Image of a bar graph with an arrow indicating increased growth

Scaling Strategy

Stratégies systémiques

Contexte

This resource contains helpful information on readiness for scaling and seven strategies for scaling. There are two exercises after the reading to support decision making when it comes to scaling.

Let’s begin by differentiating between two different types of scaling. We can call these Direct and Indirect Scaling. Directly Scaling is about directly growing sales. This first phase of growth is about building a larger organisation that can sell more. It might include expanding to new regions or countries by setting up new subsidiaries in those places.

Direct scaling is typically the first growth phase for any venture, and it is critical: you need to reach a certain size and level of profitability before you can adopt more radical scaling strategies. It can last many years. Indeed for most organisations direct scaling is the only form of scaling that they will ever do. It is certainly possibly to grow very large, and achieve significant impact, through direct scaling alone.

At a certain size, however, some of the most effective social innovators shift from pursuing direct sales growth, and instead switch to Indirect Scaling. What these innovators realise is that, once the organisation has achieved a certain size, there may be more effective ways to increasing impact than simply making more sales. 

There are a wide range of strategies that such innovators can adopt in order to reach even more people than they could through direct sales alone.

These strategies range from open sourcing (giving away your ideas for free so that others can easily and rapidly adopt the solution), to franchising, to teaching others how to adopt your model. We outline these options for you in this module.

Ask yourself the below three questions before beginning a scaling strategy. 

  1. Is your core product or service clearly defined?
  2. Are you very clear on what your core product or service looks like? Can you describe clearly how it is delivered and exactly what specifications it has?
  3. Could you put these into a manual and have someone else replicate it exactly? In other words, have you successfully completed the phase which we described in Module 3 as ‘standardization’ of your products and services?

In the case of our solar company SolaRise, for example, their core product is very clear: the Solar Kit. For micro-lender Fair Finance, it is a single small personal loan made to a financially excluded customer (see Module 3 for more on Fair Finance). For an education venture, the core product might be a workshop or class. For a healthcare venture, it might be a training program for patients in how to manage diabetes.

  1. Is your core product or service financially viable?
  2. Can your core product or service be sold for a price that more than covers the costs of delivering it? In other words, can you sell each unit with a positive
  3. gross profit margin?

In the SolaRise case, suppose one solar kit is sold for $250, but the actual cost of the kit is only $150. This can be scaled: if they were to franchise their technology and allow others to sell their solar kit, it could be done profitably. If the gross profit margin was negative, scaling up wouldn’t work – more units sold would drive the company deeper into losses. Have you already worked out the economics of your core product, such that you are confident that more sales means more profit? Does your business model depend on specific people or other factors that are not scalable?

Many ventures depend on the skills or knowledge of a particular person or group of people (this might be true for consultancy firms, for example). Is this team stable and mature enough to be able to dedicate time to a scaling process? Other ventures depend on the unique characteristics of a particular location, or special relationships with particular institutions or people. These ventures will be hard to scale up.

If your venture falls into this category, you need to consider how to help it evolve beyond these characteristics or else accept that you will be remain a specialist, niche venture. 

If you can answer yes to these three questions, you are ready for scaling. 

Create a list of the core products and services your organization creates. For each product and service, ask these three questions: 

1) Is this product or service sufficiently ‘standardized’ that it can be rolled out at mass scale?

2) Is this product financially viable? (i.e. can it sell with a healthy gross profit margin?)

3) Is delivering this product or service dependent on any special factors that might limit your ability to roll it out at mass scale in other regions?

If you answer ‘no’ to any of these questions, can you find ways to get around the bottleneck that you have identified? For example, can you standardize your product further? Can you find a way to replicate or reduce reliance on the ‘special factor’ that you depend on? Can you adjust price or reduce cost to make your core product profitable?

Once you have a viable, replicable core product or service, how will you ensure that you can reach as many people as possible? We can define a spectrum of scaling strategies. The spectrum ranges from those where you have the most control (i.e. you simply grow your team and deliver more yourself) to those where you have little or no control on how your innovation is delivered (such as ‘open source’, where you give your ideas away for free). 

Typically the options that give you more control are also the options with the lowest potential to reach people quickly, but this trade-off is not always true. 

