Chapter Eight
Growth
Over the past 20 years the world has made slow but steady progress in expanding access to crucial services, such as clean water, electricity, and sanitation. Yet despite hundreds of nonprofits, social enterprises, companies, and governments each doing their bit, on average access to these vital services has grown by less than 1% of the global population each year (see Figure 8.1). As of 2015, this has left over 700 million people without clean water, one billion without reliable power, and two billion without proper sanitation.
Figure 8.1 Accelerating the pace of progress.
Source: World Bank, World Development Report 2016: Digital Dividends (Washington, DC: World Bank, 2016), http://www.worldbank.org/en/publication/wdr2016.
In contrast, adoption of mobile phones has skyrocketed around the globe (Figure 8.1). Despite the challenges of reaching poor communities, growth has resembled that of the classic hockey stick graph. In my travels, I’ve seen a Maasai warrior herding cattle in a remote village in East Africa with a mobile phone strapped to his belt and a smallholder farmer in rural Indonesia fish a phone out of her pocket. Today, far more households have access to a mobile phone than a toilet.
The story of mobile phone adoption shows that massive scale is possible, even in the most challenging contexts. How could we achieve this kind of growth trajectory for matters of social good? What’s the difference? To start with, people clearly see the value of a mobile phone, whether to stay in touch with loved ones, find job opportunities, or access markets. So much so that many will choose to spend their meager earnings topping up their phone credit before buying food. In addition, there is a market‐driven business model for both the hardware and cellular services that continues to drive growth. The resulting profits provide the means to finance big investments in infrastructure, distribution, and product development. Yet it was only when prepaid service plans rolled out – allowing small purchases of minutes as needed – that usage in developing countries took off. Traditional monthly contracts were too expensive and required credit verification that often was not possible.
In contrast, growth that depends on grants and donations will rapidly hit natural limits. Even if, as the nonprofit charity: water estimates, only $20 can provide clean water for each of the 10% of people who don’t yet have it, that adds up to approximately $15 billion. With its online fundraising prowess, charity: water raised an impressive $243 million in its first 11 years, improving the lives of over seven million people.1 Yet this still represents merely 1% of those in need.
Factoring in electricity, sanitation, and other basic needs will require an even greater investment. Aside from a few notable exceptions, charity and aid can only put a small dent in most big problems. The result is a growth curve that looks more like an inverted hockey stick, or logarithmic graph, with rapid initial growth as donors flock to a fresh idea. Growth then flattens out as available philanthropic sources are exhausted, which usually occurs long before reaching anywhere close to the size of the need (see Figure 8.2).
Figure 8.2 Inverse hockey stick.
Growth is the second pillar of social innovation, as our aggregate impact arises from a combination of the breadth of how many we reach and the depth of change we deliver. A powerful solution that only benefits a few will fall far short of its potential. However, that does not necessarily equate to scaling your organization or program. What matters is scaling the social benefit, which might come from growing an entity, but equally if not more likely from replication, government adoption, or policy change.
As we saw in Chapters Two and Six, mission‐oriented organizations face many pressures that run counter to thinking big and starting small. After all, there’s no potential initial public offering on the horizon, but rather a constant need to bring in the next grant or donor to keep the doors open. The result? Over and over, nonprofit leaders are forced to make the understandable tradeoff to prioritize short‐term deliverables over the potential for long‐term growth.
Staying small while you are validating your growth hypotheses can reduce the likelihood that you’ll hit a wall down the road. Otherwise, it’s easy to waste time perfecting a solution that may deliver value and impact but does not have the means to reach a substantial portion of the need. For a market‐based business model, at what price point will customers find enough value to buy? For publicly funded services, does the design fit within the government budget, process, and policy constraints? For replication or franchising, is the model simple enough for others to successfully copy? For ongoing aid or charity funding, are there sufficient pools of money available? The answers to any of these questions could have significant implications for the design of a solution.
In this chapter we will explore a wide range of potential paths for growth and how to test their viability, along with examples of each model in action. Of course, scale takes time. And typically, it takes far more time than in the private sector, given the perverse incentives, more limited funding, and need to navigate market and policy failures. Just as with value, validating your growth hypothesis isn’t a one‐time event. Lessons will continue to emerge with new audiences, new partners, and increased reach.
A WAKE‐UP CALL
Solutions to social challenges are often designed to address a narrow, immediate problem without sufficient consideration of the broader ecosystem or how growth will be achieved over time. But the Lean Impact principle of starting small must be paired with thinking big, such that experiments test for the potential to scale over time. The history of mobile phone health application (mHealth) pilots in Uganda is an example of what can go wrong when growth is an afterthought.
