We’ve learned a few things in helping support over 900 social enterprises around the world scale their operations with the help of our Experteers, Capacity Building Programs, research, and educational programming. Our work has touched early stage, award-winning enterprises long before they reached international acclaim, including groups like Inyenyeri, Sistema B, M-KOPA, Ubongo and BEMPU. At all stages in the social enterprise “pioneer gap”, we’ve been in the trenches with small, growing, and even large social enterprises. Along the way, we’ve scaled up our own award-winning social enterprise, too.

We’ve seen first hand what research continues to prove: Most social impact startups fall wildly short of their projections and end up going out business. The main reason? Social entrepreneurship is hard. Really hard. But there is another reason, too: founders, biased by their own egos and intuition, don’t take the time to truly embrace proven frameworks that will increase the odds of success.

Despite what you might think, there are no such things as visionary entrepreneurs. In fact, the number one reason that startups fail is because founders think they have an idea that will work, when in reality there is no market for it. This is why startup guidance is full of quotes like “fall in love with problems, not your solution”, “don’t become a technology in search of a problem” and “get out of the building”.

So how do you stack the odds in your favor when growing a social enterprise? Our guide below shares the most impactful frameworks and tools that you need to grow and scale your social enterprise. It’s still going to be a long, hard journey, but we’ve found that it helps to know that you’re not alone (even when it feels like you're riding a lion).


Why We Need You To Win

We can't solve problems by using the same kind of thinking we used when we created them. —Albert Einstein

Our planet can’t sustain the population under the current global, capitalistic system that operates today. Despite what many philanthropists think, we are not yet changing the world and are not likely to achieve the Sustainable Development Goals by 2030. In fact, we might even be hopelessly offtrack by the time 2020 rolls around.

But not all is lost.

Social enterprises not only solve social and/or environmental issues, but they also have a few other profound effects:

  • Creating world-positive jobs for others, meaning people can find career opportunities that create a positive net impact
  • Divesting financial capital away from net negative investments into world-positive ideas
  • Forcing entire systems to change and become more socially responsible

So whether you are starting your own social enterprise, launching a new social enterprise within an existing organization, or simply using social enterprise thinking to mold your career into a more world-positive direction, this guide was written to help you be the change.




Definition of Social Enterprise

Social entrepreneurs identify resources where people only see problems... They begin with the assumption of competence and unleash resources in the communities they’re serving.” — David Bornstein, Author, How to Change the World: Social Entrepreneurs and the Power of New Ideas

For this guide, we’re going to define the term “social enterprise” in a way that might be new to you. Social enterprise is a verb (a way of doing things), not a noun (a specific thing). Social enterprises are not necessarily stand-alone businesses like any other “startup”. Social enterprise, rather, is a way of thinking that can live as a stand-alone initiative or be embedded within an existing organization. One of our more popular articles covers the 600+ year history of the social enterprise movement and explains some of the different legal entities that can use social enterprise thinking.

In the MovingWorlds Institute, we educate our Fellows to understand a social enterprise as:

“An entity that utilizes marked-based forces to solve social and environmental challenges through the creation of sustainable revenue streams – with the intention of positively influencing the larger systems and stakeholders around it.

But there are shades of gray to this. You’ll most often hear the term “social enterprise” to refer to a “Benefit Corporation”, but it can also refer to a new public-sector team responsible for improving education in a city, or even a part-time job within a company to green your supply chain. Social enterprise thinking can exist in governments, education, non-profits, for-profits, and more.




Follow these 9 proven steps to successfully scale your social enterprise.

#1: Understand your ecosystem

Systems help us to move forward, to go as far as we possibly can. They enable us to work faster, smarter, and more strategically. A good system eliminates waste, while it also anticipates and removes obstacles. John Maxwell, author

The number of failed social enterprises that can trace their demise back to this step is maddening. All too often, insiders and outsiders alike think that they have developed an innovative product, business model, and/or service that is “too good to fail.” They start working on market adoption before understanding the ecosystem they are planning to sell within. When I press new social entrepreneurs I’m working with to show me a systems map (tips below), the most common excuse for not having one is something along the lines of “I’ve worked in this space for a decade” or “I am from this community, I know it inside and out.” When social entrepreneurs I mentor say this, I always push back on this assumption. If they still refuse to acknowledge their blind spots, I then end the meeting. An all-knowing attitude is the cardinal sin of social entrepreneurship — we all have blind spots.

