the key to replicating it was finding appropriate leaders in each country who we could support to adapt our idea to their context. We felt that there was an urgency to solve the problem

"To determine readiness, you should articulate your project’s “specification”: what factors contribute to its success and how each factor relates to the goal. The aim is to standardize the innovation so that it can be implemented without the presence of the founder."

The challenge I believe is to figure out which bits need to be standardised, and which need to adapt to be adaptable, I don't believe the cookie-cutter approach works especially if moving to new countries or cultures.

"This specification should be simple, containing as many elements as needed, but as few as possible. It might be helpful to begin by calculating the unit cost of impact (e.g. dollars/house) and determining whether that level of efficiency can be achieved elsewhere. If not, why not?"

We certainly didn't go into that much detail, each case had to work out how to make it work in their unique situations.

Receptivity - Will the innovation be well-received in the target communities?

"Even if you carefully define your target market, each community will respond differently to your efforts. Will all your customers or recipients understand the innovation and what it has to offer? Does it represent a major change for them? Are there already existing alternatives that you will have to compete with or address?"

At the time we were developing the APC there were was very little competition the idea, and we found that in many cases our approach was sufficient enough of an improvement that the "competitors" became the local affiliates. The lesson here is that if your idea is that much more effective then the competion gets co-opted, and the "competitors" are also the most likely to have good ideas that you should be learning from.

"Innovations must consider the social context of new communities. Will the residents trust you and your representatives? Will there be resistance, and if so, how can you overcome it? Are the target communities willing and able to invest time and resources in adopting your innovation?"

Our decision process involved identifying communities where people were already trying to solve the problem, and then working with them. Yes, of course there was resistance (to using modems instead of phones), but that was part of the challenge.

Resources - What resources are required to get the job done right?

"Some ways of scaling up require fewer resources than others. Often, working with partners can reduce your cost and increase your capacity, without giving up too much independence or control. If you choose not to collaborate, your ability to recruit and train capable staff may determine the rate at which you can expand. Lack of funding often prevents organizations from scaling up. How long will your current source of income last? Do you need to develop short-term (donor) funding to scale up? And will you be able to generate income after that funding runs out?"

This is a very good point, our methodology involved sending a staff person from an existing node to a new partner for a period of a few months. We would also work with the new node to raise grants specifically for each new node, using our credibility (we'd done it ) and theirs (local knowledge) as a more convincing argument. We also raised funds earmarked for the expansion as their was resistance to using locally generated funds for it.

Risk – What are the chances that things don’t turn out as expected?

"It is difficult to predict the future. Entrepreneurs should consider the possible outcomes of their expansion and have a plan for each course of events. For example, some communities may implement the innovation incorrectly, or worse yet, abandon it entirely. You can reduce this risk by maintaining control over new parts of the organization, but this might also prevent new branches from adapting to their particular situation. What can an organization do to grow rapidly while minimizing its risk?"

I think risk is inevitable, providing an on-site staff-person was important to reducing it, also integrating the new partner fully into the organisation as quickly as possible so that problems could be sold. However I think its important also to allow for failure, and accept that it can be better to try 10 cases and fail in 2, than to spend the next year sifting through the 10 and only work with the 2 or 3 absolute certainties.

Returns - What is the bottom line in terms of quality and quantity of impact?

"You should decide how you hope to balance the quantity of impact (i.e. how far the innovation is spread) with the quality of impact (i.e. how well the innovation is implemented or delivered). There is usually a trade-off here: a more loosely controlled organization may yield a greater quantity of returns, whereas tighter management may increase the quality."

I disagree strongly that tight control yields greater quality. On the contrary, working to support a local organisation to adapt made sure that the quality was maintained. This is particularly important for innovations coming out of America, where there seems to be a tendency to think the whole world works the same way!

I hope this retro-spective is useful to others, though the Q&A might not reflect the process we went through totally.

