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Thane Kreiner

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Models for Scaling Social Enterprises

Posted: 08/14/2012 4:52 pm

It's easy to identify financial-first enterprises that have scaled to a truly global level in many sectors: soft drinks (Coke, Pepsi), financial services (HSBC), petroleum-based fuels (Royal Dutch/Shell), consumer products (P&G), mobile phones (Samsung, Nokia, Apple), etc.; the list goes on with products and services reaching billions. But there are relatively few examples of social enterprises that have scaled significantly or globally. Why? What factors influence whether social enterprises can scale, beyond the obvious need for financial capital? How do these factors vary in relation to the goods or services the social enterprise delivers, as a function of the entrepreneur's personal motivation, or in the cultural context in which the enterprise operates?

Clearly, if there were easy answers to these and other questions, there would be more social enterprises that have benefited massive numbers of poor. Rather than trying to answer them, I'll explore a few dimensions to the challenge and raise more questions.

In June, I wrote about disruptive innovation, with Aravind Eye Care as an example in health care. Aravind also represents a social enterprise that has scaled in at least two dimensions: within a country and across its value chain. Aurolab is the manufacturing division, ensuring high quality, affordable ophthalmic consumables; the Eye Bank procures corneas for sight-restoring surgery; Aravind offers education and training to develop health care and business human resources for its hospitals (and others); notably, the Aravind Medical Research Foundation conduct basic and translational research to ensure a pipeline of new innovations "to reduce the burden of blindness." Arravind essentially has built the full value chain for vision, but it has not scaled (on its own) outside of India. Its singular focus on vision is undoubtedly a factor in its admirable success. Why, so far, has the model not been successfully replicated in other countries at meaningful scale?

Husk Power Systems
, which I wrote about in April, is scaling primarily within Bihar, one of the poorest states of India. The technology and business model appear well suited to scale beyond; for instance, the HPS biomass-powered electrical generators can accept other feedstock. But, its ambitions just within Bihar could fully occupy the stellar management team for at least the next 5 years. What would be required to enable parallel scaling in multiple geographies simultaneously?

Gram Vikas, now working in more than 1,000 villages in India, is a great example of what my colleague Jim Koch calls depth scaling, offering an array of programs including safe drinking water, sanitation, education, renewable energy, habitats, food security, and natural resource management. The portfolio of services is somewhat context specific; for example, transforming cultural paradigms such as the caste system are paramount for Gram Vikas to realize its compelling vision of "an equitable and sustainable society where people live in peace with dignity." What changes in the portfolio of services and the ways they are delivered would be necessary to scale beyond India?

Fundacion Paraguaya is another example of deep scaling within a country. FP's initial microfinance services led to programs in entrepreneurship education, organic agriculture, and livelihood training. Notably, FP seeks to catalyze replication of its organic school and provides resources to help others establish self-sufficient schools. The notion is a social enterprise franchise model, in which a different management team operates essentially the same business model in a different geography with whatever (hopefully minor) business model modifications necessary for success in the local context. FP is also a good example of what one might call "open source" social enterprise: the originator wants others to copy a successful innovation for the poor. Who will leverage these social franchising resources, and where?

The scaling model most similar to a multinational corporation might be termed a Multi-National Social Enterprise (MNSE). A MNSE might be characterized as offering essentially the service(s) in a number of different countries. Riders for Health enables delivery of health care and other services by managing appropriate vehicle fleets. Its focus on a well-defined solution has enabled it to operate in 10 countries in Africa.

One could debate whether BRAC is a social enterprise or a "traditional" NGO; its success cannot be denied: it now operates in 10 countries beyond its Bangladesh origin, delivering a broad range of tools for poverty alleviation. BRAC's explicit intention is to identify services that can be scaled in the contexts of a variety of different countries, and reaches over 100 million beneficiaries. Grameen Foundation, which I wrote about last month, may have the broadest geographical reach, operating in 36 countries, with a focus on microfinance and mobile phone based services; it counts 9.4 million of the world's poor helped. While laudable, these numbers raise questions about the ultimate scalability of MNSEs; they pale in comparison to the billions served by multi-national corporations (MNCs). Why?

Some of the barriers are known, among them, a lack of: systematic market intelligence; management capabilities and capacity in the regions of greatest need; capital investment vehicles and expectations; last-mile distribution infrastructure; and market-distorting subsidies and tariffs. It is unclear whether the best way to maximize impact is through open source models or scaling on one's own; different social entrepreneurs may understandably have different motivations. Moreover, the success of social enterprises frequently relies on relationships with other organizations. Such relationships can be difficult to replicate, or impossible if similar organizations do not exist in target regions.

While continued invention and innovation are still absolutely critical to solve the needs of the poor, robust exploration of models for scaling social enterprises might accelerate impact dramatically with solutions -- technologies and business models -- that already exist.

 

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