Essec Business School

With Jérôme Schatzman

We conducted a study on the key factors of scaling up a social business, combining a literature review, a dozen case studies, and interviews with nine founders of social businesses that have previously received support from Antropia ESSEC. Our study aims to illustrate the connections between the theoretical dimension and the practical and operational dimensions, with the objective of creating a framework that integrates the main empirical and theoretical elements.

First things first: what is a social business?

There is increasing interest in social entrepreneurship amongst both economic and political actors and in the academic literature.

The OECD defines the social entrepreneur as « one who takes risks, uses resources in a logical and efficient way, innovates in creating new services, products or processes over the long term by goal-setting, and produces benefits above and beyond the current allocation of resources”. Additionally, “the social entrepreneur seems to use the same resources, with the exception of the ability to distribute monetary resources”. The beginning of the journey resembles that of a typical entrepreneur in that their initiative emerges after noting an unmet need, but differs in that they undertake their initiative to serve society and not just for the entrepreneur’s or company’s own purpose. A typical business will seize an opportunity, and a social business seeks to fulfil an unmet need.

The social entrepreneur is constantly trying to generate more impact. Semantics give us additional food for thought on the differences between a typical business and a social business. While we would use the terms “expansion” or “growth” for a for-profit organization, “scaling up” is preferred for social businesses, the goal being to increase the contribution to social change and positive results for society, whereas the primary goal of typical businesses is to increase their returns. The expression “small is beautiful”, describing the small, local nature of these businesses, must cohabit with “big is necessary”.

There is still not a consensus on the definition of a « social business », but the European Commission tried their hand at building a common understanding. Their definition has three essential components:

-Entrepreneurial: producing goods and services in an entrepreneurial and innovative way

-Social: the goal is social impact, rather than generating revenue for the owners and shareholders

-Governance: accountability, transparency, and stakeholder participation

Social impact refers to "all the consequences (evolutions, reorientations, changes, ruptures) of an organization's activities on its external (beneficiaries, users, clients), direct or indirect, and internal (employees, volunteers) stakeholders, as well as on society in general, resulting from the organization's (or a group of organizations') ability to anticipate needs that are not or are poorly met and to respond to them, through its prevention, repair or compensation missions. It is translated into terms of individual well-being, behaviors, capabilities, sector practices, social innovations or public policy decisions.”(A)

The level of sophistication of social businesses and their integration in the economy varies widely from one country to another. France is one of the most developed European countries in this sense, with a business ecosystem favorable to social businesses. The law of July 31st, 2014 that pertains to the social and solidarity economy aims to promote scaling up the sector by defining a regulatory framework that will enable the sector’s restructuring and establish specific financing.

Recent research has classified social entrepreneurs into three categories:

1.   The agitators, who challenge, alert, and rally stakeholders to raise awareness

2.   The innovators, who offer solutions and who show that we can meet a certain need with the right resources

3.   The orchestrators, who take a solution that has worked locally and aim to apply it more systematically and widely.

It is this third category that we examined in our recent research supported by BNP Paribas. 

Changing the scale of social businesses is a major challenge for the improvement of society, with the current crisis highlighting the urgency of doing so.  

The crisis is not only a public health crisis: it is also a crisis of society, the environment, and energy use. It is the result of a period during which economic actors prioritized financial performance to the detriment of other dimensions of value creation. Over the past twenty years, impact entrepreneurs have therefore seized upon multiple causes and needs that neither public policies nor the market could fully address, both quantitatively and qualitatively, to propose solutions based on hybrid economic models and approaches to assessing their social impact.

This movement is part of the extension and enrichment of the action of the actors of the social and solidarity economy in the associative sector, particularly in the social, medico-social, cooperative, and insurance fields.

Certain solutions can be found on a local scale, benefiting a limited group of people. This should be saluted, but it is not sufficient. These entrepreneurs don’t have the resources to expand the solution, even when the problem exists elsewhere.

The emerging literature on changing the scale of social businesses discusses the theory behind the complex relationships between the fundamental elements that strengthen or limit scale-up potential.

In previous works by the Chaire Entrepreneuriat et Innovation à l’Impact, particularly under the leadership of Anne-Claire Pache and Kevin André, we identified four types of scalability for social businesses:

– « scale up » : offering the activity in more areas or expanding its use in one area through endogenous growth or absorption

– « scale out » : diversifying activities

– « scale deep »: to deepen and enrich operations to better serve the beneficiaries

– « scale across » : entrusting other organizations with the means to develop operations to serve an increased number of beneficiaries

In a general sense, a changing scale represents “the expansion, adaptation and sustainability of successful policies, programs or projects…to reach more people” (B). To simplify this definition, for the purposes of this study we consider it to be the strategy that a business puts in place to increase and optimize (maximize under constraints) its social impact.