I have seen healthcare startups fail because they didn’t understand regulatory environments, new civil-service units crash and burn because they forget to engage the nonprofit community, and educational-system overhaul efforts fail because teachers and PTAs were not involved – all things that would have been prevented with a systems-map and thorough discovery process.

The problems we are facing today are all systemic and require systems thinking. This is precisely why one of the most popular content series in the Stanford Social Innovation Review is the idea of “Network Leadership” and why “System entrepreneurship” is growing in popularity.

So what is the best way to understand your ecosystem? Simple: get a diverse group of stakeholders from across the system and map it. We love the guidance provided by FSG, a mission-driven consulting organization, in its Systems Thinking Toolkit, which starts with great examples of systems mapping. We also think it’s well worth a few extra meetings to audit a community’s assets using the Asset Based Community Development Model from Depaul University.




#2: Use Design-Thinking to find a product that can scale

Love the Problem, Not Your Solution —Ash Maurya, author of Running Lean: Iterate from Plan A to a Plan That Works

After not mapping your system, the next best way to ensure failure is to build something that nobody wants. In fact, research shows this is the number one reason startups and social impact projects fail. Ideas are usually terrible, and even if you are nimble enough to pivot your idea to a sustainable business model, the chance it can really create an impact and scale is still less than 10%. But most startups fail because they are based on the “visionary ego” of founders. Remember, users decide what products will be adopted, not entrepreneurs. Community members will decide to use healthcare interventions, and these can’t be forced upon them by big funders. Cities can try and create healthy walkways, but citizens will decide if they use them.

As Sam Walton shared, “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down”. If you want to succeed, you have to get to know your customers and beneficiaries, and make sure you are delivering them real value.

Time and time again, following design-thinking processes have proven to be a better way to create social enterprise solutions than brainstorming ideas on a white board. While many models exist to implement design-thinking (like lean startup), the method we see most likely to create sustainable growth and impact for social enterprises is a combination of human-centered design and business model generation. As we explain in our post, Human-Centered Design vs. Design-Thinking: How They’re Different and How to Use Them Together to Create Lasting Change, there are 5 stages of the design thinking process. Just because you generate revenue doesn’t mean your idea will make things better, and the opposite is also true: just because your intervention helps, doesn’t mean it will be adopted. You have to go through all of the following 5 stages of this process to ensure that your model can both gain market traction AND make an impact.

Here are some great examples of the 5 stages of the design thinking process in action to inspire your own work:

  1. How to build empathy: great guide from Interaction Design Foundation and this from the Nielsen Norman Group
  2. How to define a problem: Interaction Design provides good templates here and I really like this simple template from EightShapes.
  3. How to ideate solutions: Interaction Design has easy to follow guidance
  4. How to prototype: IDEO has a useful case study here with real examples and I also like looking at The Lean Startup Movement for inspiration in how to build MVPs
  5. How to test your prototype for impact and sustainability

Design thinking process with human centered design for social enterprise

But a word of caution here: The number of social changemakers I see shortcut this process is even more than those that shortcut systems mapping (remember that 90% fail rate?). Here are the most common reasons I see aspiring entrepreneurs short-cut this process:

  1. They think they already know it all and don’t have to test their ideas (they don’t know it all. 90% fail)
  2. They are scared about early market feedback (they are proud of their pilot and don’t want to break it)
  3. They are embarrassed about how rudimentary their first product is (don’t be, our first sales page was a shared google document and LinkedIn’s founder gives this advice: “If you are not embarrassed by the first version of your product, you've launched too late”)
  4. They feel uncomfortable working with constituents and stakeholders (they don’t have enough connections… meaning they didn’t complete systems mapping in step 1)
  5. They get initial pushback on their ideas and don’t want to cope with being challenged (they get their feelings/ego hurt and then think they know better, so they push on)
  6. They don’t know how to find potential users (or rather, they haven’t spent enough time out of the building trying to find potential users)
  7. They misidentify who their users are (i.e. they think it’s the executive director of a nonprofit, when it’s actually the healthcare workers on the frontline who will decide if a product is adopted)

When I talk to social entrepreneurs who are trying to grow their organizations, I use this three-part question as a simple litmus test to quickly understand the product and if there is an active market for it:

  1. Name the specific problem that your specific user has
  2. Tell me how the current user is expending resources (time, money, or other) to solve the problem
  3. Why do you think your solution will solve the problem 10x better than anything else on the market?