As mobile phones began to proliferate across developing countries, interest in the potential of harnessing this new device to improve healthcare in underresourced environments also grew. Across sub‐Saharan Africa and Asia, mHealth pilots were deployed by a plethora of organizations tackling different diseases and using different technologies. Applications included diagnosis tools for community healthcare workers, SMS reminders for appointments and drug regimens, SMS health tips of various kinds, tracking systems for drug stockouts, electronic patient records, and many, many more. Yet a 2013 article in PLoS Medicine found that despite hundreds of pilots, few mHealth services ever reached any degree of scale.2
The trouble was, organizations ran their own pilots in isolation. The duplication of effort meant that very similar experiments took place in different contexts and that the same lessons were learned over and over again. Worse yet, the systems didn’t communicate or integrate with either each other or with local government systems. Thus, a pregnant woman with HIV might have to register with one SMS service to receive maternal health tips and a completely different one for reminders on her HIV medication. Health providers would have no idea this was the same person.
In a shocking wake‐up call in 2012, the government of Uganda issued a stop work order, effectively declaring a moratorium on any further mHealth projects. This relatively small country had become inundated with dozens upon dozens of organizations implementing programs that were overlapping and duplicative, addressed narrow niche problems, lacked a viable path to scale, and did not work together. Supporting these scattershot efforts simply took too many scarce resources. Instead, the health ministry required new programs to integrate with government health systems and to coordinate their efforts to build evidence of what worked.
The situation of mHealth is an extreme case, but it highlights a tendency to focus on niche problems without a clear path to scale. If each pilot had considered what would be required to succeed across the entire country, let alone across the entire continent, they would have recognized any number of growth hypotheses that needed validation. Doing so early might have led to a pivot to build on the existing government systems, take a more holistic approach to healthcare needs, or partner with other players.
As you begin to test your solution, you can avoid falling into trap of being a subscale, niche intervention by identifying and validating your assumptions for growth up front. Who will pay for the ongoing costs of your products or services? Who will carry out the work? Will you need to integrate with existing systems in your domain? What is your unique and significant differentiator relative to other options?
THE LIMITS OF CHARITY
Most mission‐driven programs get their start through some form of charitable funding. This early seed money is essential to develop, validate, and pilot programs. But it’s rare that grants alone can provide sufficient dollars to meet the full scope of needs. Thus, the path to scale typically requires a shift from depending on donors to tapping into other larger and more sustainable financing streams. This is the essence of the growth hypothesis – testing whether you have an engine that can accelerate growth over time.
For developing countries, the funding landscape has shifted dramatically over the past 30 years, with donors becoming a fast‐diminishing piece of the pie. As of 2014, foreign aid and philanthropy amounted to $147 billion and $64 billion per year, respectively, while remittances and foreign investment have grown to approximately $224 billion and $513 billion, respectively.3 What dwarfs all of these are the increased private and public resources being brought to bear locally: over $3 trillion in government spending in developing countries4 (excluding China) and an estimated $3.7 trillion in investment by domestic companies.5 When you add these up, at less than 3% of the aggregate financing in developing countries, foreign aid and philanthropy are clearly insufficient in themselves to solve problems at scale.
Of course, there are a few exceptions. Among the largest is the global collaboration to improve childhood immunization coverage being coordinated through the Global Alliance for Vaccines and Immunisation (Gavi). With leadership from the Bill and Melinda Gates Foundation, this unique public–private partnership was created to bring together UN agencies, governments, and the vaccine industry. As of 2017, Gavi has received over $20 billion in commitments and estimates nine million deaths have been averted since its inception in 2000. Other similar partnerships include the Global Fund’s effort to end AIDS, tuberculosis, and malaria and the Global Partnership for Education. But not much else comes close to the impressive global scale these funds have achieved.
