The road to scale

Inclusive Economy26 May 2014Robert van den Heuvel

Social entrepreneurs forget that a big social impact also requires business scale. To grow from 100 to 1,000 outlets, it is important for multinationals to get involved in BOP markets. Therefore, social entrepreneurs need to think in terms of risks, structures and processes. And they must build a brand, use existing and strong retail channels and apply cooperative or franchise models, argues Robert van den Heuvel of DSM.

Local companies and social entrepreneurs can play a complementary role in multinational companies’ (MNCs) business, if they do not act in isolation and if they take the business and scale component into account from the beginning. If social entrepreneurs do not remain in the concept phase (with only one successful example) and quickly shift to the scaling phase, partnerships with MNCs can emerge. `Impact` and `long-term business` are the connecting words. Social content, in combination with profit, growth and continuity, leads to long-lasting business and social impact. On the other hand, MNCs like DSM must stretch their cooperation skills and be patient, in order to integrate the competences of social entrepreneurs and to benefit from them. DSM Nutrition is practicing this using three concepts.

Concept 1: Fortifying products

The most straightforward concept is co-development with an established national food producer. DSM delivers the food producer a premix of vitamins and minerals (micronutrients) with which to fortify a drink, biscuit or meal. The fortified products have a competitive edge; that is, they fit into a healthy lifestyle and attract consumers who are looking for additional value, like nutrition. The food producer and its large retail network are able to scale up the distribution of the nutritious products. Retail shops are a scaling up factor in themselves. Examples of national food producers with which DSM is working include Kenyan dairy companies to fortify yogurt and Indonesian companies to enrich products with 25% of the daily required vitamins. This concept – which involves product adaptation or innovation – can be implemented within 1-2 years. Social entrepreneurs have no or a limited role in this concept, except perhaps in retail.

Concept 2: New partnerships

This concept is more complex than the first. It involves scaling up via a cooperative or a collaboration of private, civil and public partners, like schools or health centres. A cooperative is the perfect blend of reaching scale and fostering individual entrepreneurship. This concept requires entrepreneurs who think holistically alongside different stakeholders – people who see the blend of business and health impact, and are able to connect different types of organizations. Social entrepreneurs can act as liaisons and catalysts, or even be the managing director of the cooperative itself. DSM`s fortification projects in Tanzania (flour) and Kenya (dairy products) show how a cooperative creates scale. DSM supports the cooperative technically and commercially in developing a fortification package. The package is sold and distributed to the cooperative’s members (small flour millers), or replicated to other dairy cooperatives.

Another example is the introduction of a nutritious cereal snack by a DSM customer, a big Indonesian food company. Together with the food company and the biggest school organization in Indonesia, DSM has introduced the snack (containing vitamins and minerals from DSM) to school kids under the umbrella of `healthier snacking`. We have created a new distribution channel and enriched it with education on nutrition. By engaging two big organizations (the food company and the school network) from the beginning, replication and scaling up has gone fast. In this case, social entrepreneurs are not involved, but the social entrepreneurial perspective and skills needed comes from DSM, the food company and the school organization together. The innovation is at the distribution and collaboration levels via public-private partnerships, and will last 1-3 years.

Concept 3: Radical innovation

Radical innovation means a new business concept; in many cases initiated by NGOs and social entrepreneurs who explore new avenues and start with a blank sheet of paper. This concept requires even greater involvement by the social entrepreneur. It is the entrepreneur who drives the start-up, innovates and creates the social and initial business impacts. An example is the introduction of a new street food franchise for kids in Jakarta, called Kebal (meaning Child`s café) – a real start-up. DSM is participating in this concept by adding micronutrients to street food meals and advising on business development. The big advantage is that DSM is able to shape the concept. Scaling up takes place by autonomous growth and franchising. This type of project lasts 3-5 years, is risky and requires more effort and funds than the other two concepts. Big companies let individual entrepreneurs do the initial work, because it is beyond their core business. As soon as the concept has proven to work, the big corporations buy or step in. This is a radical form of innovation to explore and find new ways of reaching and including new and existing target groups.

In comparison to multinational companies, the main assets of social entrepreneurs are their entrepreneurial skills, and agility and action-driven attitude, which are very useful in bottom of the pyramid (BOP) business development. On the other hand, social entrepreneurs might forget that a big social impact also requires business scale. A well working single outlet is a nice showcase, but the immediate question is then how to go to 100, and then to 1,000 outlets? This is where the assets and target-setting of an MNC come in: spreadsheets, big implementation and speed – not the first and favourite concerns of the social entrepreneur.

The easiest way for MNCs like DSM is to work along concept 1. Then they do not have to bother with complicating factors like multiple stakeholders, non-educated consumers and finding new ways of distribution to reach remote and/or poor families. However, they then also miss opportunities and exclude too many consumers who need nutrition. Social entrepreneurs can be partners to help them enter this uncertain area and simplify it for them. Concepts 1 and 2 require social entrepreneurs who combine their innovation, passion and grassroots experience, with the MNC’s spreadsheet for a scaled business. Alternatively, the MNC can mobilize its own `social entrepreneurial skills and mindset`.

Social entrepreneurs should reflect on whether and how their ideas can be a large-scale success. They have to think in terms risks, structures and processes. And build in `proven scale factors`, like a brand, existing and strong retail channels, and cooperative or franchise models. And, lastly, to ensure a good fit with MNCs, the latter need to introduce `social managers/controllers` to liaise with the social entrepreneur.