Changing scale is part of the last phase of the life cycle of a social business, defined by the social innovation spiral (C):

-Needs: identifying the challenges and the opportunities

Ideas: generating ideas to address those needs

-Prototypes and trials: development and first trials of the proposed ideas

-Support: analysis and identifying lessons learned from the first trials, developing the ideas and considering the project’s economic and social sustainability

-Scalability: developing or expanding the activity

-Systemic change: the social innovation is widely accepted and becomes an integral part of life; however, not all social innovations will experience a systemic change or change scale

Changing scale is considering the most effective and efficient way of maximizing the social impact of a social business, based on its business model, to meet the demand for the products or services offered. This term focuses on increasing social impact, rather than the growth of the social business itself. This means it’s possible to change the scale of the business using different strategies than those a conventional business might use (D).

Key challenges of changing scale and five key success factors:

Let’s turn our attention to the key motivations leading an entrepreneur to increase the social function of their activities.

Regardless of its definition, changing the scale of a social business aims to maximize the social impact of a business. This must remain the ultimate goal of this approach.

The idea of changing scale has become a sort of panacea for the field of social innovation in recent years, and is often described as the ultimate success in the sector. However, there is a risk that a poorly managed scale up could be detrimental to the social business and that the economic side overtakes the social side, that governance participates less, or that the quality of the service decreases when the scale increases.  That’s why we sought to define the key factors and problem areas impacting success.

In our study, we explored the challenges of expansion, duplication, cooperation, and cross-fertilization. The goal is to ensure the longevity of the activity and/or to seize an opportunity, but above all to maximize the social impact of the business.

Business operations and their approaches to scale up are analyzed around four major issues: human resources and internal organization, financing, and support and governance, in particular establishing partnerships.

We identified a number of potential problem areas to consider before any scale up:

·   The consistency of the strategy with the Vision, Mission, and Objectives

·   The proven success of the concept (first of the concept, then of its market success) that form the basis for the scale up

·   The ability to measure social impact and therefore the expected and achieved increase in impact

Based on this, we identified five keys to success for the entrepreneur:

·   Listening to and taking care of one’s team and oneself

·   Choosing the right investors and building a strong relationship

·   Building a solid, efficient network

·   Establishing balanced and stimulating partnerships within one’s network

·   Making the measurement of social impact a tool for steering activities and performance

We hope that this work will help guide entrepreneurs in how to maximize their impact and to convince investors that it is possible and worthwhile to encourage and finance social businesses, which will help transform our society into one that is more just and sustainable.

We would like to thank the entrepreneurs who gave us some of their precious time and shared their experience and their advice. We would also like to thank Lea Schullel Allal for her research work. Without their help, this work would never have been produced. We would also like to thank the BNP Paribas retail banking teams (Raphaele Leroy and Mélanie Lahaix) and the BNP Paribas CSR leaders (Antoine Sire and Maha Keramane) who made this study possible, as well as the nine incredible impact entrepreneurs who shared their experiences and their analyses. Finally, we thank the Antropia ESSEC team for their always helpful advice and insights: in particular Aline Pehau, operational director, and Emmanuelle Bomble, Alice Bourassin and Matthieu Courtois, program directors.  

 Références

 A. OCDE (1998), Stimuler l’esprit d’entreprise, p. 129.

B. A. Hartmann and J. Linn. 2008a. Scaling Up: A Framework and Lessons for Development Effectiveness from Literature and Practice. Wolfensohn Center Working Paper No. 5. Brookings. et A. Hartmann and J. Linn. 2008b. “Scaling Up Through Aid: The Real Challenge.” Global Views, No. 7, Brookings.

C. Mulgan, G., Murray, R. et CaulierGrice, J. (2010). The Open Book of Social Innovation, Social Innovation Series: Ways to Design, Develop and Grow Social Innovation, Young Foundation et Nesta.

D. Weber, C., Kröger, A. et Demirtas, C. (2015). Scaling Social Impact in Europe: Quantitative Analysis of National and Transnational Scaling Strategies of 358 Social Enterprises, Berthelsmann Stiftung, Gütersloh, Allemagne.

1 - These nine leaders are Frédéric Bardeau (Simplon.Co), Ariane Delmas (Les marmites volantes), David Lorrain (Recyclivres), Matthieu Grosset (Coopératif Demain), Domitille Flichy (Farinez’vous), Guillaume Desnoes (Alenvi), Thibault Bastin (Alphonse), Marina Gning (ApiNapi) and Olivier Gambari (iNex Circular).[2] Social Enterprise Initiative, Harvard Business School, 1993

2 - Social Enterprise Initiative, Harvard Business School, 1993.

3 - Fazle Hasan Abed, Founder du Bangladesh Rural Advancement Committee (BRAC).

4 - Definition of the working group on social impact measurement of the Conseil Supérieur de l'Économie sociale et solidaire in 2011 chaired by Thierry Sibieude, preparatory to the law of July 31, 2014 on the social and solidarity economy

5 - BNP Paribas, la MACIF, Malakoff Humanis, MAIF, AESIO, la Fondation Deloitte et le Conseil Départemental du Val-d’Oise sont les mécènes de la chaire Entrepreneuriat et innovation à Impact de l’ESSEC.