In the United States, the Edna McConnell Clark Foundation (EMCF) brought together 12 funders to form Blue Meridian Partners, one of the largest domestic donor collaboratives. Blue Meridian plans to invest at least a billion dollars in large, multiyear grants to scale programs with the strongest empirical evidence for serving children and youth who live in poverty. But even such a relatively large fund doesn’t come close to what is required to pay for all the necessary services. Instead, Blue Meridian provides growth capital to build the institutional capacity of organizations and test financially sustainable paths to scale that can dramatically increase their impact nationwide. This typically involves finding ways to tap into regular and ongoing local, state, and federal government funding, as well as influencing policies of the welfare, educational, and judicial systems that affect children’s lives. For perspective, federal, state, and local government spending on social benefit programs in the United States adds up to almost a trillion dollars a year.6
Of the more than 200,000 nonprofits founded in the United States since 1975 (excluding hospitals and universities), only 201 had grown to at least $50 million in annual revenues by 2008. Of these, only a handful was primarily supported by foundations. The vast majority drew most of their funding from government or by charging ongoing service fees.7 Compare this to the tens of thousands of for‐profit companies with revenues over $50 million.
If you truly believe that donor funding will be sufficient to address the long‐term size and scale of your problem, then your growth hypotheses should confirm your expected unit costs, size of need, source and availability of donor funds, and the realistic share your organization can expect to attract over time. Receiving a large grant may be sufficient to carry out work for a few years, but without a long‐term plan for growth, it may only be staving off the day of reckoning. In most cases, another engine besides grants will be needed to reach true scale.
ENGINES FOR GROWTH
While most private sector companies are based on a business model where customers pay directly or indirectly for a product or service, in the social sector, the potential engines for growth are far more diverse. In some cases, a market‐driven business model may in fact be possible. However, when aiming to serve disadvantaged populations or deliver broader public goods, this is often not realistic.
The good news is that a wide range of creative paths to scale exists. The key is to move from a linear, brute‐force mode – in which each unit of expansion requires additional dollars to be raised – to one in which an engine for growth can accelerate adoption over time. Otherwise, our total impact will remain plodding, marginal, and expensive.
One of the people I most admire in global development is Kevin Starr, managing director at the Mulago Foundation, a private foundation focused on scalable solutions to the basic needs of the poor. He’s identified two simple questions that tidily capture the options: Who is the doer at scale, and who is the payer at scale? For each, he posits that only four realistic answers exist. The doer could be you, lots of nonprofits, lots of businesses, or government. The payer could be customers, government taxation, private philanthropy, or foreign aid. Based on the limits of charity I covered in the prior section, I’m skeptical of these last two sources in most cases.
Using Kevin’s framework, the growth hypotheses boil down to: Can and will the doer do, and can and will the payer pay? For example, if your assumption is that other nonprofits and businesses will replicate or franchise your solution, it would be important to validate both their motivation and capability to do so at high fidelity. Or, if you assume that the local government will fund your solution through its budget, it would be important to validate that the intervention fits within its cost parameters, policies, processes, and politics. If not, it’s better to find out early, and pivot.
There are innumerable variations on these basics, as well as hybrids between them. I expect new models will continue to emerge. Regardless of which you choose, there will be implications for your design, structure, and positioning. Thus, you will save time and money in the long run if you identify and validate your growth hypotheses early, and adapt your solution accordingly. This will likely require slower expansion at first in order to realize the potential for dramatically greater scale down the road.
Let’s look at some of the most common engines for growth that have been successful in scaling social innovations: market driven, voluntary contributions, cross‐subsidy, replication, commoditization, government funding, government adoption, and big donors.
Market Driven
Home solar company Off Grid Electric was the first organization to receive all three tiers of grant funding through the USAID Lab’s DIV program – first $100,000, then $1 million, then $5 million. The earlier‐stage grants helped it to test and prove its innovative business model, in which families pay a small amount each month via the local mobile money system to keep the lights on. Later, to offset the perceived risk of repayment for these small consumer loans as Off Grid Electric began to scale, the final $5 million grant was “coinvested” in a pool of working capital, catalyzing $40 million in private debt. Based on its proven track record, Off Grid Electric has raised a total of over $150 million in private debt and equity and is now primarily financed through commercial sources, with over a hundred thousand systems sold, and counting.
Of course, the most simple and straightforward engine for growth is a traditional market‐driven business model. There are big benefits when the customer and funder are one and the same. Interests are naturally aligned and purchase decisions provide clear feedback as to the perceived value of the product or service.
In many ways, is looks not at all unlike the private sector, where at the core, the unit economics of the business must work – the associated revenue exceeds the direct costs of delivering each good or service by a sufficient margin. Although nonprofits may seek income streams to improve their sustainability, they tend to adopt a cost‐recovery mindset and construct financial statements with expenses on top and revenues and grants below, which net out to zero. Instead, a growth mindset starts with revenues, deducts expenses, and aims for sufficient profits to invest in the leadership, marketing, infrastructure, research, and expansion into new markets needed for scale.
