Scaling social businesses - Lessons from Impact Hub Scaling
[This post was written by Devi Clarke, Scaling Manager at Impact Hub Scaling]
Social enterprises can often be seen as niche businesses, whose roots in local communities mean they don’t have the scope to grow. For some this is true, and scaling up may not be necessary.
On the other hand, the sector all too often re-invents the wheel. Rather than starting another small enterprise doing the same thing as their neighbour, might we achieve more impact if we scale up those who are already successful? Might we achieve economies of scale that build sustainability, and allow us to learn from our previous experience? How can we go mainstream unless at least some social enterprises achieve scale?
When we talk about scaling, we are not talking about organic growth. Scaling involves rapid growth, replication or the introduction of new products to your existing market. Importantly, it can sometimes mean that you are adding impact or revenue to your business at a higher rate than you are adding resources.
When are social enterprises ready to scale?
For the past year, 8 Impact Hubs across Europe have been working with over 100 social enterprises through our Scaling programme. We know that scaling can be a risky time for enterprises, requiring clarity as well as resources – in fact it can be as unsettling as the start-up phase of the business.
So, as well as looking for proof of concept and a sustainable business model, we seek teams that are resilient, ready to learn and willing to do the work involved in scaling successfully. They need to be teams that are not easily distracted from their purpose.
Sometimes social entrepreneurs think they are ready to scale, but in fact are still at an early stage of growth in their business. We seek out those that have a product or service that is both proven and simple. The simple ones tend to be the easiest to adapt to other markets.
What are the stages of scaling a social enterprise?
As we worked with them, we learned that, despite their uniqueness and need for specific support, scaling social enterprises tend to go through three stages as they grow.
Stage 1: Organisational transformation
‘The business model, goals, team roles, systems and communications all need to be as complex as necessary but as simple as possible’
The shift from a small organisation to a larger organisation is a major transformation for most enterprises. Rather than a small group of founders who know the business inside out, the enterprise has to develop ways to communicate its culture and goals, and its processes and targets to new team members – sometimes in geographically distant locations. Not only does this demand recruitment and management skill, it also means that the enterprise needs to establish new systems and processes, without losing the strength of its culture.
Understanding what they have been doing subconsciously and documenting and communicating it in the right format, can be tough. It takes time, effort and focus. However, it can also reveal previously hidden issues and improve efficiency.
|Enterprise A had a very complex invoicing system which meant that large amounts of time were spent chasing customers. Knowing that this system was going to be delegated to a more junior team member prompted the entrepreneur to prioritise a simpler and more controllable system.|
|Enterprise B researched and clarified who their ideal customers were, thus cutting down time spent visiting and pitching to those who were never going to be worth working with.|
|Enterprise C explored the most replicable part of their business was, and decided to reduce the time on other activities, focussing instead on strengthening and clarifying this specific service.|
Each of these are small changes, but make a big difference to how well an enterprise can scale, whilst also improving their current operations. Like the ‘investment readiness’ or ‘contract readiness’ preparation that many social enterprise support organisations offer, this shift for ‘organisational transformation’ allows enterprises to be ‘scale ready’.
Stage 2: Market Readiness
Preparing to grow into a new market, of course, demands market research. The new market could involve moving to a new region nationally, going international or gaining public or private sector contracts. All of these benefit from market insight and connections.
Our programme, Impact Hub Scaling, used its local presence in cities across Europe to help enterprises gather basic facts about the potential market, and access support to undertake more detailed research and analysis.
We found that in some cases, social enterprises need to adjust their model to reach the new market and that the most successful in scaling have often been those with a business model that is simple enough for others to understand and apply to other contexts.
Enterprise D had a key focus to connect politicians and their constituents. They found how different the expectations and regulations are in the UK compared to Spain, where the enterprise started. Having a constituency, rather than a proportional representation system demanded fundamental changes to the offering.
For social enterprises scaling internationally there is also the need to understand tax, legal and financial differences between the markets, and potentially learn what is involved in setting up international payment systems, internationalising their online presence or translating their materials.
Having an adviser in the new market helps the enterprises learn things ‘they don’t know that they don’t know’. For example, British people know that the end of the tax year is 5th April, but why would anyone else think it would be any other time than the end of December!
Stage 3: Market Entry
By now, the business is ready to launch in a new market. It produces its materials in the relevant language or format (new languages may also include the jargon of the sector they are targeting – such as ‘public-sector-ese’!), employs the new team members it needs and starts selling.
The easiest way to tell if an enterprise is ready for this stage is that they start doing it!
We found that the market entry phase often runs in parallel with improvements in the previous two stages – developing the team, systems, research and so on. After all, scaling a business is an iterative process.
At this stage, social entrepreneurs tend to need some or all of the following: space to work; partner/customer connections; translation and copywriting; company, legal, tax and financial advisers and set up; ongoing market insights; recruitment of local team members and investment to grow.
Final tips for supporting social entrepreneurs to scale successfully
If you’re a support organisation working with social entrepreneurs, here are our top take-aways from Impact Hub Scaling programme:
- Support for scaling social enterprises needs to meet the needs of diverse enterprises with unique goals and challenges, while also offering opportunities to learn from one another. In Europe, many social entrepreneurs have already participated in other support programmes and don’t want to ‘waste their time’ in similar training sessions, so when you do offer training it needs to be particularly relevant to the business stage they are at.
- The workshops we ran were suggested by working closely with the enterprises during their individual coaching sessions. If a particular topic arose regularly, we would run group trainings. In effect we designed the programme by listening to them.
- Connecting social entrepreneurs to sector or technical experts is of real value. No social enterprise support organisation can be an expert in everything (from cinema to coffee or from venture capital to branding), so spend time building partnerships with the specialists who can provide that depth of insight that really adds value.
This blog is part of the November 2016 series on Scaling and replicating inclusive business models, in partnership with DFID and SEED. Explore with us the key ingredients of a pathway to scale, debates and new ideas on replication, and look at what small companies, large companies and ecosystem actors can do.