Part 1 of this questioning helps clarify the specific user and if they actually have a problem, and part 2 clarifies if there is an existing market for the solution within the user base. Part 3 helps me understand their hypothesis about real value creation. Most social entrepreneurs can’t answer the first two parts, and that’s why most fail.




#3: Validate your scale-up business model

We must learn what customers really want, not what they say they want or what we think they should want. We must discover whether we are on a path that will lead to growing a sustainable business. —Eric Ries, author of The Lean Startup

Creating a social enterprise solution that works in one community or for one customer segment is very different than creating a scalable social enterprise. Scaling means there is a repeatable sales and delivery model that gets more efficient with more customers.

What I mean by this is that you can go through the Design Thinking Process in the earlier step, but then never test your riskiest assumptions about scale. Testing is hard, but that's why we really like Business Model Generation as a tool so you can answer:

  1. Can your sales efforts scale?
  2. Can your service delivery scale?
  3. Can your impact model scale?

Once you’ve determined if you can scale, the next question you need to answer is: what is the best way to scale? As Dr. Melodena Stephens Balakrishnan shares in the article The How-To: Scaling Social Enterprise Ventures, “there are different ways to scale”. This article in Harvard Business Review, How to Take a Social Venture to Scale, shares additional lessons you’ll need to get right alongside your business model. Different than venture-capital backed startups, sometimes social enterprises will scale via partnerships, grants, affiliate programs, service models, or licensing driven by impact more so than by profits.

Answering this question, along with standard scale-up questions, is hard — but it’s important and needs to be validated early on. As additional resources, here are more case studies of scale.

FSG also has a nice video, The Power of Industry Facilitation: Bringing Market-Based Solutions to Scale.

Conscious Magazines suggests also looking at “Collective Impact”, “Behavioral Economics”, and “Home-Bias Tendencies” strategies to support your growth.

Hands down, the best guide that we have seen on how to run experiments to validate your business model is called The Focus Framework, which helps you think through and design experiements in order to:

  • Find cstomumers with a problem
  • Offer test your ideas with them
  • Currency test to validate your business model
  • Utility test to be able to validate your ability to solve their problems
  • Scale test to figure out how to grow





#4: Scaling your idea and raising impact investment capital

That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach. Aldous Huxley

You might be wondering why funding did not enter this guide until step #4. Indeed, I see many entrepreneurs try to fund their ideas before Step #1. Nine times out of ten that will make the path to failure more certain, and more painful because of the external influences and pressures.

But scaling is important, and it should be pursued if your organization finds product-market fit. As this Stanford Social Innovation Review guides, "To Impact Millions, the Social Sector Needs to Scale Scaling Up".

Second to following proven frameworks to build your dream (systems mapping, HCD, and BMG), the next best advice I can give is: don’t raise money until your scale-up strategy REQUIRES it. There are more investment vehicles than ever, including crowdfunding, angel investors, impact investors, venture capitalists, philanthropists, government funds, accelerators, entrepreneur support organizations, and more (note, we used a revenue-based equity buyback). Yet even with numerous options, receiving financing is still very time consuming and hard. Most importantly, it pulls you away from your end users and away from the processes outlined in steps 1-3.

Raising money is hard and it pulls you away from your core competency. It’s much better to grow on revenue and to preserve equity for your team by focussing on customers rather than chasing investors that have a different vision for the future of your enterprise and its operations.

SocialGoodImpact has a “Somewhat quick guide to social enterprise funding” and I’m a fan of Luni Libes and his “Next Steps Guides”. This scaling up guide from ATKearny also shares some valuable insights and case studies. To discover funding, try this free tool with a global development focus.