Beyond the basics, running a business with a social purpose involves several challenges. Assuming goods or services are being sold into poor or otherwise disadvantaged markets, the ability of customers to pay will likely be far more constrained. This can limit the potential financial upside and thus decrease the degree of risk a private investor is willing to take. To offset this risk, many social enterprises, such as Off Grid Electric, receive some degree of donor funding in the beginning to build a track record before seeking private financing.
The limited ability to pay may also require companies to make deeper investments in financing options for customers than is typical for a for‐profit business. For Off Grid Electric and similar household solar companies in developing countries, this has meant developing the hardware and infrastructure to amortize costs through mobile money payments. Other situations might call for investment in lending or savings programs that enable customers to afford a product or service.
The mechanism for customer acquisition is another important dimension to validate, whether through paid marketing or distribution, viral growth via referrals, or repeat usage. The higher the cost is to reach each new beneficiary, the lower the profits and potential for growth. When customers enthusiastically demand your offering, growth becomes far easier.
Sometimes, the best path to market may involve leveraging the infrastructure, networks, and expertise of an existing company, rather than building a new one. If mission comes first, the loss of some control can be a worthwhile tradeoff in order to deliver more benefit sooner. For example, Jorge Odon, an Argentinian car mechanic, was the unlikely inventor of a low‐cost obstetrical instrument to assist in obstructed birth. Through research funding from USAID and other donors, early testing showed that it could become a safer alternative to the long‐standing use of forceps, particularly in low‐resource settings with minimally trained midwives. But running clinical trials, manufacturing, and distribution was not Jorge’s expertise. Instead of taking the slow and risky path of building a new medical device business, he licensed the design to Becton Dickinson, a large American medical technology company, to bring it to market.
For all the hype about triple bottom line businesses that seek financial, social, and environmental returns, real tradeoffs do exist. On one hand, selling into slightly more affluent markets will likely yield higher profits. On the other hand, reaching those who are most disadvantaged and remote will likely be more expensive. While impact investors may have a higher degree of patience, when returns come under threat, pressure can build to focus on more lucrative opportunities to the detriment of social benefit. To formalize these noneconomic commitments, in 2007 nonprofit B Lab began to certify B Corps – for‐profit companies that meet rigorous standards for social and environmental performance, accountability, and transparency. Soon thereafter, in 2010, the first legislation was passed in the United States to establish a formal corporate structure for benefit corporations.
One certified B Corp is Inflection, a Silicon Valley company that performs identity and background checks. Its GoodHire platform sells employment‐screening services to companies. At the same time, its social mission is to contribute to a more diverse and inclusive society by promoting fair hiring practices. Many individuals with criminal records struggle to find jobs, are perpetually shut out of the system, and then end up back in jail. GoodHire’s True Me feature allows people to view what employers will see about them in a background check and to add their own commentary to paint a fuller picture. This personal touch creates an opportunity to build the trust that is essential in any hiring decision. As a result, Inflection can provide companies with high‐quality background screening while helping people get a second chance.
Voluntary Contributions
A nonprofit variation on a pure market‐based business model is to solicit contributions on a voluntary basis. Voluntary contributions can range anywhere from large university alumni donations to small “tips” to a nonprofit in lieu of a set fee‐for‐service. While few for‐profit businesses can run on the uncertainty of discretionary payments, the goodwill created by nonprofits can inspire generosity. And, by breaking the direct correlation between payment and benefit, the most needy will not be turned away. It can also alleviate the temptation to move upmarket.
The donation, or tipping, model is common among nonprofit crowdfunding sites. For example, DonorsChoose helps teachers raise money for the supplies needed to run classroom projects that can enhance children’s education. From the start, it encouraged, but did not require, donors to allocate 15% of their donation to fund DonorsChoose itself. Most do. After 10 years, it was able to fully cover its own expenses, and it has started to generate profits that are channeled into its own classroom projects. A remarkable 77% of public schools have at least one teacher who has posted a project on its site.
As with a market‐driven engine for growth, a contributions model also requires sufficient profit margins and drivers for customer acquisition in order to reach significant scale.
Cross‐subsidy
Yet another variation on a pure market‐driven business model is cross‐subsidization, in which profits from one product or customer offset part or all of the costs of another, typically for lower‐income populations. One impressive example is the Aravind Eye Hospitals in India, the largest provider of eye care services in the world. Early on, after a disappointing experience raising funds from donors, Aravind committed to sustainably financing services for those who can’t pay with earned income from those who can. This self‐imposed constraint gave it control over its own destiny.