- Mitra www.mitra.biz/blog

(responses please to my email mitra@mitra.biz, or in the topic, please don't send messages to the messages system here as it doesn't notify me by email and I don't get to see them! )

Stefanski - Jul 7, 2005 8:38 am (#4 Total: 17)
Bazaar Strategies

Very thought provoking subject matter - thanks to our host.

In reading the summary and reactions, it seems that although it is not implicitly stated (so I could be misinterpreting), there appears to be a false assumption that it is up to the incumbent innovator/entrepreneur to assess where and how to scale their solution.  This is a reasonable assumption for a profit-driven organization where market capture is an important facet of profit maximization.  But for a social enterprise, isn't an outcome of financially self-sustaining while achieving the greatest social return optimal?  If so, it seems more practical for the entrepreneur to simply offer their knowledge and for future entrepreneurs facing similar challenges to find and apply the knowledge to their unique conditions that they know best.  This thinking may not work for a product producing entrepreneur like ApproTEC where scale of production is a factor.  But for a service-oriented solution such as the wonderful New Heroes case of Albina Ruiz trash collection in Peru, I think this is a more appropriate approach.

I suppose there is a role for some sort of franchising model where licensing revenues could be applied to increasing awareness about the entrepreneur's solution, although it is probably more efficient to leave that task to 3rd party communication intermediaries.

With this in mind, going back to question #1, perhaps the question could be phrased as "What does a person need to know to assess applicability of an innovation and how to apply a proven innovation in their own setting?".  Question #2 might be posed as "How does a person validate that an innovation is applicable to their community and gain necessary partnerships and support?"

Each of these questions I think begs for a set of tools/replicable methods to help guide future entrepreneurs.  Many such solution frameworks exist in the commercial sector to address such questions and I think more can be done to create and disseminate such tools for social entrepreneurs.  This I think will lead to the most effective way to propagate these innovations.  I believe Stuart Hart is active in this area at the Center for Sustainable Global Enterprise.  Are there particular methods/tools others have encountered they found helpful?

Kind regards - Scott Stefanski

karenborchert - Jul 7, 2005 10:06 am (#5 Total: 17)
The Campus Kitchens Project


Hello All, Thanks for starting this discussion. My colleague and I met recently with Greg Dees on a trip to Fuqua Business School and were excited to get some resources on scale in the social sector. For The Campus Kitchens Project, we have established what we believe is a replicable model through six pilots on college campuses. The program recycles unserved food from campus dining halls, utilizes on-campus kitchen space and student energy to prepare and deliver those meals to those in need in the community, and provides leadership opportunities to students.

We are now interested in moving toward a network of affiliated, rather than centrally owned programs for all kinds of schools: traditional 4-year institutions, high schools, middle and lower schools, and technical/community colleges.

Jacqueline's question #4 regarding organizational structure has been a major factor in our new business plan, as it directly affected many of the "R"s. According to our very helpful legal advisors, true "franchising" could set up some paperwork and legal needs that would really tax our resources, increase our risk, and possibly bring down the receptivity for potential host schools.

We have chosen instead to try a "licensed affiliate" model where each local Campus Kitchen will be hosted and fully owned by the school, who will license the use of CKP's name and mark. Licensees will then have access to the CKP training, resource library, intranet, and ongoing support. The license's renewal each year will be contingent on the affiliate adhering to CKP's basic programmatic and organizational standards, but will not be a true franchise. (By the way, we've learned that saying "franchise" is ill-advised if it's not a true legal franchise.)

Have others had success or specific challenges with this type of model? Have you used other models for scaling that you have found to be more effective?

Our greatest challenge at this point is actually putting the model fully into action. Resources don't allow for a full-out recruitment/scouting trip for new Campus Kitchens, yet in order to expand, we will need to get the materials and information out to as many school administrators, dining services staff, and service learning coordinators as possible. Any advice you have on this would also be very helpful.

paul_hudnut - Jul 7, 2005 9:26 pm (#6 Total: 17)

 

First, the article that is summarized is: "Scaling Social Impact Strategies for Spreading Social Innovations." Stanford Social Innovation Review 1, no. 4 (spring 2004): 24-32.