The first two strategies outlined here are what we referred to above as ‘Direct Scaling’, or ‘Growth’ strategies. In each case, the prime objective is to increase the number of sales that you are making of your core product. The difference is whether you make those sales yourself (‘branching’) or through others (‘social franchising’). 

The later strategies (from ‘Partnerships through to ‘Open Source’) shift to Indirect Scaling: these strategies are around trying to get your ideas around impact (i.e. the ‘Social Change Model’ which you developed in Module 1) to go viral and be spread by many others, rather than simply increasing the sales of your organisation. 

The Indirect Scaling strategies can be split into ‘Affiliation’ strategies and ‘dissemination’ strategies. 

  • ‘Affiliation’ strategies are about joining forces with partners and similar organisations so that your collective impact can be magnified. This might involve creating Associations, or coalitions towards achieving a common social objective. 
  • ‘Dissemination’ strategies are about spreading your core ideas as far and wide as possible, through sharing, teaching and even open sourcing. 

Indirect Scaling strategies have a much higher chance of reaching more people – however the consequence may be that you need to ‘let go’ of the idea, and let others adapt and run with it elsewhere. For many social entrepreneurs, ‘letting go’ of their idea is fine. In contrast to commercial entrepreneurs, social innovators are less concerned about acquiring market share at the expense of others. What they care about more is finding the best ways to positively improve the lives of as many people as possible. Social entrepreneurs often actively welcome ‘competition’: the more people working on the problem, trying out different solutions, the better.

  1. Branching 

In the branching model, you simply grow a larger business and sell more over time. This is almost certainly the model during the start-up and early growth phase, and is the model adopted by most commercial businesses. You have complete control over how your innovation is delivered. 

‘Branching’ is so-called because most businesses find that after a certain level of growth, they need to form a new ‘branch’ or subsidiary to manage a new region, area or even country. This might be as simple as opening a new shop in a new area once your current area is saturated. There will be a step jump in costs at this point as the new branch will need to be set up. This is particularly true if you are expanding to a new country. Once established, the new branch can then manage/serve the local customers in its area. 

You are likely to have a headquarters that will manage all of the branches. The HQ remains responsible for group sourcing (supplies and manufacturing), financial management, and hiring and training of staff in the branches. 

Investors will be very interested in your rollout strategy for new branches. You will need to demonstrate the economics of launching a new branch (using a Financial Model which is the subject of Module 5) as well as explain how many branches you think you can launch over the next 3-5 years, and a time-line for roll-out. You will also need to explain the pre-conditions for launching a new branch – in other words, how will you know when a new area is ready for a branch?

  1. Franchising 

In a franchise model, you package up your core product(s) into highly standardised units which others can sell under the same brand that you have created, just as McDonalds packages up its entire restaurant format, with completely standardised menus. 

To make the franchise model work, you need to have 

  •  a widely recognised brand that franchisees can benefit from, 
  • a standardised set of product(s), and 
  • a developed supply chain capable of providing your franchisees with the products and services that they need to sell on. 

An example of a social venture using franchising is SaniShop, a social business created by Ashoka Fellow Jack Sim. SaniShop’s product is a lowcost, high quality toilet, which can be used to improve sanitary conditions in areas where public sanitation and hygiene quality is poor. Local entrepreneurs become franchisees, selling the toilets under the SaniShop brand. The venture has successfully operated in Cambodia, India and Mozambique. 

Franchising is typically funded through ‘franchise fees’ paid from the franchisees to the franchisor. It may also be possible to earn a margin on the sales made through the franchisees.

  1. Partnerships 

Building partnerships with other organisations is often the fastest and most efficient way to expand. Rather than directly replicating your business in new regions, why not work with existing partners on the ground who already have some of the infrastructure set up to deliver your innovation? 

SolaRise, for example, is considering expansion to India, a country where it has no team on the ground. It notes that there are many micro-finance organisations that are lending to rural off-grid households, its target customer base. SolaRise develops a partnership strategy with one of the largest micro-lenders whereby a SolaRise sales agent will go door-to-door with a loan officer. If a household makes a purchase, the micro-finance agent can offer a loan to pay for the Solar Kit. When the loan officer returns in future months to collect loan repayments, they can also check that the Kit is still working, and even bring a supply of replacement components if needed. Thus both organisations can benefit tremendously from this partnership, sharing resources, and providing a value add to each other that neither could do by themselves. 