Rather than means testing, patients self‐select from a range of payment options for surgical procedures, with the primary differentiation based on their choice of accommodation – from a free, shared ward to a full‐priced private air‐conditioned room. All patients receive the same high‐quality care from the same doctors. By dramatically reducing its costs and improving efficiency, Aravind is able to generate sufficient margins from each patient who can afford to pay full price to cover the costs of three or four others who cannot. With its relentless focus on purpose, it has continually expanded outreach to underserved populations. In 2017, it performed approximately 300,000 cataract eye surgeries, two‐thirds of which were either free or highly subsidized.
The cross‐subsidy model is appealing, as it can be easier to derive and redirect profits from sales to higher‐income customers than to garner sufficient earnings purely from selling to low‐income customers. In Aravind’s case, it has led to a degree of scale that would not have been possible had the hospital chain been reliant on external donors.
With the millennial generation increasingly willing to pay a premium for brands aligned with their social and environmental values, offering social benefit can also become a strong marketing asset. Despite some issues with the initial distribution of free shoes by TOMS, its One for One model propelled significant consumer interest. Warby Parker, a socially responsible eyewear brand, took a somewhat different approach. Rather than attempting to run both a profitable business and a charitable endeavor simultaneously, its Buy a Pair, Give a Pair program works with independent nonprofits that specialize in underserved markets. For every pair of glasses purchased, it makes a donation to an organization such as VisionSpring. VisionSpring in turn uses the funds to subsidize a pair of affordable glasses for someone in need. In this way, Warby Parker and VisionSpring each stay focused on their core missions, while profits are plowed into scaling a promising social enterprise.
BioLite puts its own twist on this approach with its model for parallel innovation. The company leverages a common pool of world‐class talent and capital to build products for both relatively wealthy outdoor enthusiasts and families living in energy poverty. For example, the BioLite CampStove is a portable biomass stove sold to campers, while the BioLite HomeStove is a biomass cookstove that offers a cleaner alternative to open fires in developing countries. While the two markets BioLite serves are in some ways on extreme ends of the spectrum, there are many similarities in the technologies and skills required to build the products. The opportunity to work on something meaningful is a bonus for top engineers and designers who are normally difficult to recruit and retain.
Although the developing‐country business intends to become profitable, finding investors who are tolerant of the greater risk and longer timescale of such a venture on its own would be extremely challenging. And relying on erratic grant funding cycles wouldn’t provide the predictability needed to keep permanent staff onboard through the long R&D process. With parallel innovation, BioLite is able to leverage its consistent cash flow in the United States to offset both the risk and longer time horizon of its mission‐oriented offerings.
Replication
Alcoholics Anonymous (AA) boasts over two million members who participate in over a hundred thousand groups worldwide who support each other to recover from alcoholism. Despite this impressive scale, there is no formal organization aside from two small operating bodies that handle literature and basic administration. Each AA group is independent and self‐supported through voluntary donations of time and money from members. Massive impact doesn’t necessarily require a massive entity or massive funding.
If this were a problem tackled by the private sector, companies would likely compete by designing proprietary systems, marketing to the most desirable audiences, and creating incentives to refer more customers. One advantage of the social sector is that we can share our assets freely while working towards a common goal. Yet too often, organizations feel compelled to go it alone due to pride of ownership, a desire to maintain control, or the need for a competitive advantage when applying for grants. To maximize social good, replication should be encouraged, not discouraged.
For replication to work, as in the case of AA, an intervention has to be easy enough and cheap enough. If the design is too complicated, others might find it difficult to deliver with high enough fidelity to preserve the original value and impact. And if the intervention is too expensive, others may struggle to raise the necessary funds. AA published a guide to its 12‐step program, enabling people to start a group in their own communities with a few volunteers, modest donations to cover the costs of a meeting space, and a pot of coffee.
Another approach to replication is franchising, in which one organization maintains the brand, intellectual property, and design of a product or service and agrees to license the bundled enterprise to others. Think McDonald’s for social good. Unfortunately, without a profit motive, few people are willing to give up control to operate under another’s brand. So, more often a company or nonprofit will adopt and replicate existing best practices under its own name. For example, after microfinance was successfully pioneered by Grameen Bank and BRAC in Bangladesh, numerous nonprofits and for‐profit companies proliferated the model around the world.