Second, I' like to comment on one issue of scaling that may be a key one for the "hybrid" companies, like ours. We are a non-profit, using donor funds/investment to develop a technology to help clean up the air in Asian cities by retrofitting 2 stroke motorcycles. We plan to sell these retrofits as our primary business.  My comments reflect our plans, anticipated challenges and ideas, as we have not yet started sales.

These sales will provide our company with a small operating profit in time; however, we are aiming at making a significant impact. To do this, we will need to install hundreds of thousands of retrofit kits. The scale requirements to fund this level of inventory through our supply chain are significant. It is a challenge we will need to overcome as our business begins to grow. In a for-profit, debt financing could be used, but this is more difficult for a non-profit, operating with thin margins in Asia. But I am not aware of any non-profits that have been able to achieve significant scale of sales of a manufactured product.

My belief is that as other entrepreneurs tackle similar chronic problems with distributed solutions, they too will encounter this issue. Perhaps another enterepreneur will come up with a financing solution.

We have begun to investigate several ideas to address this challenge, but my belief right now is that at least in the early years, our supply chain will need to "clear" within the net payment period. In other words, the microfinance lending for the motorcycle driver will need to fund the various suppliers within the "net __ days" period. This is indeed a challenge in a supply chain with components coming from Europe and U.S. as well as Asia.

We are also looking at a franchise type approach for developing a system of installation garages in the Philippines. Our plan is to keep these very basic, for two reasons. First, the simpler they are, the easier they are to replicate. And second, the simpler they are, the cheaper they are to start, and the more likely the can be started with minimal capital.

A final observation. By being mission driven, instead of profit driven, I agree with one of the earlier posts that this provides a potential for faster dissemination and, perhaps, less need for control over the business model, franchise approach, etc. We will gauge our success by whether retrofit (or other cleaner transportation)technologies become ubiquitous, not necessarily by the size of our organization. Different capabilities and approaches in different areas may increase the speed of diffusion.

We will see!

Peter Reese - Jul 8, 2005 10:51 am (#7 Total: 17)

Question for the discussion as a newcomer;  Is the focus of multiplication on using similar METHODS in other settings or on achieving comparable RESULTS?

Have seen how the same METHODS yield different results (nature of the impact on individuals and communities) and how seeking the same RESULTS requires significant variation in methods.

Looking forward to your perspectives.

 

 

yzaidman - Jul 8, 2005 11:30 am (#8 Total: 17)
Acumen Fund

Reading Mr. Hudnut's entry (#6), I am reminded of the challenge that we often encounter at Acumen Fund of finding business models that address both product financing and distribution networks. Since we work with both non-profits and for-profits, we find that both share the same challenges when it comes to reaching out to low-income markets. While for-profit companies may have an easier time accessing debt financing, it is still not guaranteed for companies with an innovative technology, or a business model designed to impact social issues like poverty or the environment, and not simply maximize profit.

Products designed to address the needs of low-income consumers are often out of reach due to high capital costs. However, before this even becomes an issue, the challenge of access to working capital for retailers and distributors prevents the product from even reaching the market, whether they are for-profit or non-profit. Without guaranteed sales, a retailer or dealer is rarely willing to invest their own resources in inventory. Often both distribution and financing need to be addressed with one solution, wherein financing is secured and made available to the end user, in essence by pre-financing products and projects.

At Acumen Fund, we see the opportunity to not only invest in products and services that can be scaled up to address large social problems, but also to develop and invest in financing mechanisms that make it possible for distributors and consumers to access products and services. We are currently working on financing mechanisms for low-cost housing, urban water infrastructure, and community-scale water treatment systems. Both for-profits and non-profits need to have access to financing mechanisms that can increase access to small-scale but high impact solutions. Without innovation in this area, the ability to scale up products and services will continue to be limited.

