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. A recent session during the 2012 Skoll World Forum, for example, was focused exclusively on the idea of how to envisage scaling beyond initial seed funding and “exit strategies” for social enterprises.
Although the panelists in this session touch on the subject, I feel not enough space in today’s literature is dedicated to a question that has somewhat plagued me for a long time – in fact, it has plagued me ever since I got interested in social enterprises.
The question is this: why the heck does everyone seem (so obsessively) to equate the scaling of impact with the scaling of the actual organization? In this post, allow me to make an argument for the importance of finding an “impact offtaker” as a critical scaling mechanism that supersedes that of organizational growth when it comes to social enterprises.
I suppose there are many reasons why we are so focused on organizations. 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!
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)?
Worse: why does nobody even stop for a moment to ask why we even need to build the next Walmart-sized social enterprise to create the maximum impact? The reasonable answer, of course, is that 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 a 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.).
In the world of social enterprises, let me suggest then that what we need in the end is what I’ll call an “impact offtaker”. To do that, we already have several alternatives.
First, we have foundations. They have a ton of money, they have missions that are aligned with what some social enterprises do, and they would like to help their favorites out as long as possible. Problem is, they usually don’t like spending more than a limited percentage of money every year because they’d rather invest the rest into the stock market or other places to keep the endowment fat, healthy and tax-sheltered for the long-term.
Second, we have corporations. Assume we can find some abstruse CSR rationale why a company should care about the public welfare, it too has a ton of money to help social enterprises take their idea further – but that is unfortunately limited given the outcry of shareholders who would rather not have their hard-working invested money be spent on random social causes they did not sign up for to begin with.
Finally, we have government. You know, that motley crew of elected and appointed individuals meant to represent the public welfare and all that? Yes, these people are supposed to take what inventors and entrepreneurs come up with and take it to the next level using the substantial budgets they have at their disposal. The good news is that government is SUPPOSED to care about what social enterprises care about and so they theoretically have no reason to NOT support social enterprises by adopting their ideas into programs that can be financed through tax-payers money. This way, even the most innovative social programs can be scaled nationally or internationally in a way no social enterprise could hope to do in decades by themselves.
Given the availability of government, why then do we keep talking about pumping up our social enterprises to become big gorilla organizations instead of talking about how we can replicate the tools of social enterprise across permanent institutions whose missions are completely aligned with that of the enterprises? Isn’t this what “scaling impact” is all about, in the end?
The immediate counterpoint to this suggestion, in my understanding, is a matter of control and inefficiency.
First, many social enterprise owners started their organizations because they did not see anyone else doing something important (or they didn’t bother researching this). They also started their companies because they have a conviction about being able to do what they do BETTER than anyone else – including the government. As a result, it could be fairly argued by the “organization” camp that we should help good organizations scale because we expect them to be in the long term best suited to carry out their mission. Can we blame the hard-working, hot-blooded social entrepreneur for dreading their carefully constructed, innovative social change models poorly implemented by some incapable government clerks and for that reason, not entrusting them with this in the first place? Can we blame them for fearing the vagaries of political decision makers and their ability to kill their predecessors programs without any particular rationale other than partisanship and competitiveness towards adversaries?
Second, it could be argued that government budgets, capabilities, and/or attention spans sometimes are too limited to administer certain programs – and so instead of not having these programs at all, social enterprises struggle and fight and scream to raise as many dollars privately as possible to do what they want to do and not have to wait until the various factions of government find a way to allocate funds to the program in the end. This becomes all the more obvious in developing countries where social enterprises exist precisely due to the weakness of government institutions.
Frankly, I tend to sympathize with the second point more than with the first. I am all for carefully controlling and honing your boundaries – such as within the confines of a company you created – so you can help people and feel good about doing it as effectively and deliberately as possible. I am also for starting things ourselves when government is not ready or capable of handling them. But what I do not sympathize with is this idea that the ultimate goal for social enterprises, in and of themselves, is to be around and grow forever – just like all those desperate corporations fighting daily for survival. In most instances, the ultimate goal for most social enterprises should be to catalyze large institutions like government to take up worthwhile innovations and scale them through its budget as widely as possible.
For instance, the role of the social enterprise that successfully collaborated with government then shifts over time from 100% focus on innovation and execution to perhaps 20% execution, 30% innovation and 50% control/monitor how the larger agent (e.g., government) is doing on the execution. In a perfect world, a social enterprise could phase out over time as its work is placed into capable hands. Since those capable hands are not guaranteed to always be around (or even consistently capable), there is prudent reason for the social enterprise to live on to manage its legacy and keep innovating. For that basic maintenance there should be enough money lying around through foundations and impact investors.
As a last disclaimer, I do not speak as a pro-government wonk here, but try to convey the idea that “passing the baton to capable institution/organization(s) X” could be perhaps a more useful goal to set ourselves with our most powerful social enterprise concepts. I just utilized the example of government as a potential fit due to 1) resources, 2) permanency and 3) mission alignment, but any institution or organization fitting the above criteria is arguably suitable. And that is why we should strive to identify an “impact offtaker” to be most effective, instead of striving to make our companies the biggest they can be.
I am sure my thinking is nothing new. In the spirit of ending on questions, help me answer some of these, please: why do we still have a majority of companies dreaming about becoming big and mighty instead of talking about how to replicate their model to as many (reasonably functioning) governments or other partner organizations in the world as possible? Why do we hardly have any “Chief Replication Officers” among social enterprises’ senior leadership teams? Why do foundations and other social entrepreneurship fanboys keep calling attention to the genius of the individuals and companies they support, rather than how those accomplishments fit into the larger scheme of being scalable through cooperation with larger, sustainable institutions like government? Does the hesitation to collaborate and achieve wider impact stem from fundamental distrust between the SE/NGO and the public sector? Does it mostly stem from bad experience with corrupt and incapable regimes? Or does some of this trace back to our old favorite of individual ego?