The decision about when to scale and expand a social enterprise is complex. Entering new markets also means established business practices may have to be tweaked or changed significantly to meet local conditions.
With moderator Olivier Kayser, founder of the HYSTRA consulting firm, OnFrontiers explored the topic of when and how to scale an enterprise in a webinar with Simon Bransfield-Garth, the CEO of Azuri Technologies and Jordan Kassalow, founder of VisionSpring. Azuri is a for-profit enterprise that delivers pay-as-you-go solar power on a commercial basis to rural communities in sub-Saharan Africa. The company says it has 110,000 customers. VisionSpring is a nonprofit organization that works to provide affordable eyeglasses in the developing countries and other hard-to-reach areas around the world. It was founded in 2001.
#1 – Have a viable product & reliable revenue stream
It might seem like an obvious statement, but having a functional business model and the ability to cover expenses are critical components before any serious expansion efforts. Both Kassalow and Bransfield-Garth emphasized the need to have a product that is seen as valuable to consumers, that is in demand and that can offer the prospect of growth for the company.
“Although as a business you don’t have to be profitable, at a customer level, you absolutely have to be profitable,” Bransfield-Garth stated. “You’ve got to be making realistic, commercial margins on the offering in order to have a sustainable business,” before seriously debating expansion or scaling efforts, he stated.
Bransfield-Garth argued workarounds, such as lowering the product’s price to gain market share or attract consumers as a way to spur growth, will ultimately fail and won’t provide long-term support for the client. “It’s much better for the customer to be paying for sustainable levels of returns on the supplies,” he said.
Kassalow said expansion plans don’t have to be entirely based on profit generation, but they do require a reasonable expectation of incoming revenue for the company. “A pathway toward profitability and the ability to cover the cost of goods as an early indication that people are willing to pay for your product and services,” should be a benchmark before entering new markets, he said.
#2 – Don’t automatically agree with expansion goals from donors or investors
While it might be a difficult conversation, both men argued for the long-term prospects of an enterprise’s expansion plans, it’s better to tell funders that growth should be thoughtful and deliberate and shouldn’t chase metrics that aren’t important.
“If you are meeting with donors, one of the first questions they’ll often ask you is ‘how many countries you are in?’” Kassalow said, before arguing the item is a distraction for growing organizations because it doesn’t capture whether the enterprise has value or is offering value to consumers.
As it grew, Azuri faced similar challenges managing growth expectations of venture capitalists. “Your investors want you to grow as fast as you possibly can, but it is important to do that with care. There is nothing worse than building a broken business model,” Bransfield-Garth said.
#3- Review your situation & learn from experiences
Being able to pause and examine your product or service, your business mode and your organization’s setup are important aspects to continue to grow and keep an enterprise healthy. Accepting data and insights that upend your assumptions and adjusting accordingly are also important, our business leaders say.
“You have to go out and find that data and you mustn’t drink your own Kool-Aid,” Bransfield-Garth told the webinar audience. “Just because you’re making a product that looks like the best thing out there, and you think it’s fabulous, doesn’t necessarily mean there isn’t something you haven’t overlooked,” he continued, saying Azuri searched for outsiders to review their product and speak with customers.
Reflecting the lessons of a decade and a half with VisionSpring, Kassalow said the group tried to always be transparent about its successes and failures and to try to determine why something didn’t succeed.
“It’s really critical to have a clear radar on whether this model is working or not. And if it isn’t working, there’s a right time to pull the plug and a wrong time,” he said.
Younger firms have a particular challenge for this kind of self-reflection, because their record of accomplishments is likely not very extensive yet and they have pitched a particular business model to investors or donors that might not be sustainable, Kassalow said. In this situation, greater emphasis on realistic goals and growth, and faster decision making to counter problems can help, Kassalow continued.
#4 – Be as local as possible
To survive the challenges of scaling an enterprise, you have to factor in local conditions, the panel said. Being local should be an integral goal in decision making.
Bransfield-Garth said he thinks Azuri was probably too headquarter-centric in previous phases, which may have slowed growth. He advocated groups avoid a hub and spoke structure and that senior management should be based in local markets, not holed up in a distant main office. Local talent should also be hired for management positions, he said.
VisionSpring also embraced a dispersed organization, Kassalow said, with most employees based close to the field with a small support staff in New York. Companies “don’t get people with real, hardcore business skills close to the customer fast enough,” he said, leading to enterprises unable to understand and react to the needs of customers fast enough.
Both leaders said enterprises should adapt their models and practices to conditions on the ground, whether that includes changes in marketing strategy, dealing with local regulations or other groups that may resist new competition, or simply partnering with established local firms for distribution.
A tie-up with a local distributor can accelerate reach into the market which otherwise could take years to effectively penetrate. VisionSpring said about three-quarters of its sales were through local distribution systems and partners. Kassalow said aligning with the NGO BRAC in Bangladesh helped VisionSpring expand its reach to serve over one million customers. Without the collaboration, Kassalow said VisionSpring would have spent “decades” to build a distribution network with the same impact.
Working with local thought and community leaders is also a high priority for VisionSpring, Kassalow said. He said the leaders can often dispel negative connotations associated with glasses in some cultures.
For Bransfield-Garth, being local includes trying to have as many company functions within the market, including marketing, sales, support, manufacturing and development. Ideally organizations avoid “parachuting” products into the area because they are produced locally.
Both men said social enterprise leaders should be committed to their product and be on-the-ground as much as possible.
Kassalow advised social entrepreneurs to work on projects they are truly passionate about because that will be what they are giving to the world.
Bransfield-Garth counseled successful enterprises need people who are willing to constantly innovate all parts of the business while moving the venture forward.
“You can’t take an MBA view of this. This is not something that’s done in PowerPoint,” he said.