Jacqueline Novogratz - Jul 8, 2005 2:30 pm (#9 Total: 17)
CEO, Acumen Fund

mitra - Jul 8, 2005 3:08 pm (#10 Total: 17)
Natural Innovation


I think Peter Reese raises exactly the critical point, of course the same METHODS will create different RESULTS in different contexts. I believe the key is combining the knowledge of what has worked elsewhere with the local leadership and knowledge of the context, i.e. to use SIMILAR methods to create SIMILAR results.

- Mitra

DR.PRABIR DUTTA - Jul 8, 2005 10:41 pm (#11 Total: 17)
CALCUTTA MANAGEMENT ASSOCIATION


It works in:HEART. H-Harmonisation E:Equivalance A:Assessment R-Risk T-Transparancy

Michael Chertok - Jul 10, 2005 8:55 am (#12 Total: 17)

Interesting discussion!  I'm particularly interested in the issue of financing for scale. 

Paul Hudnut writes, "sales will provide our company with a small operating profit in time; however, we are aiming at making a significant impact...in a for-profit, debt financing could be used, but this is more difficult for a non-profit."  I think Paul faces a challenge that may be somewhat larger in scope because of the capital required for large-scale production of a 'product', but the nature of his challenge is typical for many social enterprises.

If an enterprise is likely to deliver significant financial returns to scale,  then commercial debt or even equity investment will probably be available to finance growth.  However, when scaling or replicating is primarily about social impact, it is understandably difficult to find commercial capital, even if the enterprise is well managed and will be financially sustainable or even marginally profitable.

Does this mean that social enterprise will always be dependent on philanthropic capital to scale?  Or that as social entrepreneurs we need to develop models that scale with large financial returns (perhaps sacrificing the scope of our social impact)?  Or is there some other solution?

snowymax - Jul 11, 2005 12:28 am (#13 Total: 17)
israel venture network

 

Hi Everyone, Hi Jacqueline!

Isabel Maxwell here in Israel, International [Active] Chair of the Israel Social Entreprenreurs Program  ("SE")for the Israel Venture Network (www.israelventurenetwork.org) - a 4 year old 501 3c dedicated to systemically improving the education system here and other strategic intiatives, social programs , of which SEs is a new iniative now in its second year and selecting 3 new Fellows this summer; 2 are already active - developing innovative and sustainable solutions IN Israel specifically.    I really have enjoyed this whole posting and it gave me much food for thought.

I realise that most people don't think of Israel, a country the size of the state of New Jersey,  as a "poor country", iIt does not have the huge population numbers or malnutrition or disease issues common to so many larger countries.  Its external image to the world has long been one of a 'brainy country' (!) full of military might and innovation, alas constantly in the news for its long and terrible conflict with the Palestinians.  It is this very conflict that has had an appalling long-term effect on the economy and social structures of the country as a whole, to say nothing of the long-term psychological and behavioural damage to those directly suffering from the conflict .  The education system is infact in dire straits and as a strong believer in Education as one of the best ways to attack poverty and multiple social ills, we are very interested here in SEs who have innovative solutions in the area of education, as well as in other areas such as urban renewal, the environment and conflict resolution.  As "G-Day" approaches (pull-out from Gaza day coming right up in August), we are  watching here with bated breath...

The 5 Rs are extremely helpful principles to help one stay focussed and realistic about ones project/idea.  The one thing that came to my mind strongly which I thought might be helpful to share here, thinking about my experience here in Israel with my umbrella organization, IVN, is the value of Evaluation and Partering.

Professional and real Evaluation of projects is so vital.  We have hired a professional evaluator for the organization as a whole who divides up her time among the initiatives and we have a reporting structure that forces us in a good way to really examine regularly our work in the field and its impact.  Until we did this, our initiatives were benchmarked in an ad-hoc fashion and we were not able to report back to our funders or to ourselves with any accuracy or with meaningful data.  Now that we do we have gained their confidence and their continued and expanded support.

