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PATRI 02. Applicability & Viability at Scale: A Guide for Scaling Social Business

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Step by step guide to help social enterprises and social businesses assess and improve viability of their business and impact models when scaling impact and operations. This guide is based based on the PATRI Framework for Scaling Social Impact.

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PATRI 02. Applicability & Viability at Scale: A Guide for Scaling Social Business

  1. 1. Applicability at Scale: A Guide for Scaling Social Business Rizwan Tayabali Supported by Ashoka Globalizer
  2. 2. 2
  3. 3. Adapted from The PATRI Framework for Scaling Social Impact © Rizwan Tayabali, 2014 3
  4. 4. 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. 4
  5. 5. PATRI Framework I Purpose II Applicability (Viability) III Transferability IV Readiness V Implementation 5
  6. 6. An overview of the complete PATRI Framework, is provided in a linked presentation called ... “PATRI Framework for Scaling Social Business” 6 PATRI Framework
  7. 7. Caveats 1. 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. 7
  8. 8. 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
  9. 9. 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.
  10. 10. 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.
  11. 11. Applicability 11
  12. 12. 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)
  13. 13. 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. Applicability (Viability)
  14. 14. 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. Applicability (Viability)
  15. 15. The key point of assessing viability of your business model is thus to manage risk and understand whether or not it is likely to 1. Scale as is 2. Need some tweaking, 3. Require significant rework, or 4. Not be scalable at all Applicability (Viability)
  16. 16. Key Factors Demand Market Variances Cost Effectiveness Competition Feasibility of Organic Growth Efficiencies & Scale Economies Financing 16 Applicability (Viability)
  17. 17. Applicability (Viability) 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
  18. 18. 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. Applicability (Viability) Demand
  19. 19. 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. Applicability (Viability) Demand
  20. 20. The new markets you are considering may have different characteristics, both to your existing markets and to each other. Applicability (Viability) Market Variances
  21. 21. Look for variations in ~ Demand (Market Size & Potential Revenues) ~ Consumer Preferences ~ Access ~ Risks ~ Compliance (Regulation) ~ Competition Applicability (Viability) Market Variances
  22. 22. Then assess whether or not your current business model will be able to cope with these variations. Applicability (Viability) Applicability (Viability) Market Variances
  23. 23. Source – From Vision to Large-Scale Change – A Management Framework for Practitioners, Cooley & Kohl 2006 The easiest models to scale are: Applicability (Viability) Market Variances
  24. 24. 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 Applicability (Viability) Market Variances
  25. 25. 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. Applicability (Viability) Market Variances
  26. 26. Scaling social business models can bring additional and sometimes unexpected costs ... Cost Effectiveness Applicability (Viability)
  27. 27. ~ 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 Applicability (Viability)
  28. 28. 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 Applicability (Viability)
  29. 29. 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 Applicability (Viability)
  30. 30. 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 Applicability (Viability)
  31. 31. Having established cost-viability you will need to consider whether you face significant competition ~ Other social businesses ~ Non-profit competitors ~ Commercial competitors Competition Applicability (Viability)
  32. 32. Other social businesses represent your direct competition. Their main advantage may be that they are already well established. Competition Applicability (Viability)
  33. 33. Non-profit competitors have the luxury of off-setting their impact related costs through philanthropic sources, which gives them cost advantages. Competition Applicability (Viability)
  34. 34. 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 Applicability (Viability)
  35. 35. 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 with non-profit or social business competitors, or countering commercial ones. Alternatively you might consider focusing on more underserved markets instead. Competition Applicability (Viability)
  36. 36. Scaling by definition implies disconnecting your rate of impact and revenue from your rate of physical or cost growth. Feasibility of Organic Growth Applicability (Viability)
  37. 37. 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. Feasibility of Organic Growth Applicability (Viability)
  38. 38. 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. Feasibility of Organic Growth Applicability (Viability)
  39. 39. If the result is a number that feels feasible, then organic growth based on your current way of delivering impact is a realistic option. Feasibility of Organic Growth Applicability (Viability)
  40. 40. 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. Feasibility of Organic Growth Applicability (Viability)
  41. 41. As a social business, you have a number of options you could consider ~ Franchising ~ Licensing ~ Distribution Partnerships ~ Joint Ventures ~ Strategic Alliances ~ Mergers ~ Spin-offs Feasibility of Organic Growth Applicability (Viability)
  42. 42. 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. Feasibility of Organic Growth Applicability (Viability)
  43. 43. Source – Waltraud Martius, Syncon Feasibility of Organic Growth Applicability (Viability)
  44. 44. 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. Feasibility of Organic Growth Applicability (Viability)
  45. 45. Increasing your output may also enable you to 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 Applicability (Viability)
  46. 46. 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 Applicability (Viability)
  47. 47. ~ Streamline processes ~ Connect/share services ~ Leverage technology ~ Leverage the web ~ Outsource ~ Repurpose existing assets Efficiencies & Scale Economies Applicability (Viability)
  48. 48. The final consideration for viability is whether or not you need external financing in order to scale. Financing Applicability (Viability)
  49. 49. 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 Applicability (Viability)
  50. 50. 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 Applicability (Viability)
  51. 51. 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 Applicability (Viability)
  52. 52. Finally, you should establish whether or not the 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 Applicability (Viability)
  53. 53. By this stage you should have a good sense of whether or not your business model is likely to be financially viable when scaling. Applicability (Viability)
  54. 54. 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 plan 2. A summary pitch for raising finance Applicability (Viability)
  55. 55. 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 on 2. The pathways you have chosen for scaling Applicability (Viability)
  56. 56. 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. Applicability (Viability)
  57. 57. 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 for Scaling Social Business” 57 Transferability
  58. 58. ©Rizwan Tayabali, 2014 58

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