Pathways for maximizing impact
You’re likely already running a social enterprise or planning to do so soon. You may also be wondering about how socially oriented businesses can expand their activities in order to create a positive impact. You’ve come to the right article if you are interested in growth engines for social enterprise.
If “growth” is the same thing as “scalability,” then “growth” would be “scalability.”
Let’s start with a simple statement: Growth and scaling should not be considered synonyms.
In an article in Harvard Business Review, growth is defined as “adding revenue at the same rate you add resources,” while scaling means “adding revenue faster than costs.” This definition implies that scaling is a more rapid, exponential process.
Both terms are used interchangeably today. There’s nothing wrong with this, so long as the words are clearly differentiated and it is clear that a business that “grows” will not necessarily “scale” into the future.
Social entrepreneurship: “Growth” and “scalability”.
As can be seen, “growth” is primarily associated with revenue. A startup that scales up its revenue increases in an exponential way. These notions are applicable to traditional ventures that aim for profit. What about social entrepreneurship, though?
Social entrepreneurship, as we have repeatedly stated in this platform, is about solving complex problems while generating positive changes. Income streams aren’t the goal here but a way to keep businesses running and addressing social issues.
Because of that, we definitely need different lenses than income/revenue-making alone. Consider this: If a social enterprise grows/scales in terms of revenues, that doesn’t mean it is also increasing/scaling when it comes to the breadth and depth of positive change it creates. Right? What we should instead assess is how quickly the organization can reach out to the target population, i.e., “beneficiaries,” and meet their needs. It is only the growth/scaling of social benefits that matters.
The adoption rate of solutions, products, and services designed to solve social problems is a better and more relevant measure of true growth/scalability for social enterprises. We’ll continue to use this principle throughout the rest of the piece.
Defining “growth engines” in social entrepreneurship
It’s time to introduce the concept of growth engines.
Eric Ries defines growth engines in his book ” The Lean Startup.” Ries defines a growth engine as the method that startups and firms use to achieve sustainable, long-term growth. In this context, “sustainable” refers to mechanisms that are constant and repeatable, excluding one-time activities that cannot be measured in terms of long-term revenue (e.g., One-time advertising, word-of-mouth, etc. ).
We need to adapt this definition once more for social entrepreneurship. As adoption rate is the key, “growth engines” are mechanisms that can accelerate adoption over time.
Growth engines for social enterprises (direct business models)
In a nutshell, the idea that underlies direct business models is that “customers are equal to beneficiaries.” The greater the number of customers, the bigger the impact. Social businesses and enterprises that implement direct business models are able to leverage market-driven mechanisms in order to increase the number of beneficiaries who purchase and use their products and services. These mechanisms can include sticky, paid, or referral engines.
It is the oldest engine. It focuses on the acquisition of new leads through paid tools/channels/activities, such as traditional advertising, PR, salespeople, banners, and digital ads. In this case, new leaders are converted into actual customers.
As a general rule, social enterprises should verify that the financial benefit that each customer brings over time (LTV) exceeds the cost to acquire that customer (CAC). If CAC is within LTV, this engine will not be sustainable.
“Acquiring new customers can cost up to five times as much as retaining existing ones.” This rule is familiar, are you? This is the exact trigger for the sticky engine.
Social enterprises are focusing on keeping customers over a long period by delivering value consistently and repeatedly. They make their customers “stick”. This engine is ideal for organizations that need to ensure that their customers use products and services over time in order to generate real impact.
This growth mechanism relies on reducing “churn” (the number of customers who abandon the company in a certain period).
Social enterprises use referral triggers to encourage their existing (happy customers) to recommend a solution to friends and family, thus generating more leads for them. The most effective techniques in this category are incentives, affiliate campaigns, or word of mouth.
Growth engines for social enterprise (multisided business models and matching business models)
Multisided business models or matchmaking models are multi-actors, unlike direct models. Beneficiaries and customers are two different segments. How can you ensure that the impact of growth/scale is the same when the two target segments are different?
Franchising and government funding/adoption are the best options in this scenario.
This growth engine is based on the same concept as traditional franchising. A social enterprise can expand its reach by licensing its trademarks, brands, designs, or intellectual properties to other individuals and organizations.
Two things are essential for this engine to function. When thinking of beneficiaries, an organization must ensure that its franchisees deliver products and services that meet standards. Monitoring can be expensive, but providing low-quality services to underserved or vulnerable populations is worse. The enterprise should also be able to create tangible value (i.e., Franchisees must be able to develop tangible (i.e., In fact, customers may replicate on a voluntary or even a paid basis. However, ensuring a financial motive will help to keep them truly committed.