But before you look for sources of capital, we recommend this simple decision making process: Raising Money as a Social Enterprise Decision Chart

In summary, don’t raise outside funding until you’ve answered these questions truthfully: Does my company actually need to raise money, or can we grow on revenue? Have I exhausted all possible ways to build this from the ground-up without raising capital, even exploring an alternative legal structure, like a cooperative (arguably the original social enterprise)? Am I raising money of out of ego, or because it is what is best for my business, its employees, and our stakeholders? Have I really tried all possible options including partnerships with customers and community groups I’m working with?

Time and time again I see entrepreneurs rush to equity financing with traditional angel and venture capital funds only to waste all their time, or worse, end up with a business that has to pivot away from its social impact intentions because its investors prioritize financial returns.

As you pursue other ways to scale, check out these great resources:

  1. Spring Impact toolkit for replication
  2. Scaling Pathways Guide from Duke University’s Center for the Advancement of Social Entrepreneurship (CASE)
  3. Smart Impact Capital Guide from CASE
  4. Bridgespan's Creating Strategies for Scaling Impact
  5. DIY Scaling Plan






#5: Build the right team and develop their skills

As much as I hate process, good ideas with great execution is how you make magic.Larry Page, Co-founder of Google

Social enterprises are harder to start than for-profit organizations. They are likely to pay a little less than giant corporations with unlimited resources, and because of mission alignment as an additional screen, your pool of talent is smaller than most. Finding and developing the right people is hard enough, and like all things social enterprise, creating a model that is also focussed on impact can actually make it more challenging to get to true scale and impact.

At the Social Capital Markets 2018 conference, I led a panel with an entrepreneur, system-builder, and investor to help answer the question of how you build the team behind the entrepreneur. We summarized our takeaways in these 3 steps:

  1. Building a culture of growth with shared values
  2. Finding, hiring, and compensating the best talent
  3. Building an inclusive environment that enables personal learning and growth

You can see the presentation here, and pay particular notice to slides 24, which links to very helpful resources, like the Village Capital Talent Playbook and the Open Capital Advisors Talent Diagnostic tool.






#6: Managing your team

Goals without routines are wishes; routines without goals are aimless. The most successful business leaders have a clear vision and the disciplines (routines) to make it a reality. —Verne Harnish, author of Scaling Up: How a Few Companies Make It...and Why the Rest Don't

Startup people always complain about processes because they are “bureaucratic” or “corporate”. Those startups then go out of business. Certainly, you can overdesign processes and operationalize your way out of business, too, but a focus on great systems is what will make your social enterprise great. Managing your team first starts with managing yourself, then building the right systems, and finally managing your people. Read The Effective Executive (great summary here), High Output Management (great summary here), and Measure What Matters (great summary here) for guidance on how to do this. Then reread them every year to keep improving.

But I have found that there are more layers to managing than just managing your team members. The most effective leaders manage 3 distinct entities:

  1. Managing yourself: You have to understand yourself, your biases, and how you react under pressure and stress. If you can’t manage yourself, you can’t manage others. Need help? Take StrengthsFinder and work with a coach.
  2. Managing your systems: You need to build nimble systems that can grow and evolve with your business model. Most importantly, these systems need to align your team members behind a growth strategy, provide effective measurement on progress, empower your team to make autonomous decisions, and keep improving to provide better experiences for your customers (Read the above resources on High Output Management and Measuring What Matters with Objectives & Key Results).
  3. Managing your team: Managing people is hard, and entrepreneurs need to reinvent themselves from builders to managers to do this effectively. Get a mentor, let your team know you are working on improving your skills, and then actually keep getting better. (Brene Brown’s assessment and book are great resources, as is this book by Liz Wiseman: Multipliers, How the Best Leaders Make Everyone Smarter.