From the very beginning, our organization has sought partners in the field and they have been of immense help, not only with monetary resources for the projects but with real help and resources on the ground in Israel.  The New Israel Fund and Sacta-Rashi organization to name but two, are such examples.  Partnering is a great way too of fighting the huge fragmentation of citizen sector organizations, and in this way, IVN has been able to distribute 10X its actual direct resource distribution in the field.

These are the two most valuable things I have learned experientially from working here on the ground for the past fourteen months. 

All the best to everyone!  And thank you to Skoll for this highly innovative and superior interactive web site which is bringing together the SEs of the world and more.

 

Attachments:

isabel maxwell.jpg (29 KB)

Cgasca - Jul 11, 2005 11:36 am (#14 Total: 17)
Social Entreprenuer


Does this mean that social enterprise will always be dependent on philanthropic capital to scale?

The nonprofit sector's source of capital is government through tax policy or program spending. Donations are driven by affinity, which could mean that when replicating a program, one needs to ensure that similar donors exist in the area. This also impacts scale possibilities as donors preferences impact how much capital is available for various community investments. Unlike for profit companies the nonprofit sector has two markets, donors and consumers of their services. Ensuring there is a donor market is equally important as determining community needs.

Do we as social entrepreneurs need to develop models that scale with large financial returns (perhaps sacrificing the scope of our social impact)? Or is there some other solution?

There is more than one solution. As social entrepreneurs it is our goal to understand, the donor market, what drives our community's well being and market opportunities, to craft initiatives that create a better world. Our solutions will be based on how well we utilize our entreprenuarial imagination and ability to dilouge (think together) to create community benefits. In this sense models could be as diverse as entreprenuers and the communities they live in.

However, if we examine or communities it is likely that we will find that populations can be broken down into:

Populations that are well served by the market. Products and services are widely available and consumers receive the value they expect.

Populations that are under served by the market. Products and services are available, however, consumers pay a premium to access services. For example; check cashing, interest only mortgages, calling cards, etc. The underserved market may exist becuase of cultural differences or a percieved lack of financial ability.

Crisis populations that are not served by the market. Products and services are not avialable or beyond the ability of consumers due to health, income, or family violence. This market is where the nonprofit sector and government program spending does most of its work.

To develop scale one could consider the underserved market as potential opportunity for expansion. The underserved market is larger than the crisis population and it generally has income. Pricing, convenient access, and realiable service are key for this market. Serving this market with product or service lines designed for them could prove to be a source of sustainable capital for social enterprises and also serve to meet our social impact goals.

Methods or results? Methods provide opportunity to develop values and affinities that can serve to improve our communities in an intagible way. Results is what we want! Scale, replication and best practices could be considered terms of reference to be validated by community needs.

Mario Oliveros - Jul 11, 2005 9:21 pm (#15 Total: 17)


Hello everyone, wonderful discussion.

I thought I would add a perspective regarding finance and scale from Asia-Pacific through an NGO called Unlad Kabayan. We employ an innovation in community-based financing to launch microenterprises in migrant communities in Asia, orginally in the Philippines and now with replications in Indonesia, Bangledesh, and South Korea.

We have developed a model called MSAI (Migrant Savings for Alternative Investment) that harnesses the development finance potential of migrant remittances. Specifically, migrants are organized into savings groups, they pool portions of their earnings, and these are invested in microenterprises, like merchant businesses, diversified farms, and manufacturing.

In some cases, we provide additional funding through microloans or we develop partnerships with the public or private sector, but in general, migrant communities are able to generate the majority, if not all of the financing to launch projects, and we have proven to be successful and replicable across a number of cultures and geographic locations.

However, our main challenge has been to achieve scale, mainly in terms of either generating additional investments or in gaining access to export markets.

The interest in the promise of remittances has grown substantially in the most recent years. With this interest, there is also doubt and skeptism. Unlad has been at this for over a decade, but still consider MSAI to be an emerging and evolving model. Nevertheless, we know we have been successful to date, and the most clear proof has been the local people we have been able to empower. However, as this discussion has demonstrated, we face the same challenges that other social organizations face, and there is no silver bullet.

