This is a repost from the SOCAP Learn Blog in October 2018
What does it take to scale social impact? A new project is uncovering answers to that question for social entrepreneurs, funders, and other key stakeholders working to accelerate the pace of change.
The Innovation Investment Alliance (a funding and learning partnership between the Skoll Foundation and USAID’s Global Development Lab, with support from Mercy Corps) is partnering with CASE at Duke University to create Scaling Pathways, an in-depth look at best practices and case studies for scaling impact. The project shares lessons, insights, and analysis collected through the study of some of the world’s leading social enterprises and will include a series of tactical papers on the key scaling challenges of financing, government partnerships, talent acquisition, pathways to scale, and data.
We recently spoke with Erin Worsham, the Executive Director of CASE at Duke about this new project and the SOCAP18 session they will be leading on their recently released paper in the series, Leveraging Government Partnerships for Scaled Impact.
SOCAP: What is Scaling Pathways and what is the overarching goal of the project?
Erin Worsham: At CASE, we are driven to support social ventures as they scale solutions to deeply entrenched, complex social problems. Scaling Pathways has provided an incredible opportunity for us to analyze and share best practices from some of the world’s leading social ventures. Along with our Scaling Pathways partners—the Skoll Foundation, USAID, and Mercy Corps—we are asking: “What strategies and tactics work best for entrepreneurs seeking to scale? And how can funders best support these scaling efforts?”
The Scaling Pathways series includes:
- Pivoting to Impact, the intro to the series, which highlights critical lessons about the scaling journey that social ventures face;
- Case Studies, in-depth looks at individual social enterprises’ scaling strategies and pivots, including frank discussion of failures.
- Theme Studies, the newest series, distilling insights from award-winning social enterprises related to core scaling challenges like financing and working with government partners.
SOCAP: The first theme paper focuses on Financing for Scaled Impact. Can you share some key takeaways for social entrepreneurs?
Erin Worsham: We were excited to dig into this theme first, both because financial viability is one of the most fundamental challenges that every social entrepreneur faces, becoming even more challenging as they scale their impact, and also because we’ve been working on this topic (on both the social venture and investor side) for years through our CASE i3 Initiative on Impact Investing.
In the paper, we talk about strategies for financing scale in terms of external resources from which they can draw (like identifying flexible funding, diversifying sources and types of capital, and leveraging results-based financing) and internal levers they can engage (such as ways to reduce costs, earn income, and leverage hybrid legal forms). For each strategy, we provide lessons and tactics drawn from our research but here are three takeaways that resonate with our audiences:
1. Be realistic about earned income revenue goals, and use metrics that measure value or impact per dollar spent.
Several of the organizations shared stories of pursuing earned income strategies focused on 100% cost-recovery (a goal we often hear from enterprises and funders alike) and then realizing that, despite their best efforts, it was infeasible and often harmful to their missions to pursue this goal. As a result, the ventures cautioned against 100% cost recovery goals and instead created metrics to guide their pursuit of financial sustainability balanced with impact, such as One Acre Fund’s Social Return on Investment, VisionSpring’s Philanthropic Investment per Pair, and Root Capital’s Efficient Impact Frontier.
2. Find flexible capital to provide room to iterate on the model and shift resources as needs change.
Many of the social ventures we interviewed reported flexible capital as key to their ability to get to a point of readiness to scale, although they admitted that it isn’t always easy to obtain. We provide some tips on how ventures can find and take advantage of flexible capital.
3. Experiment with hybrid models to expand impact and increase access to capital.
The nonprofit B Lab successfully created a for-profit subsidiary to raise equity-like capital for its work. But hybrid structures also have costs, legal complexity, and require a different focus on staffing and systems. One of my favorite quotes from the paper was from WSUP Advisory’s Yaver Abidi when he warned that creating a hybrid is not going to lift up a struggling organization: “Don’t strap an eagle to the back of a turkey in the hope that both will fly.” We share how ventures are thinking about using hybrids and navigating the challenges.
SOCAP: What are some of the primary lessons you hope funders will take away from this research?
