Growth Engines for Social Enterprises
Pathways to magnify impact
If you landed on this page, you’re probably already managing a social enterprise or are planning to launch one soon. Also, you may be wondering how socially-oriented companies can further expand their activities to generate positive social impact. If that’s the case, you came to the right place, as this article precisely focuses on growth engines for social enterprises.
A premise: is “growth” the same as “scalability”?
Let’s begin with a premise: growth and scaling shouldn’t be considered as actual synonyms.
In an article published on Harvard Business Review, growth is described indeed as “adding revenues at the same pace you are adding resources“, whereas scaling means adding revenues “at a faster pace than costs”. Such definition suggests that growth follows linear patterns, whereas scalability happens in a faster, exponential way.
Today, the two terms are often used interchangeably. Nothing wrong with that, as long as it’s clear that the two concepts technically differ and that a company that is “growing” won’t necessary “scale” in the future.
“Growth” and “scalability” in social entrepreneurship
As seen, “growth” and “scalability” are mostly associated to revenue-making. For instance, a startup that is scaling increases its revenues in an exponential manner. Sure, these notions well apply to traditional, profit-oriented ventures. But what about social entrepreneurship?
As repeatedly discussed in this platform, social entrepreneurship is all about tackling complex social problems and generating positive change. Here, income streams are not the end goal, but rather a way to keep enterprises up and running while addressing societal issues.
Because of that, we definitely need different lenses than income/revenue-making alone. See it this way: if a social enterprise is growing/scaling in terms of revenues, it doesn’t necessary mean it’s also growing/scaling in terms of breadth and depth of positive change created. Right? So, what we need to assess instead is the rate at which that organization reaches out to its target population (namely, the “beneficiaries”) and fulfills its needs. What matters is nothing but growing/scaling social benefits.
Therefore, the adoption rate of products, services and solutions designed to solve a social problem may be a more suitable and relevant measure for true growth/scalability of social enterprises. And we’ll stick with this principle for the rest of the article.
Defining “growth engines” in social entrepreneurship
At this point, time to introduce you to the concept of “growth engines“.
In his book “Lean Startup“, Eric Ries provides a clear definition of growth engines. According to Ries, an engine of growth is the mechanism that firms and startups use to achieve sustainable growth. In this context, the term “sustainable” relates to constant, repeatable mechanisms, excluding any one-time activity unable to determine long-term impact on revenues (i.e. single advertisement, occasional word of mouth, etc.).
Now, once again, we need to adjust such definition for social entrepreneurship. Since adoption rate is key here, “growth engines” for social enterprises and social businesses are those mechanisms able to accelerate the adoption of a social intervention over time.
In the next section, we’ll make a distinction between:
- Engines applicable to direct business models (product or solution models), where the organization sells its solution directly to beneficiaries;
- Engines applicable to multisided or matchmaking business models, where beneficiaries and customers are not the same.
Growth engines for social enterprises (direct business models)
To cut a long story short, the core idea behind direct business models is that “customers equal to beneficiaries“. The more the customers, the larger the impact created. Thus, social businesses and enterprises implementing direct business models can leverage market-driven mechanisms to have more beneficiaries purchasing and using their products or services. Such mechanisms include paid, sticky or referral engines.
1. PAID ENGINE
This is the most traditional engine of them all. It focuses on the acquisition of new leads through paid tools/channels/activities, such as traditional advertising, PR, salespeople, banners, digital ads. New leads, which in this circumstance are potential beneficiaries, are then turned into actual customers.
As a rule of thumb, social enterprises must verify that the monetary benefit each customer provides over time (LTV) exceeds the cost of acquiring that customer (CAC). When CAC is larger than LTV, such engine makes growth unsustainable.
2. STICKY ENGINE
“Acquiring a new customer can cost five times more than retaining an existing one”. You’ve heard about this rule, right? Well, that’s exactly the trigger behind the sticky engine: retention.
Here, social enterprises focus on retaining customers for a long period of time by constantly and repeatedly delivering compelling value. In other words, they make customers “stick“. An engine particularly suitable for those organizations that need their beneficiaries to persistently keep using products or services over time to truly generate impact.
For this growth mechanism, reducing the “churn rate” (namely, the number of customers abandoning the company over a given period time) is key for sustaining growth.
3. REFERRAL ENGINE
When a social enterprise adopts the referral trigger, it encourages current (happy) customers to refer a certain solution to family and friends, generating new leads for the firm by doing so. Most effective techniques falling in this category include incentives, affiliate marketing campaigns or word-of-mouth.
Just a clarification: we can call it a “viral” engine only if the referral rate is equal or above 100 percent.
Growth engines for social enterprises (multisided and match-making business models)
Unlike direct business models, multisided or matchmaking ones are multi-actor models. Here, beneficiaries and customers are different segments. But how to make sure to grow/scale impact when the two targets are not the same?
In this scenario, apart from the growth engines discussed before (which may not always be applicable), probably the most effective ones to use are franchising and government funding/adoption.
4. FRANCHISING
Just like traditional franchising, this growth engine builds on the concept of replication. By licensing licensing its trademark, brand, design or intellectual property to other individuals or organizations, a social enterprise can replicate its intervention in previously untapped markets and territories.
For this engine to work, two things are crucial. On one hand, when thinking about beneficiaries, the organization needs to make sure that the products/services delivered by its franchisees meet the standards. Yes, monitoring can be costly, but providing low-quality solutions to vulnerable or underserved populations is even worse. On the other one, the enterprise must be capable of creating tangible (i.e. economic), lasting value to franchisees. As a matter of fact, replication may also happen on a voluntary basis, but ensuring an economic motive can help keep customers truly committed.
5. GOVERNMENT FUNDING/ADOPTION
Some social businesses and enterprises happen to provide basic public services, like education or medical-care. In this case, accessing government funding may be the fastest way for reaching massive growth. From time to time, public authorities may even decide to partner up with a social enterprise to fully rollout a solution at a much wider level. When that happens, you hit the jackpot.
Now, the upsides of this engine surely include access to usually stable, consistent funds as well as additional resources (i.e. infrastructure, visibility, network, etc.). On the downsides, however, it’s worthy to mention the strict policies, procedures and budgets the enterprise must fit into. But it may be worth the hassle to concretely deliver societal, positive change.
Conclusion
In this article, we discussed what “growth engines” are and analyzed common ones for social enterprises.
During the business model design process, social entrepreneurs often forget to properly define growth strategies beforehand. Eventually, this determines an inability to truly reach scale and massive impact. Because of that, we recommend digging into growth engines early on to identify most suitable ones for your social enterprise. You really don’t want to create a great solution that has no means to reach a relevant portion of those who are in need, right?
So, if you have any question in that regard, or if you have more engines to report, well.. feel free to reach out! 🙂
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