I apologize that our website is currently experiencing problems, but you can read about us through an Ashoka Changemakers award we won several months ago. http://www.changemakers.net/journal/04november/contest.cfm

Jacqueline Novogratz - Jul 12, 2005 8:40 am (#16 Total: 17)
CEO, Acumen Fund

Thank you all so much for contributing to this discussion. We really appreciate your willingness to share your challenges and the lessons you’ve learned through your own experiences. As we wrap up the discussion today, I’d like to try to address some of the great points you’ve raised.

 

Thanks to Mitra (#3) for the very interesting post-mortem of APC. In a world where data is hard to come by, some of the best learning has to come from the kind of critical application of detailed case studies to frameworks like Dees, et. al. Very fair point on the nature of control and quality: innovation; more flexibility can indeed lead to important process and service improvements that will improve quality. But, it’s also true that where there are improvements, there are likely to be potential deviations from the model that detract from quality as well – in other words, some changes will be for the better, while others will be for the worse.

 

Scott Stefanski’s post (#4) was also helpful in surfacing an assumption with which we might quibble: that it is up to the incumbent innovator/entrepreneur to assess where and how to scale. We like to think that one of the more important value added services that intermediaries like Acumen Fund can play is helping to answer these questions during the due diligence process. There are several social entrepreneurs we have worked with that want to scale regionally, but have never considered national or international options for scale and replication. Not that national or international growth is necessarily the right answer, but we at Acumen Fund (and many other social investors) often help put these questions on the table and provide some of the analytical resources to help make the right decisions. One tool that we have developed to help answer these questions is a fairly simple (although it can look complex) financial and operational planning model (an Excel workbook) that asks the entrepreneur for historical and projected operating data, and then defines the required capital to achieve that level of growth (with various options in terms of debt, equity or even grant financing). While this is a fairly typical tool used in most private equity or venture capital shops, by adapting it to meet the needs of social enterprises, we have something that can help us get to this answer of whether and how to scale more quickly.

 

Karen Borchard’s innovation (#5) is quite exciting and the methodical way you are approaching scale and replication through licensing sounds like a very strategic approach. There is a great McKinsey Quarterly article on non-profit structure by Maisie O’Flanagan and Lynn Taliento (“Nonprofits: Ensuring that bigger is better,” The McKinsey Quarterly, 2004 Number 2 – it was discussed on this site when it was published) that outlines some of the pros and cons of affiliates vs. licensing vs. franchising. One resource that you might consider in terms of tapping into networks of campus administrators is the National Wildlife Federation’s campus ecology program that works extensively with university procurement officers on recycled products, renewable energy resources, and local agricultural product.

 

Paul Hudnut’s comment (#6) that mission needs trump the model is a fair point, and that diffusion of the idea might be more important than scale or replication within a particular organization or business. In its obituary of Jack St. Clair Kilby, co-inventor of the integrated circuit, The Economist this week (July 9, 2005, Vol. 376, No. 8434) notes that in Kilby’s Nobel prize lecture, he quoted fellow Nobel laureate and inventor Charles Townes as saying, “It’s like the beaver told the rabbit as they stared at Hoover Dam. ‘No, I didn’t build it myself, but it’s based on an idea of mine!’ ” I think we would agree with Paul’s point, but from a tactical perspective, believing in diffusion as paramount can tempt an organization to view “thought leadership” and policy advocacy as higher potential ways to “scale the idea” than the hard work of building the business. While we would agree that ultimately the results are what matter, don’t let that allow you to lose focus on building the business. (And if you plan to sell your product in India or Pakistan, please let us know!)

 

Michael Chertok’s point (#12) really nails the link between scale, financial sustainability, and the role of charitable capital. Acumen Fund believes that charitable capital, if converted into risk capital (debt, equity, credit enhancements), can have the patience and high-risk tolerance to help social innovations scale using the disciplines of a commercial mindset. We think that for some social innovations (but not all), financial sustainability and scale must go hand in hand, as it is hard to imagine scaling a model that has unsustainable economics at the operating unit level - otherwise, the bigger you get, the more you have to raise, which is a tall order for even the most determined fundraiser! But we believe that the sector has just scratched the surface of ways to tap into commercial capital to be used for social purposes, and think more charitable capital can be deployed to build financially sustainable enterprises.

