In this edition of the On Purpose blog we focus on scaling-up. Silvia Ursu, Apr’ 15 Associate, interviewed Mark Cheng, Director at Ashoka, on scaling-up in the social enterprise sector, key drivers and constraints, and the role of big business.
What is Ashoka’s experience with scaling up?
Over the past 35 years, we’ve supported just over 3,000 social entrepreneurs (‘Ashoka Fellows’) around the world, and we’ve learnt that there isn’t a one-size-fits-all approach to scaling. Social entrepreneurs aren’t just trying to grow a business: what they really care about is creating a systemic change in society. And that means that success for them is not just about larger market share: it’s about how did they change society? If that’s your goal, then there are many more routes to impact that just selling more products: for example open sourcing your model, or actively encouraging replication, franchising your concept, campaigning to change people’s mindsets or to create policy change, and so on.
How our fellows’ ideas reach scale depends on their nature, whether it’s a business, a mass movement or a whole new approach to tackling a social issue (such as crowdfunding or sharing economy models).
We have also observed that there isn’t a correlation between impact and the type of business model our fellows adopt. In our network of 3,000 Fellows, fewer than 20% run pure for-profit businesses. The vast majority adopt hybrid models that can vary from pure charity to some combination of charity and for-profit business.Finally, scaling up impact isn’t the same thing as scaling the organisation. Fair Trade has become much more than Café Direct. Or take microfinance: Mohammad Yunus founded the microfinance movement with the Grameen Bank, but the idea outgrew the founding organisation and has taken many different forms since.
Why is reaching scale difficult?
Starting social entrepreneurs face two important challenges: a lack of a level playing field and a broken financial system. When a social entrepreneur comes up with a great idea for an enterprise but gives part of profits to support a social cause, or targets a low income community as customers, or engages in activities such as education or community support that create social benefit but do not bring in revenues, by definition he/she is at a disadvantage relative to commercial counterparts who don’t face similar constraints. So the first barrier is that most social entrepreneurs are working with extra constraints that their competitors do not face.
The second challenge is the broken funding system for social purpose-driven organisations. Social entrepreneurs are often forced to choose their legal form right from the start, which determines their access to finance. They can either be a charity which is limited to raising donations. Or they choose to be a for-profit, in which case they can access investment capital but are expected to offer financial returns. Many social entrepreneurs find that neither option is right for them. They need subsidized capital from donations and philanthropy to get their idea off the ground, but they also need access to investment capital to grow. The market that provides that capital is very limited at present, although this starting to change.
Attracting talent is another important challenge that social enterprises face in their quest for scale. How can they overcome this?
This is a huge issue, particularly because of the lack of diversity of talent, experience and expertise at different levels and the cultural attitudes toward earning competitive salaries in the social sector. There is an absence of mechanisms to help people in the commercial and public sectors who have built a wide range of expertise and networks, make a transition into the social sector. I would love to see more programs, such as On Purpose, that helps people transition to the social impact space. My sense is that mid-career is a particularly important point to make that shift, when a person has so much experience and skills to bring with them.
How does technology help spreading social innovation and scaling social impact?
What’s interesting for me about technology is not the actual tech itself, but how it enables new ways for people to organise themselves, or enables wholly new business models. Take mobile telephony in East and Sub-Saharan Africa. Products and services like M-Pesa in Kenya, which allows people to make financial transactions on their mobile phones, have not only revolutionised the banking sector, but are also radically improving lives by enabling new models that could have not been done before. Ashoka has supported several successful solar energy enterprises that have brilliantly married mobile technology with solar technology, for example. People can buy a solar panel and pay for energy with mobile credit on a pay-as-you-go basis. And if the panel gets stolen, which was been a huge problem for early solar businesses, it can be deactivated immediately by also using mobile technology. This innovative use of technology is creating a transformative impact at the base of the pyramid in countries in Africa, South East Asia, Latin America and India.
Does big business play a role in scaling up social impact? How do you see large corporations – competitors or allies of social business in delivering impact?
In the last 10 years there has been a sea-change in how big business and social entrepreneurs interact. Previously, social entrepreneurs were the disruptors that were going to take down the business model of the big players. Now there is a recognition that working with the incumbents helps social entrepreneurs achieve scale. The former have vast resources and exert a lot of influence. For instance, I often argue that the head of procurement of Tesco’s or Sainsbury’s can make more social impact than a thousand NGOs put together by choosing where they source from and how they operate their supply chain. Similarly, big businesses are realising the opportunities of working together with social entrepreneurs. Companies such as Unilever, MasterCard and Google are partnering with Ashoka to create partnerships with social entrepreneurs. By collaborating with social enterprises on the ground, not only are they able to have a positive social impact, but also gain the trust of investors, customers and employees.
Can you give an example of a social initiative that scaled up successfully?
One of my favourite examples is Teach for America. Wendy Kopp, the founder of Teach for America, came up with a brilliant idea that turned around the perception of the teaching profession in the US. Teaching went from a disregarded profession to a profession that young people would aspire to. By recruiting the brightest university graduates and providing them with the challenge of spending the first 2 years of their careers working in the nation’s toughest schools, Teach for America managed to make the teaching profession a badge of prestige and an experience that future employers would value. Wendy then went on to launch Teach for All foundation which spreads the model and supports other organisations from across the globe to implement it in their countries. The Teach for All movement is now active in over 40 countries and growing, which is a testimony to the quality and the power of the idea. Our version here, Teach First, is the largest single recruiter of graduates in the UK today.
What I find interesting about Teach for All is that it’s not a business. It is not the kind of classic social enterprise that is amenable to traditional capital raising, because it doesn’t actually sell products and services. And yet it made a massive demonstrable social impact recruiting high quality individuals to be teachers, many of whom stay well beyond the two years. Nonetheless, no venture capitalist could ever invest in this kind of project because it doesn’t generate financial return. The success of Teach for America and the Teach for All model shows that we have to be open to these kinds of social impact organisations and design a capital system that can help them reach scale too.
Is there a social cause that drives you personally?
I’m very passionate about youth work. Every summer I volunteer in a programme called LIFEbeat which works with teenagers from all walks of life, many from broken homes and really tough backgrounds. LIFEbeat runs creative arts based summer camps for young people to help them discover their creativity and potential. The programme brings together youth from all over the country and it’s amazing to see how just in the space of one week these young people can absolutely transform and flourish.
What advice do you have for budding social entrepreneurs?
Social entrepreneurs often think that they can only do one of two things: either raise grants and donations OR raise investment. But having worked with many social entrepreneurs over the years what I’ve seen is that the most successful ones blend both. So, my first bit of advice is be very broad on how you pick the sources of finance and do not feel that you have to be in one box.
My second piece of advice is to be proud of being a social enterprise and make that part of your brand and your marketing. The best social enterprises make an asset of their social value, and use it in how they attract customers, how they operate and how they recruit. If you manage to do these two things, then your social enterprise will be ahead of the game.
Mark is the Senior Director of Ashoka in Europe (www.uk.ashoka.org). Ashoka is a global network of the world’s leading social entrepreneurs, which supports more than 3,000 Ashoka Fellows in over 80 countries. Mark is also CEO of Chelwood Capital, a social investment firm that helps mission-driven organizations to raise investment, and a board member of Emerge Education , an accelerator for ed/tech startups. Mark has assisted many social entrepreneurs in raising investment for social causes, in areas including micro-finance, renewable energy, conservation, healthcare and education. He writes and speaks frequently on social innovation and finance. He can be found on twitter @Chelcap.