Steps for successful launch and growth of social enterprises

Social entrepreneurship is now recognised as an important vehicle for building sustainable business while bringing about social good in the form of better livelihoods.

Governments sing their praises, business schools teach their methods and award schemes elevate them to iconic status. It’s not hard to see that the pressure is on the social ventures to deliver on this newly found status, but can they?

Entrepreneurship, be it social or otherwise requires commitment and investment in both time and money. S. Honda, a Japanese Industrialist, observed that, “Many people dream of success. To me success can only be achieved through repeated failure and introspection. In fact, success represents one per cent of your work which results from 99 per cent that is called failure”.

This is true of entrepreneurship in its nature and as the late Indian academic CK Prahalad argued, entrepreneurial solutions can also bring economic prosperity.

This further underlines the importance of social entrepreneurship, combining both the need to offer solutions for some of society’s challenges but doing this with the lenses of building sustainable business.

In East Africa, we categorise enterprises using some distinct descriptions. They include: Start-ups, SMEs and mature business. A recent report, however, goes further to refine these definitions and provides a correlation to the need of capital or investment at different stages of the enterprise lifecycle.

In 2012, Monitor Group in collaboration with Acumen Fund produced a report titled, From Blueprint to Scale: The case for Philanthropy in Impact investing. The report provided a good overview of the social enterprise sector with particular emphasis on their lifecycle and the need for investment in various areas. Here are the key components of the cycle:

1. Blueprint. Pioneers need to blueprint their designs. They will often be striving for radically better solutions to meet the needs of underserved low income communities. This stage involves connecting the capability for business and often technical innovation to address the needs of customers or suppliers in the bottom of the pyramid.

2. Validate. Having a product that works is not enough. In the second stage, pioneers need to validate the commercial viability and scalability of the business model described in the blueprint. This involves running market trials in which business plan assumptions are tested. Will customers want this product? Will they be willing to pay for it from their small and hard-earned incomes? Will this be enough to cover the costs of the business, not just the direct cost of the product itself?

These are crucial questions, and the process for answering them is almost always interactive. Market trials often reveal issues and weaknesses in the blueprint, leading to refinements in the product, technology and business model, and further trials. The greater the degree of model innovation involved, the more time and resources need to be invested in this stage.

3. Prepare. Successful validation sets the stage for pioneer firms to launch products fully into the marketplace. However, alongside this initial period of commercial activity and growth, pioneer firms need to prepare the conditions in the market and within the firm to support sustainable scaling.

This is especially true where the firm is, in effect, attempting to create a new market, by virtue of establishing a new category of product or a new value chain model.

4. Scale. If the pioneer firm can successfully surmount these challenges, it emerges in a strong position to scale activities in order to reach many more customers or suppliers in the bottom of the pyramid.

During this stage, firms face new challenges as they enter new geographies, control costs, exploit efficiencies, and manage a more diverse and sophisticated group of investors and stakeholders. They will often also be responding to competitors, as new entrants are attracted by the success of the pioneer firm and see a way to benefit from the investment that it has made in preparing the market.

Enterprise philanthropy aims to establish models for inclusive business into which return seeking capital can be invested to drive scale. It can play an important role in closing the pioneer gap between blueprint and scale, turning the promise of inclusive business impact into reality.

Since 2007, Acumen has invested Sh3 billion in game changing firms across East Africa, created 45,000 jobs and impacted 81 million lives.

Importance of impact investing

Impact investing has gained traction over the years and according to the Monitor Institute (2009) the impact investment market could potentially reach $500 billion (Sh44 trillion) by 2020.

This report was followed by a collaborative seminal report by JP Morgan and Rockefeller Foundation in 2010 that claimed that the impact investment sector could reach $1 trillion (Sh88 trillion) by 2020.

There is evidence that investors are increasingly mindful of social and environmental indicators in their investment decisions and some focus on investing in firms that purport to generate social impact.

Mr Macharia is head of business development at Acumen in East Africa. Email. [email protected].