You should ask yourself the following questions: 

  • Which potential partners are already serving your target customers or beneficiaries? 
  • Who provides a product or service (such as a micro-loan) that could be a complement to your own? 
  • Who has a distribution channel or a supply chain that you could benefit from?
  1. Associations 

Many social enterprises create associations of similar organisations under a common umbrella brand. This can be a way to campaign together on a common cause and create public awareness. In this model the organisations are self-selecting and remain independent, but cooperate. 

An example of an association is Alcoholics Anonymous. Each AA ‘chapter’ around the world is independently organised and self managed. Each one however adopts a common set of principles and approach (the famous 12 Steps Program), and to be part of the global association, each chapter needs to subscribe to running their meetings in a particular way and to certain standards. The advantage of the Association structure is resilience (no single chapter can bring down others if it fails), as well as common branding and common standards (association members act to proven common standards, which are internationally recognised). 

Associations are typically funded through membership fees or through voluntary donations.

  1. Smart Networks 

Building networks or communities of practice can be a way to reach millions of people. In this strategy, the social innovator brings together a coalition of partners united by a common purpose or interest. Unlike associations, the members of a smart network may be very different in operation and function. For example, this may include government agencies, businesses and non-profits working together towards a common goal. 

The social innovator does not necessarily lead the community (indeed hierarchy may be impossible or undesirable to establish), but rather provides the framework, tools and common vision under which a community can come together. The social innovator identifies what the systemic challenges are, as well as which actors are needed to solve the challenge, and seeks to play a co-ordination role. 

The funding model for a smart network depends on the nature of the network, and the players within it. In some cases, there are revenue streams possible from business opportunities within the network. The ‘Housing for All’ example described here is one where each of the 3 main actors – the housing developers, banks and NGOs, can each charge for their role in the network. In other cases, the network needs to be funded through donations and grants.

  1. Consultancy / Capacity building 

A consultancy and / or capacity building model can be adopted by ventures that have developed an expertise in a new approach to tackling a particular social issue. If you have worked out how best to reach last-mile customers in rural Rwanda, for example, or how to acquire meaningful health data across a wide population, you may have skills that others would be willing to pay for. Providing consultancy services to other social organisations in your area of expertise may be an efficient way to spread your methodology and impact without having to grow your organisation. Consultancy is typically funded through a fee model.

  1. Open Source 

Our final example of a scaling strategy is to open source your innovation. In an open source strategy, you place your intellectual property online and allow others to freely access it, and generally to even add to it and build on it. The aim is to spread the knowledge as far and wide as possible, and aim for widespread adoption. Ideally a community of best practice will form around your ideas, and take on a life of its own. 

Perhaps the most famous example of an open source social innovation is Wikipedia, the online encyclopaedia which is curated by millions of individual users. Open sourcing an idea is far more than just simply posting it online. Successful open source strategies are able to achieve the following:

  • Place ideas in an open forum where users are able to access
  • Create a community around the Open Source platform so that ideas can be added / updated
  • Provide a means for updates and new ideas to be added from the crowd
  • Provide a mechanism to police and accept/ reject new inputs. This is typically done either through a group that acts as the ‘guardian’ or gate-keeper of the open source community, and determines what becomes the new ‘standard’ for the open source, or through some form of community management (people voting on what gets accepted). 

Open sourcing is often a difficult model to fund, as it relies on the goodwill and support of volunteers (which is also its great strength – it’s a low cost model precisely because all of the work is done by the community). Wikipedia continues to this day to be reliant on donations.

 

Imagine your social venture as if it were to scale using each of the above strategies. How would your model operate if you were going to go the open source route? What about franchising? If you went the partnership route, which partners could you work with? Don’t automatically assume that one strategy is the best for you.

Try out each one, and imagine what your venture or innovation would look like in each case. There might be different solutions that work better for your venture at different stages of your business’ growth, so think about which of these fit best now, given your constraints and the trade-offs that you think make most sense for your venture, and which might be possibilities into the future. Ultimately, you will need to pick the strategy that works best for now, and thinking through all the options will help you make the best decision.

Check out the original activity from the Social Investment Toolkit for case study examples of each scaling strategy.