 

Hi Isabel! Thanks also for your post (#13). You bring up an important point, which gets back to the first question we raised: the role of evaluation in assessing the readiness to scale. We have been investing heavily in metrics that aim to do the same as your evaluation initiative. We seek to work with entrepreneurs to develop a set of metrics that will help them manage their business (and assess opportunities for scale), and inform our decisions about whether we should continue, increase our investment, or consider a soft exit. We also firmly believe in creating a metrics culture where we don’t ask anyone to measure anything we are not capable of measuring and reporting ourselves. And as we realize the limits to our evaluation capabilities (and the cost of bringing them in house)—we can’t do rigorous academic studies evaluating the full impact of a malaria bednet—we have started to partner with organizations like the CDC, PhD students and professors at UC Berkeley, Michigan and Harvard to ask (and hopefully answer) questions we would never have had the resources to answer on our own.  

 

Finally, Cgasca’s point (#14) about understanding the underserved markets is exactly in line with our approach. Many of the world’s “poor” at the bottom of the pyramid have steady jobs, but face frustratingly high costs of housing, lack access to clean water, and can’t find affordable healthcare. Many of them resort to paying higher rates for legal goods, navigating the grey and black markets, or doing without. We believe that markets may never reach what Cgasca calls the crisis populations, but markets are functioning in many underserved communities—we’d just like to see them function more effectively and sustainably, in ways that give the poor access to goods and services and the dignity of choice. This, we feel, can be the right role for charitable capital to play, by taking the risk to help entrepreneurs make these markets function more efficiently, equitably and transparently.

 

Again, thank you all for your contributions to what we feel was a very productive workshop!

 

Warm regards,

Jacqueline

Grant Hunter - Oct 10, 2005 12:06 pm (#17 Total: 17)
Franchise Consultant


Hello Jacqueline,

Not sure if this discussion is still active, but as a Social Edge newbie I wanted to add my thoughts.

I work as a franchise consultant and broker, representing hundreds of traditional franchised businesses to find and qualify prospective franchisees to work in them. My goal in this arena is to identify, optimize, blueprint and market proven social enterprises. "Proven" as I use it, means that the enterprise is achieving social impact and is at least paying for itself, if not running a surplus.

RE: readiness to scale, the 5R's you list Jacqueline are a great start. With re: to franchising in particular, there are some other criteria I would look at closely (i.e. are the operations simple enough to be learned in 2-3 months? do you have the management, board and staff capacity to support a franchise channel? , etc.) Ultimately if these criteria are met, then franchising may be a compelling alternative.

Franchising helps an organization bypass the need for forfeiting equity or raising (as much) capital to expand on its own. Metrics and measures for both financial and social returns can be woven into the operations manual to scale accountability along with growth.

Social franchising is not a new idea. You allude to it Jacqueline, in the McKinsey article which I would love to see. (“Nonprofits: Ensuring that bigger is better,” The McKinsey Quarterly, 2004 Number 2) Please pass along if available. However, the twist I have on social franchising involves taking successful social enterprises and blueprinting their operations to sell to other "like-missioned" nonprofits. For example, imagine an environmentally-focused nonprofit signing on as an eco-tourism franchisee or an elderly-focused nonprofit becoming a non-medical home eldercare franchise.

To be sure, each organization, geography and population served has its own peculiarities. With so much mission-overlap in the nonprofit sphere, however, there is a place for more explicit, paid knowledge-sharing through models like franchising and licensing. I would love the chance to discuss with venture philanthropy funds like Acumen Fund, a partnership for identifying and funding successful social franchises. Replicating measurable success is a triple win for franchisor, franchisee and investors alike.

Social franchising makes sense to me. Love to hear your thoughts.

Regards, Grant Hunter