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Scaling Social Enterprises

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At the Center for Science, Technology, and Society, we focus on helping social entrepreneurs build ventures that scale. My colleague and mentor Jim Koch, founder of the Center and one of the founders of both our signature Global Social Benefit Incubator (GSBI) and The Tech Awards, returned from the Unite for Sight's Global Health and Innovation Conference effusive about his airplane reading. Jim's praise was for the Monitor Group's recently released report, From Blueprint to Scale: The Case for Philanthropy in Impact Investing.

The report is timely for a number of reasons. Impact investing was a hot topic at the Davos of social entrepreneurship universe, the Skoll World Forum; however, as noted by some of the pioneers in the space, the use of "impact investing" to describe a variety of things doesn't help clarify the sources of capital so crucial to scaling social enterprises. The form of social enterprise itself is evolving as entrepreneurs experiment with hybrid business models and other shared value structures. Brian Trelstad at Acumen Fund remarked that conventions are not well established for how big the non-profit should be relative to the for-profit or how much of a subsidy it should make in models with essentially two businesses. What is clear is the need for patient capital and perhaps different investment vehicles, as John Kohler articulated in his Coordinating Impact Capital report. Currently, John's favorite idea is a demand dividend instrument; he is itching to find out how it works in practice. The "catalytic role" played by philanthropic support, coherently conveyed in Blueprint to Scale, is clearly also critical.

But Jim's ebullience reflected deeper aspects of Blueprint to Scale: Its stark "reality check" on the extreme challenges of pioneering business model innovations in Base of Pyramid markets and its refreshing honesty in sharing failures. As the report notes, innovation is risky, especially across multiple dimensions simultaneously. In Silicon Valley, failure is revered as an essential element of future success: Fail early, and learn from it.

The nascent impact investing field might may suffer from an insufficient tolerance for failure as well as an underdeveloped capacity to learn from failure. It is not alone: The drug development process, burdened by expensive clinical trials with a high failure rate, could become radically more efficient as the trend of precompetitive data sharing takes hold.

Despite numerous and complex barriers, with the right forms of capital, some social enterprises do scale. Blueprint to Scale proposes "Four Ps that characterize effective enterprise philanthropy practice" and uses several case studies to illustrate how alignment between funding sources and the ventures drives success.

Husk Power Systems, an India-based energy company that turns rice husks into electricity for off-grid villages, demonstrates innovation across the value chain ranging from its core gasifier technology to low cost smart meters. It also shows how grant support from the Shell Foundation, accompanied by intensive collaboration, helped HPS progress to a stage of "full investability and scalability."

The case of International Development Enterprise -India examines how a large grant from the Bill and Melinda Gates Foundation enabled market creation for IDE-I's low-cost drip irrigation and treadle pump innovations, which have scaled to impact the lives of millions of smallholder farmers in India, Pakistan, and beyond. New entrants provide concrete evidence of successful market creation.

VisionSpring brings reading glasses to the rural poor. Side note: donating old reading glasses is not as helpful as one might think; only 7 percent are usable according to a recent study. Old wheelchairs don't work either. Grants from the Mulago Foundation and the Jasmine Charitable Trust enabled VisionSpring to test new, economically viable channel models: Mobile vans instead of door-to-door sales, effectively increasing the sales territories for Vision Entrepreneurs and thereby doubling sales revenues.

What do these three scaling social enterprises have in common? They are all GSBI alums -- Husk Power Systems in 2009; VisionSpring and IDE-I in 2006. It's heartening (and humbling) to see how the GSBI discipline of business planning supported by Silicon Valley mentors helps social entrepreneurs build sustainable ventures that successfully scale. Scale is what we need given the pressing problems of poverty on our planet.

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