patri 02. applicability & viability at scale: a guide for scaling social business

Applicability at Scale:A Guide for Scaling Social Business

Rizwan TayabaliSupported by Ashoka Globalizer

Adapted from

The PATRI Framework for Scaling Social Impact

© Rizwan Tayabali, 2014

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The PATRI framework takes you step by step through all the aspects of diligence needed to understand whether or not scaling is feasible

for you and if so, to produce an effective scaling plan that you can follow during implementation.

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PATRI Framework

IPurpose

IIApplicability

(Viability)

IIITransferability

IVReadiness

VImplementation

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An overview of the complete PATRI Framework, is provided in a

linked presentation called ...

“PATRI Framework for Scaling Social Business”

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PATRI Framework

Caveats1. The following guide is specifically targeted at social

businesses and therefore places an emphasis on financial viability along with impact i.e. It is designed for organisations that create their impact through the use of business models.

2. The PATRI Framework is focused on scaling rather than incremental growth. If you are simply aiming to set up operations in another location or enter another market, then the framework will still offer you value, but some aspects of it may only be applicable a bit further down the line.

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The 1st step of the Framework is to define purpose and targets, without which you have no

useful basis for planning or design.

If you haven’t already got clarity around these, more support is provided in a linked

presentation called ...“Defining Purpose: A Guide To

Scaling Social Business”

Purpose

Once you’ve identified your goals and set targets for scaling, you can assess whether or not your impact or business model is capable

of achieving those targets

i.e. if it will still be applicable at the scale you are aiming for.

This guide thus focuses specifically on the 2nd step of the Framework, which is to

understand whether or not your model will be applicable at scale, and if not, how you could adjust it to make it more relevant and viable.

Applicability

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Operating practices and models that apply on a local level do not necessarily apply on a

larger scale.

Depending on your model and how it is designed or delivered, scaling can either bring

economies or a series of additional costs.

Applicability (Viability)

Assessing applicability is therefore a critical stage in understanding whether or not your model will need adjustment or redesign in order to work effectively on a larger scale.


In the case of social businesses, where impact is either intertwined with, or dependent

on the business model, whether or not a solution will be applicable at scale hinges significantly around whether or not it will

be financially viable at scale.


The key point of assessing viability of your business model is thus to manage riskand understand whether or not it is likely to

1. Scale as is2. Need some tweaking,

3. Require significant rework, or 4. Not be scalable at all


Key Factors

Demand

Market Variances

Cost Effectiveness

CompetitionFeasibilityof Organic

Growth

Efficiencies& Scale

Economies

Financing

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The assumption by this stage is that you are assessing viability of scaling your business

model into areas and demographics that you have already selected, and that selection has

already considered demand.

Demand

If you haven’t done so, then your first step is to analyse demand in more detail to get a decent

understanding of market potential.


Demand

Demand should not be confused with need. Just because people need something,

doesn’t mean they want it.

If financial sustainability is a key consideration, then demand, or the feasibility of generating

demand, plays a critical role in success.


Demand

The new markets you are considering may have different characteristics, both to your

existing markets and to each other.


Market Variances

Look for variations in

~ Demand (Market Size & Potential Revenues)~ Consumer Preferences

~ Access~ Risks

~ Compliance (Regulation)~ Competition


Market Variances

Then assess whether or not your current business model will be able

to cope with these variations.



Market Variances

Source – From Vision to Large-Scale Change – A Management Framework for Practitioners, Cooley & Kohl 2006

The easiest models to scale are:


Market Variances

If it seems that your current model may be unable to effectively cope with market

variations then you could consider other ways to improve adaptability

~ Consider new product/service lines~ Consider different pricing strategies

~ Consider new audiences


Market Variances

You could also look for ways to improve the flexibility and customisability of your model by adding or adjusting components to improve the

range and relevance of your solution.


Market Variances

Scaling social business models can bring additional and sometimes unexpected costs ...

Cost Effectiveness


~ Hidden set-up costs~ New compliance requirements

~ Variable staffing and infrastructure costs~ Varying lead times and local delays

~ Varying costs of ensuring impact

Cost Effectiveness


Impact oriented organisations also often receive subsidies in donation, free skills, kind and even physical land and infrastructure in

areas where they are well established.

These subsidies don’t always transfer into new environments, so you need to account for them

when costing for scale.

Cost Effectiveness


If your social business model involves products, you will also need to see if you can find cost-effective local manufacturers, distributors,

suppliers or agents depending on your model.

If you can’t find suitable ones, you may have to factor in import/export costs.