Erin Worsham: We really hope that funders will draw on this work so each theme study includes a two-page takeaway specifically for funders. Here are a few of the funder lessons from our Financing paper:
- Support enterprises as they experiment with new financing tools such as results-based financing (RBF) or hybrid models. Commit to learning together, even funding RBF design costs and helping enterprises prepare for RBF by supporting outcomes-focused pilots and upgrades to infrastructure (including performance management systems). And as ventures adopt hybrid forms, that may create opportunities to fund their work with new types of capital. Know where you fit in the capital stack and seek additionality—filling in the gaps to add value.
- It may seem obvious but bears repeating: access to flexible funding is critical for scaling efforts, and funders can help by providing multi-year, milestone-driven capital and/or by providing flexible capital that allows ventures to continue to pilot, test, and adapt throughout the entire scaling journey (i.e., not just at the early stages).
- Be the insulation from earned revenue fluctuations, and encourage learning and innovation around the “shocks.” Even ventures with strong earned income streams are likely to suffer shocks to this revenue given the inherently riskier and less predictable environments in which they work. Funders can provide insulation by providing patient, risk-tolerant capital and putting in place systems to encourage ventures to take risks, be transparent about failures, and learn and pivot from experiments.
SOCAP: The second paper in the series, Leveraging Government Partnerships for Scaled Impact, was just released. You’ll be leading a session on this at SOCAP. What sorts of government partnerships do you explore in the research?
Erin Worsham: Yes, we are excited to share our key learnings and stories with the SOCAP audience! Many social enterprises see partnership with host country governments (at all levels: national, regional, and local) as an essential strategy to unlock impact at scale, but there are also trade-offs to understand and account for. For this paper we interviewed and surveyed over 100 social enterprises, and present strategies that have led to productive government partnerships in regions all over the world.
We learned that although entrepreneurs insist that there are no cookie-cutter approaches to engaging government effectively, there are many patterns that successful ventures follow. Some of them seemed obvious to us—like showing humility and respect to government partners at all levels—but our interviewees insisted that they are not followed by all ventures in the field. And others addressed some of the most vexing challenges we hear organizations struggle with, such as figuring out which level of government to start with, maintaining quality of impact over time, cultivating the right champions, navigating politics, and more.
SOCAP: What can potential attendees of your session expect to gain from the session?
Erin Worsham: We titled the session, “Government Partnerships: Holy Grail or Impact Mirage?” and intend to explore that tension and help attendees – whether social entrepreneurs, funders, investors, consultants, or others – learn about effective strategies and avoid common pitfalls.
Attendees can expect to hear from social enterprises that can share their time “in the trenches” building these government partnerships. What were the biggest mistakes they made? How did they navigate political risks? What level of government did they partner with and how did they make inroads and build long-term relationships?
And of course we’ll hear from funders of this type of work, including the Skoll Foundation and USAID, who will speak candidly about what works and what doesn’t when funding these partnerships, plus what they see as emerging best practices.
SOCAP: Can you preview future papers in the series?
Erin Worsham: Over the next year we will be releasing three more theme studies covering key scaling challenges, and sharing hard-won insights from successful ventures who have navigated them:
- Pathways to Scale: Which of the many pathways to scale more efficiently and effectively drives toward your endgame, and how do you decide?
- Talent: What talent strategies are needed to identify, train, and retain the human capital needed for scale?
- Data: How can you best use data to drive impact, performance management, and decision-making as you scale?
And we have a place where people can sign up to be first to receive the future Scaling Pathways papers: http://bit.ly/scalingpathways
SOCAP: What’s your call to action for the SOCAP community?
Erin Worsham: As lonely as it may feel to lead a social enterprise or be a funder experimenting with new tools, you are not going through this alone. Many have faced similar challenges, and you have the opportunity to learn from peers’ strategies and failures. So, check out the Scaling Pathways series for these curated lessons. And add to the conversation – write a blog post about how your organization has managed the scaling challenges we write about, share how the reports have helped you think differently about your work, etc. (Also check out CASE Smart Impact Capital for entrepreneur and funder-curated tactics and training on raising impact capital.)