Originally posted on Business Ethics
Social enterprises are judged by both their social impact and their ability to thrive as financially sustainable businesses. As in the strictly for-profit business realm, it makes sense to identify what successful social enterprises are doing well and to replicate those successes.
Empower Generation trains Nepalese women to sell solar lanterns in their communities. The program creates jobs and provides clean energy.
Unfortunately many, if not most, attempts at replicating social enterprises have failed, in part due to faulty assumptions that the success of a social enterprise will emulate the success of a purely for-profit business.
So what’s the best way to replicate successful social enterprises? After 14 years of working to accelerate social enterprises through its Global Social Benefit Institute (GSBI®) methodology and programs, Santa Clara University’s Miller Center for Social Entrepreneurship has gained some important insights.
The place to start is by rethinking our assumptions about what both “success” and “replication” mean with respect to social enterprises.
Characterizing Successful Social Enterprises
Too often, we measure social enterprises using the same yardsticks we use for purely profit-driven enterprises—expecting social enterprises to eventually look like an Apple or a Google.
Why is that an unreasonable assumption? As much as profit-only enterprises tout their corporate social responsibility (CSR) or corporate citizenship programs, the heart of their businesses—and how their success is ultimately measured—relates to how many products or services they sell, what profit margins they achieve, and their stock prices. In this sense, every successful traditional enterprise looks very much like every other successful enterprise: it’s all about financial returns.
For social entrepreneurs, the level of social or environmental impact they can achieve is what drives them and fuels their passions. If impact were the only goal, however, social enterprises would be indistinguishable from charitable organizations. Social enterprises differ from charitable organizations in their application of business principles, earning income to support all or parts of their operations.
Imagine a social enterprise that provides clean drinking water to a village, perhaps in Kenya or Nicaragua or India. How many villagers would the enterprise need to serve with clean water to be deemed successful? Fifty percent? Eighty percent? One hundred percent? What if it reaches 100% of the villagers but can’t generate enough revenue to become self-sustaining financially or to pay back its impact investors? Is that a successful social enterprise? What if it has a perfect balance sheet but falls far short of its impact goals?
In social enterprises, success means making meaningful progress toward specific social or environmental impact goals, while also achieving as much financial self-sufficiency as possible. But the target balance between social impact and business performance will vary depending on many factors, beginning with the problem the enterprise aspires to solve. Unlike traditional enterprises, one successful social enterprise might bear little resemblance to other successful social enterprises: the impact returns vary widely.
What Replication Means for Social Enterprises
Traditionally, replication has meant finding the optimal business and technology solution to a particular problem, then copying and disseminating it. This could include setting up franchises, opening new branches or satellite operations, establishing licensing arrangements, or forming distributorships.
Of course, depending on their impact sectors and other factors, some social enterprises are well suited to replication through means such as franchising, opening up branches, and setting up strategic partnerships in the region. For instance, a social enterprise using biodigesters to convert farming waste to energy is combining opening new branches with partnerships that lower costs to entry to replicate its business model from Mexico to countries in Central America and Africa.
This approach succeeds because the fundamentals of the social enterprise—farmers that generate organic waste and communities able to use the natural fertilizer and biogas generated by the simple, affordable biodigester—are relatively similar across diverse geographies, cultures, and environments.
In contrast, consider social enterprises in off-grid clean energy. Potential solutions include micro-grids, which work well in areas of high population density. But if the population density is too low, the transmission losses from micro-grids will supersede the ability to distribute power. For communities with lower population densities, the optimal solution might be stand-alone solar home systems.
Thus, within the category of off-grid clean energy, social enterprises with similar impact goals could have quite different technology solutions for achieving those goals. Different technology solutions often require different business model solutions: individual households can purchase stand-alone solar home systems through financing plans, whereas a micro-grid solution usually requires the social enterprise to make the capital investment. Social enterprises might also need to devise different strategies for energy storage (e.g., batteries, which require correct disposal), product distribution, pricing, and other foundational issues.
What’s emerging is the need to expand the traditional definition of “replication” when applied to most social enterprises. A more useful concept is to identify sets of best practices, along with the conditions under which the social enterprises operate, to inform the development of “playbooks” that can help up-and-coming social entrepreneurs learn from the achievements and setbacks of those who have traveled similar paths before.
These playbooks could present best practices across sectors, business models, and technologies to identify key elements needed to launch social enterprises, such as target markets, capital requirements, technology needs, distribution networks, and supply chains.
Using these playbooks, social entrepreneurs addressing particular problems could overcome obstacles more quickly and efficiently, by learning from entrepreneurs who have already tackled the same problems. As a result, playbooks could reduce the risk of failure for new social enterprises by enabling their entrepreneurs to take advantage of proven approaches to financing, pricing, marketing, and/or distributing their solutions—and to use their creative energy getting to market more quickly and efficiently.
Emphasizing best practices could also reduce the risk for capital invested in social enterprises. Impact investors could use best-practices playbooks to more quickly evaluate social enterprises in a given sector, rather than evaluating each investment opportunity anew. Investors will still need to conduct full diligence on the entrepreneurs—but the technology and business model solutions would have successful precedents.
Replicating Social Enterprise Successes
Imagine identifying common technology needs and business models among many community-scale social enterprises addressing similar problems. Instead of viewing replication as cutting and pasting business models from one locale to another, we can redefine it to include applying sets of best practices. By enabling local adaptation, involving partners to bring together the right people, and documenting the process in playbooks, we could help more social enterprises to thrive and to achieve success—whatever “success” looks like in each case.
As a bonus, these shifts in how we perceive social enterprise success and replication could help mobilize and aggregate capital, including from impact investors. This, in turn, makes possible the aggregate social enterprise scaling that’s required to trigger a meaningful reduction in global challenges such as poverty, environmental degradation, and gender inequality.