A recent article on Social Edge asks “Is size the enemy of the social enterprise?”
1. Why do social venture funds focus on growth?
2. Dilution of mission during/after growth
Scale is important for startups in achieving “break-even” volumes, where they produce and sell in sufficient volume to reach a point of no profit, no loss.
Production oriented businesses may find themselves in industries which require investment in fixed costs such as machinery, land/building. Whether they are producing paper cups or wheat flour, they simply have to reach the minimum scale (volume of production) to break-even and start making profits.
For retail and distribution businesses a similar reason drives them towards achieving high sales volume. A company that invests heavily in retail space and systems (a natural products retail store or an online store) must sell to a large number of customers to reach profitability.
This does not mean that there are no business models that do not require scale. Standalone restaurants can achieve 10-20% profitability depending on the cuisine and neighborhoods they cater to. One can try to increase this further by creating a chain of restaurants, but that is not necessary to reach break-even. Other examples include small tailoring shops etc.
In addition to the above economic reasons, there’s a “social” objective that drives scale: to reach out to as many beneficiaries as possible.
The second, completely different, question is about the compromises that have to be made to reach scale, and two, the impact on “social” objective along the way. I have had (and continue to have) debates on this topic with colleagues and friends on this, recently intensified due to October events in microfinance space.
To answer this, I would like to ask some questions:
1. Is there no greed (for power, fame, recognition, if not for money), no megalomania in NGO circles, so that we can take a holier than thou attitudes towards social enterprises?
2. Is there no humility and ethics (beyond legality) and a desire to benefit othres to be found in business circles, that we can simply club all profit-seeking as greedy?
3. Is there no difference between desire to have an income or a sustainable enterprise versus satisfying greed?
4. Is it possible to build corrective mechanisms into enterprise structure and governance systems (even”social” equivalents of corporate “poison-pills”), to avoid greed from overtaking the social objectives?
If the above is possible, then why are we burdening social startups, which have two categories of headaches already — to meet both business and social objectives, with a third — to prove to laypeople (not owners, not employees, not customers, not even beneficiaries), that they are “good” and will forever remain so?