The rise of the social entrepreneurship movement in the last twenty years unleashed a powerful engine of innovation for society. Thousands of engaged citizens – social entrepreneurs – construct and implement novel solutions to neglected societal problems, thus contributing to a more inclusive, equal and prosperous society.
Yet a key challenge for social entrepreneurs is scaling their solutions to achieve greater impact. While commercial entrepreneurs benefit from a deep and supportive ecosystem of venture capital, mentorship, and talent that helps them in building robust organisations and conquering their markets, social entrepreneurs are typically dependent on smaller and shorter-term funding based on awards, crowdfunding, or grants.
The result is a fragmented sector with numerous but small and locally-focused social entrepreneurs with limited ambition, funding and capabilities to scale.
The recent growth of impact entrepreneurship and impact investing is changing this situation. Recognising that social entrepreneurs can develop commercially viable ventures with business models that deliver significant impact, a new class of investors is emerging to invest in social enterprises and support the growth of these impact ventures.
With an investment proposition of achieving significant impact while delivering market-level returns from their investments, impact angels, family offices and new funds have been launched in the last decade, mobilizing more than $100 billion dollars for impact investing.
These funds are providing, for impact-oriented ventures, the supportive ecosystem that traditional entrepreneurs already benefit from, helping social entrepreneurs achieve greater scale and impact.
Despite the promise, there is a pitfall in thinking that the route to scaling impact is growing the social enterprise to conquer new markets. Ventures with a truly aligned business model and impact model will tend to be few and, due to their rarity, they will be eagerly pursued by investors. For most others there will be significant trade-offs between maximising profits and maximising impact.
These trade-offs may involve, for example, serving more difficult and excluded segments with less ability to pay, investing significantly in capacity building for beneficiaries, or spending time and resources influencing the behavior of partners and government. All these activities may be critical to achieving impact, but may constrain the profitability of the venture.
For ventures that exhibit some of these trade-offs, scaling impact may not involve growing the organisation but rather keeping it a critical size that allows them to influence others, or even making the organization obsolete, replacing it by a new policy or market offering.
And here lies a special advantage of social entrepreneurs – they have multiple and effective pathways to scaling impact that are not available to commercial entrepreneurs. For example, they can change the practices and behaviors of people, institutions or companies to solve or prevent the societal problem they are focusing on.
Or they may be able to show that a new inclusive market is possible, opening up that market for others to enter and compete. Significantly, they can affect and shape public policy, promoting the scaling of their solution by governments at a national or global level, They can also codify their solution in simple ways to enable its replication with quality by partners worldwide.
Or they can develop a truly global but open platform that is free for users, or become the catalysts of a new social movement that they don’t control. All of these pathways may not be obvious or sensible for commercial entrepreneurs, but they are core to the work of social entrepreneurs.
Not only should social entrepreneurs be aware of their pathways to scale, but social investors should also be clear about the most effective scaling pathways for their investees, understand what strategies and actions these entail, and support social entrepreneurs in this journey, instead of imposing a one-size-fits-all model of growing the organization to conquer the market.
Their focus should be on the social innovation as a solution to a societal problem and how it can scale, not on the needs of the social enterprise they financed. Thus, the social enterprise should not be seen as an end in itself, but merely as the mechanism to validate and disseminate a social innovation.
What pathways for scaling impact should be used in which situation and how can they be effectively deployed? This is a complex issue for which no clear answers or models currently exist.
These issues will be discussed in-depth with a senior group of investors and social sector leaders participating in the program ‘Scaling Impact for Social Investors’, a pioneer executive education program developed in partnership between EVPA – European Venture Philanthropy Association – and Católica-Lisbon School of Business in Economics. The program will take place October 11-13 in Lisbon. More information can be found here.
Filipe Santos is Professor & Chair in Social Entrepreneurship at the Católica-Lisbon School of Business & Economics.