What is more common than traditional franchising is a narrower version called “microfranchising,” particularly in developing countries. Here, a company or social enterprise offers a small, prepackaged business opportunity to drive sales and distribution of its product. A kiosk selling scratch‐off cards to top up mobile phone minutes might be the simplest and most common microfranchise. Others include the farmers making and selling fuel briquettes for Eco‐Fuel Africa, the “vision entrepreneurs” who perform exams and sell glasses for VisionSpring, and the shopkeepers selling products from Copia Global’s catalog. In each of these cases, the franchisees are typically low‐income individuals who benefit from an additional source of income.
Commoditization
A strategy that is also not usually seen among for‐profit companies is deliberately commoditizing a market to drive down costs. When PATH sought to permanently reduce the price of water filters to make them more accessible to low‐income households around the world, it designed and open‐sourced a standard universal interface rather than selling its own product. This meant that any standard‐compliant replaceable cartridge would be compatible with any compliant filter, eliminating the premium vendors were charging for proprietary parts. An analog in the United States might be standardizing printer ink cartridges to drive down the overall costs of printing.
With a no‐cost license, PATH was able to recruit smaller businesses interested in breaking into the market. Eventually larger companies, including Kohler, also came on board. While PATH didn’t produce products itself, the benefit was significant – broader availability, lower prices, and a sustainable market.
Government Funding
A fascinating experiment has been taking place in Liberia, one of the poorest countries in the world. Besieged by 14 years of civil war followed by the Ebola crisis, Liberia’s schools have been failing. Estimates are that less than 40% of school‐age children attend primary school, and that half of the country’s youth are illiterate. In a shock to the nation, zero students were able to pass the entrance exam to the University of Liberia in 2013.
Faced with this crisis, Liberia’s forward‐thinking education minister at the time, George Werner, recognized it was time to consider radical new ideas and launched the Partnership Schools for Liberia (PSL) in 2016. PSL awarded contracts to eight nonprofit and for‐profit organizations to operate 93 public schools. The schools are free to students, with the government paying teachers’ salaries plus an additional $50 per student per year to the operator. After the first year, a rigorous third‐party evaluation found that students in the partnership schools learned 60% more than in government schools. While open questions remain about whether results will endure over time, costs will be sufficiently reduced with scale, and the political winds can be navigated, the hope is that the program will be expanded nationally over time to dramatically improve the education system.
For basic public services, such as education and healthcare, government tends to be the largest provider, and purely market‐driven business models may not be viable. Thus, tapping into existing government funding streams can often be the most promising path to reach massive scale. To do so, a provider must fit into the government’s budget, policies, and processes, or work to change them.
Among the PSL schools is Bridge International Academies, a social enterprise company that runs over 500 low‐cost schools in Africa. It seeks to provide better education than is available in many public schools through innovation and technology. While Bridge operates private schools in most countries, it ultimately hopes to demonstrate that high‐quality education is possible within limited public‐education budgets even for disadvantaged communities. In essence, its schools serve as pilots to demonstrate the benefits of a new model to governments, with the hope that it will eventually lead to public schools that are free, effective, and available to all children.
In Chapter Seven, we learned how Code For America created GetCalFresh to vastly simplify applications for food stamps in California. This improved experience landed it a Food and Nutrition Service outreach contract, allowing for the use of government funds to pay for its ongoing recruitment, operations, and service. Rather than seeking donations to meet the nutritional needs of low‐income Californians, GetCalFresh taps into unclaimed government budget already set aside for food stamps. Code For America estimates that for every $10 invested, $180 in food benefits has been unlocked for a client.
You might not think that the first drone delivery service operating at national scale would be in Africa, but that’s exactly what Zipline has done in Rwanda. And as a venture capital–backed company with high expectations for returns, this is no charitable project. Given Rwanda’s poor infrastructure and mountainous terrain, supplying crucial blood products for emergency transfusions often required driving for hours to a regional center, reaching many patients too late. Attempts to strategically pre‐position blood supplies led to frequent stockouts in underprovisioned areas and expiring products being wasted in overprovisioned areas. Through a contract with Zipline, the Rwandan government was able to centralize supplies and deliver them by drone, on demand, within 30 minutes. Though it may sound expensive, this innovation is actually helping the government save money – factoring in prior transport, wastage, and inventory costs – while providing improved healthcare.
In each of these examples, demonstrating greater bang for buck served as an entry point for accessing government funding. When applied successfully, impact can be massive. Philanthropic dollars can play a crucial role in funding early pilots, but governments have far bigger wallets to scale and sustain successful solutions.