#7: Build partnerships to keep growing

Go to the people. Live with them. Learn from them. Love them. Start with what they know. Build with what they have. But with the best leaders, when the work is done, the task accomplished, the people will say 'We have done this ourselves.' —Lao Tzu

Social entrepreneurs can’t solve all the problems we are facing today. Increasingly, the forces we are battling against are deeply rooted systems. Your organization or idea may come and go. Your own career path might change. Your organization might go out of business or be acquired. Nobody is waiting on any one person or organization to solve our problems. Only through partnerships can we reach our own potential, and help others reach theirs. Well documented research from Professor Jane Wei-Skillern outlines a new type of leader that is focussed on partners, termed “The New Network Leader”. Network leaders are the “Most powerful leader you’ve never heard of”. As you build social enterprise partnerships, use these lessons from Network Leadership

  1. Focus on mission before organization
  2. Manage through trust, not control
  3. Promote others, not yourself
  4. Build constellations, not stars






#8: Report on impact (in real time)

If you can't measure it, you can't improve it. Peter Drucker

This is another one of the hardest parts about managing a social enterprise, but your impact is an important differentiator from existing businesses. In addition to reporting on your finances to your Board, you also need to report on your impact to your stakeholders.

Measuring is time-consuming, costly, and I’ve seen many enterprises obsess over measuring the wrong things. Mary Kay Gugerty and Dean Karlan in their Stanford Social Innovation Review article, “Ten reasons not to measure impact and what to do instead”, share lessons about wasted time and money on impact measurement, either in being premature or fated to produce poor results because of missing conditions. They highlight that measurement is indeed important, and suggest several different things an organization can invest in instead, like using qualitative data, interactions with real users, and ongoing analysis of operations to keep making step changes until you are able to invest in a randomized control trial.

Here is what most social entrepreneurs miss: The point of measuring is not to measure. It's to improve. Even taking a small step to measuring one small indicator starts your on the journey to ongoing improvement.

PlusAcumen offers a great course and resources on measuring social impact, using the idea of Lean Data, (Field Guide here) an idea further developed by Ann Mei Chang in her book, Lean Impact (nice summary here)






#9: Push the industry

Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry. —Bill Drayton, Leading Social Entrepreneurs Changing the World

If you started a social enterprise and are one of the few that have been able to make it to profitability, I commend you, and now I will put a still bigger burden on your shoulders. The mark of a successful social enterprise is not just its own business success, it’s what happens to the industry around it.

So how do you push the industry forward?

  • First, if you are successful in courting customers, you will force the industry to adapt.
  • Secondly, you can publish research and findings to build best practices.
  • Third, you will create partnerships that share better ways of doing things.
  • Fourth, and perhaps most importantly, if you operate your organization effectively, you will build the skills of your team members who can make entire careers built on creating more world-positive social enterprises.

The frameworks above are not just for you. They are for your team members, your community, and the world. When you use these processes and share your failures and successes, you enable others to improve, too. As my mentor shared with me: “success is something that happens after you leave”. And investing in developing your team to carry on the social enterprise movement without your guidance is one of the most impactful steps you can take, regardless of whether your own venture succeeds (or doesn’t).




#10: Return to Step 1

While there may be various tips, pointers, ingredients, and strategies to success, there is no one formula that always guarantees it other than to keep learning from failure itself. Criss Jami

When I was writing this guide, I turned to Sachi Senoy who is the co-founder and Chief Impact Officer at Upaya Social Ventures for help. Upaya is a truly innovative nonprofit that has managed to figure out a scalable way to get growth capital to social enterprise serving the ultra-poor. When we finished this guide, she recommended the following, “the advice in this guide is not only for social entrepreneurs who are starting out, but even for those of us who have been at it for a while. It’s always healthy to re-visit one’s strategy, do a health check and experiment – and pivot if you need – to stay on the cutting edge.




Summary

Rather, ten times, die in the surf, heralding the way to a new world, than stand idly on the shore. —Florence Nightingale, inspiring social worker and the first social entrepreneur

Scaling a growing social enterprise is hard work. Follow the 10 steps in this guide to increase your ability to create lasting change:

  1. Understand your ecosystem
  2. Use Design-Thinking to find a product that can scale
  3. Validate your scale-up business model
  4. Financing your scale-up initiative
  5. Build the right team and develop their skills
  6. Managing your team
  7. Build partnerships to keep growing
  8. Report on impact (in real time)
  9. Push the industry
  10. Return to Step 1

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