Cost Effectiveness


Once you’ve established your costs, compare them against potential revenue from estimated demand to assess whether or not your business model will still be cost-viable.

If it isn’t, you may need to go back to the drawing board, or reconsider where you

choose to scale.

Cost Effectiveness


Having established cost-viability you will need to consider whether you face

significant competition

~ Other social businesses ~ Non-profit competitors

~ Commercial competitors

Competition


Other social businesses represent your direct competition. Their main advantage may be that

they are already well established.

Competition


Non-profit competitors have the luxury of off-setting their impact related costs through philanthropic sources, which gives them cost

advantages.

Competition


Commercial competitors should be your biggest concern. These companies don’t have to

worry about impact costs, and so have significant pricing advantages, especially if the

market isn’t willing to pay a premium for supporting social impact.

Competition


If your target markets are competitive, you will need to assess whether or not you can

realistically compete, and if not, consider strategies for co-opting and partnering withnon-profit or social business competitors,

or countering commercial ones.

Alternatively you might consider focusing on more underserved markets instead.

Competition


Scaling by definition implies disconnecting your rate of impact and revenue from your rate of

physical or cost growth.

Feasibilityof Organic

Growth


If your goal is to make a macro scale impact with your business model, then the size of

reach needed will most likely make it impractical to organically grow your

inputs to match.


Growth


There is a simple way to assess this feasibility...

1. Divide the estimated size of need/demand by the number of people you currently reach.

2. Then multiply your current operating costs by that number.


Growth


If the result is a number that feels feasible, then organic growth based on your current way

of delivering impact is a realistic option.


Growth


If the resource required to make an impact on your chosen scale feels impractical, then you may need to consider new ways to increase

your reach without being limited by the resources available to your business.


Growth


As a social business, you have a number of options you could consider

~ Franchising~ Licensing

~ Distribution Partnerships~ Joint Ventures

~ Strategic Alliances~ Mergers~ Spin-offs


Growth


The most common approach for scaling social businesses is probably franchising.

The fact that you have a business model which is financially profitable will give you the

leverage needed not only to attract franchisees, but also to set the quality standards needed to

ensure impact across the network.


Growth


Source – Waltraud Martius, Syncon


Growth


Finally, if you are willing to consider relinquishing proprietary control in order for

your business model to have greater reach and impact, you could also consider allowing others

to independently replicate your model.


Growth


Increasing your output may also enable youto maximise the capacity of your existing

resources and investments in infrastructure or technology, bringing you economies of scale.

The key is to assess whether or not these economies off-set the potential increase in costs and growing pains resulting from an

increase in size and spread.

Efficiencies& Scale

Economies


Having established an effective mechanism for scaling you could consider improving

internal efficiencies that allow you to generate more output while keeping your costs

relatively fixed ...

Efficiencies& Scale

Economies


~ Streamline processes~ Connect/share services

~ Leverage technology~ Leverage the web

~ Outsource~ Repurpose existing assets

Efficiencies& Scale

Economies


The final consideration for viability is whether or not you need external financing in order to

scale.

Financing


Servicing returns on investment can quickly become the highest priority for any business that takes it on, and this applies the same to

social businesses.

Financing


Profit challenges can also create a conflict between maintaining the costs of social impact

and servicing the needs of financers or investors, so it is important to choose wisely.

Financing


If you can’t afford, or don’t have access to, financial and legal expertise, then you may find yourself at a significant disadvantage against investors, some of which are impact-oriented

in name only.

Financing


Finally, you should establish whether or notthe finance is actually affordable in terms of

returns expected.

If your margins are small, then servicing this finance may result in losses that your venture

cannot sustain.

Financing


By this stage you should have a good sense of whether or not your business model is likely to

be financially viable when scaling.


If your model appears viable, then it is worth testing the waters as an early check for

implementation practicality.

For this you will need:

1. A high-level business plan2. A summary pitch for raising finance


If the costs of finance don’t appear manageable, you could loop back through the process

and reconsider

1. The areas or demographics you’ve focused on2. The pathways you have chosen for scaling


Once you’ve ensured that your model will be both applicable and viable at scale, you can

focus on improving its ability to be replicated or delivered by others i.e. if it is systematic and transferable for use in scaling, either by your

own teams or by external partners.


A guide to the next step of ensuring that your model is standardised and ready for

replication or delivery by others is provided in a linked presentation called ...

“Transferability for Scale: A Guide forScaling Social Business”

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Transferability

patri 02. applicability & viability at scale: a guide for scaling social business

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