Government Adoption
Sometimes scale can be achieved through government adoption rather than government funding. In the United States, there are over 22 million federal, state, and local government workers, amounting to 16.7% of the national workforce.8 Improving how and what they deliver can make a big difference.
Over years of running a small number of charter schools in California, Summit Public Schools questioned every traditional assumption about education and eventually completely redesigned its schools to focus on the skills, knowledge, and habits that students need to live a fulfilled life. With its strong results in hand, in 2015 Summit began to work on influencing the public education system across the United States. As of the 2017–2018 school year, more than 300 predominantly public schools from 40 states are participating in the Summit Learning Program. By integrating its techniques into these existing schools, Summit has crossed an inflection point to scale and is on the way to dramatically magnifying its impact.
The infrastructure and reach of existing government programs can serve as a platform for delivering additional benefits to society too. Over 800 million children worldwide are at risk for parasitic worm infections that can pose a serious threat to their health, ability to learn, and future productivity. Yet scientific studies have shown that school‐based deworming programs can protect a child for less than 50 cents. The Copenhagen Consensus Center, a think tank, believes “the benefits of deworming can be up to 60 times higher than the costs.”
It would be difficult for any nonprofit to build the distribution network needed to tackle this problem economically or at a global scale. Instead, the Deworm the World Initiative at Evidence Action advocates for deworming to policy makers and offers technical assistance to design and implement effective programs at a state and national level. Through its support of India’s National Deworming Day alone, the program treated an astounding 260 million children in 2017. By taking advantage of the existing government schools and staff, the program can reach more children at far lower cost than would have been otherwise possible.
Big Donors
As I indicated at the start of this chapter, although I am skeptical about the potential to achieve significant scale purely through donor funding in most circumstances, there are a few exceptions. These generally fall into one of two categories: either when vast donor funds have been mobilized that are sufficient for the scale of the need or when interventions are so highly leveraged that costs don’t expand significantly with scale.
Earlier in the chapter I shared some examples from the first category. There are a small number of global challenges where big donors have coordinated and committed massive funding. Most often, these efforts are anchored by governmental agencies, which have far greater resources and reach than even the largest private foundations. The potential for donor‐funded growth can be easily validated by comparing the size of need and anticipated cost per intervention to the dollars available.
In some cases, the most cost‐effective solution may be to prevent a problem from occurring in the first place. For example, significant sums are spent on food aid to alleviate the seasonal hunger that affects 600 million farmers around the world. As mentioned in Chapter Four, researchers at Yale University have found that providing a transportation stipend can lead to a significant increase in seasonal jobs, and thereby higher incomes and the equivalent of an extra meal per person per day. It turns out that buying a $20 bus ticket is 5–10 times more cost effective than supplying food after the fact for those who would otherwise go hungry. Thus, over time Evidence Action hopes to convince donors to invest in this program, No Lean Season, as an important complement to food aid.
Interventions that are relatively inexpensive and whose costs don’t scale in proportion to reach may also be good candidates for ongoing donor funding. These are most often advocacy groups or technology platforms that do not directly distribute products or provide services. When their overall budgets are modest, even operating at national scale, donor funds may be sufficient.
Advocacy groups seek to influence policy or public opinion on an issue of interest. They can achieve outsized impact by directly or indirectly affecting norms, laws, regulations, and government spending. For example, the First Five Years Fund advocates for federal investments in early childhood education for an annual budget of approximately five million dollars, funded by a number of prominent US foundations. On the public‐opinion front, GLAAD has sought to build acceptance of lesbian and gay people through fair, accurate, and inclusive portrayals in media for over 30 years, operating on an annual budget of approximately $12 million. Such organizations can punch well above their weight through individual or foundation support alone.
Technology‐based solutions can also be highly leveraged, particularly when the value provided is in digital form. As with any number of for‐profit online services, once a platform is built the incremental cost for adding more users is minimal. This attribute has driven massive growth in the tech industry and can do the same for social impact. For example, on a budget of just over $37 million a year Khan Academy provides free world‐class education to nearly 12 million learners each month through its catalog of online courses.9 By harnessing the power of technology, a class can be created once, then taken over and over again for only the pennies needed to run the website.
Despite these exceptions, think twice before relying exclusively on donor funding as your engine for growth. Are sufficient philanthropic dollars available to fully scale to the size of the need? If not, it is important to test the feasibility of other revenue streams early, so you can factor them into the design of your solution from the start.
