The Social Entrepreneur’s Scaling Dilemma (and One Solution)

It’s rare for a social entrepreneur to get through the gauntlet of hurdles to reach that amazing milestone she strives for: a functioning, growing, sustainable business that is solving a core problem of humanity.

But even once she gets there, she faces a decision that can be excruciating: I call it the social entrepreneur’s Scaling Dilemma. Scaling strategy is yet another area where impact organizations face an either/or decision that profit-only businesses don’t have to make.

A traditional business has only one thing to maximize: profits. Well-run businesses optimize their prices based on what will produce the greatest profit, not what will produce the greatest number of customers. If a company believes that raising prices will increase profits after taking into account lost customers, then that’s what it will do.

But for a social entrepreneur, raising prices can be heartbreaking when the customer is disadvantaged. Not only are fewer clients served by the mission; those that are no longer able to afford the service will be the most disadvantaged in the pool.

A clean water service that charges just enough to break even will serve the largest possible pool of people that it can reach. It also leaves the most money in those people’s hands as possible. If the facility increases its prices, it will be more profitable – but less people will be served, those that are served will have less money for other survival needs, and those that can’t afford the water at all anymore will be the poorest of the population.

A water business run as a for-profit company with ROI as its primary objective will find the perfect price to maximize its profits, with no care at all to these social negatives. But for an impact organization, the loss of impact is a terrible side effect of increasing profits.

Now here is the dilemma: those profits that the social entrepreneur is foregoing to serve today’s poor are the same profits that would enable the business to scale. Without profits, there is no self-funding capital to build the next water treatment plant. Without returns, there is nothing to entice investment capital either. So the impact organization, by maximizing today’s impact, has limited tomorrow’s impact.

What should the CEO of the impact organization do? Should she maximize profits today, grow through reinvestment, and then accept lower profits later to increase scale? When should that happen? What if she knows that some people will die in the meantime? Should she pass up investors today, because she knows she won’t be able to downshift later to increase reach by lowering prices? This is a difficult moral place to be for the social entrepreneur.

That’s why social enterprises need a model like Good Returns. It solves the Social Entrepreneur’s Scaling Dilemma. Good Returns effectively says, “CEO, offer your services at the lower possible price while maintaining sustainability. Maximize today’s reach. We will provide the scale capital you need so you can maximize tomorrow’s reach, too.”

Good Returns works because it creates new value by providing businesses and their investors with a reason to invest capital into impact organizations. This capital provides a missing piece that solves the Scaling Dilemma.

Profits are the end for traditional business. For impact organizations, profits are not the end – the mission is. But profits are a critical tool that provides the sustainability and scale that the impact organization needs to achieve its mission. This need to focus on both mission and profits creates a multitude of challenges for social entrepreneurs. We need to be working together to find structures and devices that transcend these dilemmas.

If you have struggled with the Scaling Dilemma, please share your thinking process and the decisions you have made. If you have found other solutions to the problem, please share your approach so other social entrepreneurs can learn. Comments are open below.

4 thoughts on “The Social Entrepreneur’s Scaling Dilemma (and One Solution)

  1. Salah,

    Thank you for continuing to write. I am grateful that you take time away from your own social enterprise (Soap Hope) to advance the overall strength of the social entrepreneurship ecosystem. Please keep writing as often as you can!

    This piece highlights the biggest challenge facing any mission-driven organization: how to finance the pursuit of that mission. I am grateful that the Good Returns model offers some clarity in the midst of that confusion.

    Wishing you peace and health,

    Liked by 1 person

  2. Salah, you are right to target the trade-offs and dilemmas of social entrepreneurs and the need for financing from “impact investors” or whatever one calls them. At the same time, I think your analysis of for-profit companies could use additional nuance. Not all companies try to maximize profits in the short term; certainly does not (sometimes to the consternation of its shareholders). Some firms focus on maximizing shareholder value. Some go through long periods of low-profitability in order to corner the market, or for other reasons. Some for-profit companies care deeply about avoiding “social negatives’, often for reasons of self-interest, or sometimes because they view their mandate more holistically. The reality is that there is a spectrum of organizational types, from the social enterprise intent on maximizing impact within a sustainable model on the one end, and profit-maximizing businesses with no social mandate on the other. There are many in between. When we recognize this, some “for-profit” entities may emerge as potential scaling partners or allies for social entrepreneurs.


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