What’s the difference between scaling your business and scaling impact?
by Martin Ruckensteiner and Christine Spernbauer
Here is the third part of our scaling trilogy: “Scaling your social business”. In the first two pieces we covered
You are scaling a social venture. What do you think is the difference between an ´impact business´ and a conventional company? Where are the pros and cons?
Let´s start with the cons: At first sight, a social business has more disadvantages compared to a normal business. On top of all the inherent difficulties of scaling a business – such as creating a new value proposition, developing a new business model or raising money – as a social entrepreneur you face additional challenges. Examples: You sell to customers who might not have the same purchasing power as a mainstream customer. Or you employ people who simply are not able to perform at an average productivity level (beneficiary group as employees). Compared to a traditional company, your strategy and your business model is somehow handicapped. Challenge2 (challenge squared) compared to a traditional start-up business.
To illustrate this, here is the example from a social business in Austria: Gabarage aims at re-integrating unemployed alcohol or drug addicts into the “normal“ labor market. The company collects and up-cycles old material. Outranged escalators are turned into design furniture, old books are upcycled to trendy stools, and outdated traffic lights become fancy lamps. The employees participate in the design and up-cycling process. They collaborate with industrial designers and do their job in the company´s workshop. Although they find a new meaning in their life, in pure business terms their productivity is below average.
The other side of the coin – Advantages
That’s the productivity and financial disadvantage of your social venture. But don’t underestimate the other side of the coin.
- A social business has access to funds, which are closed to a conventional business. The higher the social welfare state of a country, the better the offering of subsidized financing for social businesses. Our social upcycling example is using these funds and finds a great balance between cash flows from customers, sponsors, and subsidies. In low-welfare countries you will find foundations which might be willing to support your idea. Typically, these foundations focus exclusively on projects “with a cause”. Again, a big advantage for a social business.
- Here is maybe the most important advantage of a social business: You address an issue which matters. Generally speaking, a social business targets burning challenges: Poverty, inequality, discrimination, peace, migration, education, nature and climate, nutrition and health. Whatever you do, you try to make the world a better place. You do not work for yourself. You and your team invest your ideas, your time, and your efforts into a meaningful initiative or venture.
This meaning and purpose offer tremendous advantages over a traditional business. Here are just three important ones:
Talent: The purpose of your venture helps you to attract talent. Talent which will be more engaged than in pure-money-driven organizations. Talent that works more for the cause, and less for the salary. You might be able to compensate some of the productivity disadvantages.
Supporters: The challenge you address gives you the ability to find mentors, partners or investors.
Marketing: It will be much easier for you to get marketing airtime or coverage for your business idea, some times its even free!
- Addressing an ecological or social cause offers room for completely new impact and business models. Remember you scale both impact and business. Try to develop your strategy from the end. Backwards, from the impact side.
According to our experience, impact happens in three dimensions (examples given):
- Concrete results: Microfinance helps one woman or man. She or he can earn more and get out of poverty.
- Changing behavior: A teacher is changing her way of interacting with children. She smiles, encourages and praises kids. – They have fun, show more interest and perform better.
- Changing mind-set: A few authorities inspire a community or country on plastic pollution in the ocean. Media jump on the topic. Policy rules are changed, behavior changes and concrete results follow.
“Theory of change” is the strategic buzzword for creating impact: What is your impact model? Which impact levers do you want to pull? How can you inspire and encourage other people to engage in your issue? How do you drive change?
The UK foundation, Nesta, found four typical paths towards impact, which you might consider for your idea:
- Do you simply advocate for your cause?
- Do you build a business or impact model which someone else (like a franchise) can scale?
- Do you “use” another partner organization to make your idea big?
- Or do you build your own venture?
Obviously, scaling impact is as important as scaling your business.
What do you think? What are your scaling experiences? Let´s share with us what you have learned?
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