PARTNERSHIP
During my travels across dozens of developing countries, I’ve had the opportunity to make field visits to large foreign‐aid programs, tiny social enterprises, and everything in between. One challenge almost all have in common is last‐mile distribution. Unlike the United States where we have so many options (from UPS to smartphone apps) to reach almost any customer anywhere, in poorer countries reliable distribution can be a huge hurdle, particularly in remote rural areas. The problem is compounded by poor roads, low literacy, and scattered populations.
To cope with poor infrastructure and the lack of shared distribution services, organizations tend to create their own. In the same location, I’ve come across separate agents selling mobile airtime, solar systems, clean cookstoves, healthcare products, agricultural inputs, consumer goods, and much more. Every product line has to hire its own local reps, navigate transport options, and build trust with customers. On top of that, additional networks provide services such as microfinance, agricultural training, community healthcare, and women’s empowerment. This tendency towards fragmentation is so strong that large donors have found themselves inadvertently funding independent supply chains and frontline delivery teams to treat separate diseases such as malaria, tuberculosis, and HIV.
Certainly it is not realistic for all these diverse activities to be handled by a single person or network. But funders, nonprofits, and social enterprises can achieve their goals faster by investing in shared infrastructure and collaborating across initiatives. Such a recognition led the Bill and Melinda Gates Foundation to establish its integrated delivery team in 2012 to supplement its vast investments in disease‐specific interventions by building integrated delivery channels and strengthening health systems.
No doubt partnerships and coordination can slow progress in the short term. But just as taking the time to validate the engine for growth can lead to acceleration down the road, leveraging systems and infrastructure that are already at scale can do the same. For example, the Coca‐Cola Company’s Project Last Mile works with African governments to leverage its extensive refrigerated supply chain to deliver life‐saving medication and vaccines to remote communities. In another powerful case, described in Chapter Ten, VisionSpring decided to leverage BRAC’s extensive network of community health workers in Bangladesh to distribute eyeglasses, rather than painstakingly building out its own network. Yet another is the use of the Y’s network of community centers to roll out diabetes prevention programs in the United States, described in Chapter Four.
Distribution is only one of many challenges to scaling solutions for disadvantaged populations, particularly in low‐income countries. Michael Lwin, the managing director of Myanmar‐based health and IT social enterprise Koe Koe Tech, puts it this way: “Being an entrepreneur is much easier if you’re a smart, talented person in a rich country where you can sell to people with money to spend, build on established infrastructure, and depend on rule of law.” Without these conditions, many endeavors become vertically integrated and are forced to master a wide range of expertise, increasing risk and slowing growth.
Admittedly, organizations can also get in their own way. Large funders and nonprofits tend to be structured around geographic or sector priorities, while smaller nonprofits and social enterprises tend to have narrowly targeted missions. Finding a meaningful intersection as a basis for partnership can prove challenging. Focus is essential to gauge progress and ensure accountability, but it can also lead to myopic thinking.
When faced with the need for systems or infrastructure that extend beyond your core value proposition, look for other players with similar needs who can share investment and operational costs. This could be a distribution network, backend IT system, supply chain, outreach, training, or any other elements that would benefit from greater economies of scale. Sometimes, an existing system can be dual purposed for both the original and new requirements, such as with Coca‐Cola, the Y, and BRAC as described above. In cases where a system doesn’t yet exist, bringing together nonprofits, entrepreneurs, and funders with related objectives to coinvest in a shared asset can reduce costs and gain leverage for all.
Remember, we share a common mission for social good. Innovation flourishes when we each focus on our unique value add. Rather than seeking control, seek scale.
ACCELERATE
If we agree a social startup should start small and think big, the growth hypothesis tests our assumptions for how that transition from small to big will occur. In the early days, grants can be sufficient for design, experimentation, and pilots. But, the pool is finite. At some point, we need to find sustainable and recurring funding sources that will accelerate growth if we hope to meet the scale of the need.
Newton’s second law of motion states that the greater the weight of an object, the more force is required for acceleration. So to make your job easier, lighten the load by constantly driving down both cost and complexity. An intricately crafted intervention might make a big difference for a few. But would you make a greater impact by getting something slightly less comprehensive to a hundred or a thousand times more people? Don’t let the perfect be the enemy of the good.
All too often, the social sector touts success with a vanity metric of an absolute number that represents reach. Remember, scale is not a static data point. Rather, it is the formula that can break out of the grant cycle, rev the engine, and start to accelerate, whether through a business model, government adoption, replication, or other means. Scale is making the shift from linear to exponential growth.