Of course, any organization thinks about growth. At first, the company thinks about the growth of its revenue, market share, profits, and people’s involvement. After that, she may need to distribute its business model to other regions and even abroad through the sale of a franchise, making copies, training other organizations. Growth within a small volume is easy, but if the volume needs to be increased several times, to enter new markets, to new consumers, to occupy new niches and to spread the idea to other regions, this is already a difficult task of scaling the project.
This process needs to be seriously planned. First of all, it is necessary to determine the vision of such scaling, that is, how it should look as a result. At the same time, it is impossible that the obligations assumed earlier are not fulfilled, and the initial ideas and values of the organization are betrayed. When planning the scaling process, it is very important to foresee the following things in advance: business model, organization operations and processes, marketing, personnel training.
The operating model must be built from considerations of efficiency, economy, speed and step-by-step automation of processes without compromising quality. On a large scale, dynamism and innovation are very important not to miss the audience. The business model should also include a financial plan for investing in new equipment, large acquisitions, and research. With the growth of scale profit can be used for these purposes. Staff demands not only to be taught new specific skills needed in the work. People need to be prepared for changes in the organization so that it does not cause stress and disruption of operations. The learning cycle should be as fast as possible.
Of course, the most important thing in this situation is the vision of your future organization and your leadership in this process: convey your vision to the masses, tell them how you see your project after scaling, what your values, key ideas will be. Perhaps, when scaling, you will have to face new and larger audiences, then they need to be segmented. At the same time, access to new segments of the audience must of course be accompanied by well-established communications with the local community: they know the problems of their region and help them find local solutions that inspire people.
Types of scaling organizations
There are two main ways to scale through the market or through the government. In the first case, you need to work out an effective business model and build a value chain. In the second, to receive subsidies or payment for their services, giving the state its competence in return. Market companies are growing better, but not in the creation of goods and services for low-income segments of the population. The state has a lower level of competence. Of course, in both cases, you can attract a donor, but this is not enough.
On any journey, you will encounter difficulties in planning, reallocating resources, and calculating. You will need to provide a design model for your future organization, distribution paths, supply chain, financing, pricing, payments and sales.
Barriers to scaling
Market barriers come, among other things, from the asymmetry of access to information. This creates financial risks and requires adequate risk management. If you work in the public goods segment, then you enter into competition for a market with a state that has access to creating laws and disseminating information. The market generates various financing conditions for projects in the early and longer term. The market has also been confirmed by external effects, such as social spending and social guarantees.
The government, in turn, generates corruption, lack of public goods, infrastructure, inadequate regulation. The state makes it difficult to go from the producer of goods and services to his consumer. In addition, it is necessary to understand that decisions of individual officials are affected by the duration of the political cycle, which in any country is much shorter than the long-term development plan of the project.
There may also be problems inside the organization. For example, they may come from a founder who does not want to revise the vision of a project, even when it is ineffective. Their cause may be a lack of data or an incorrect assessment. The problem of data evaluation and evaluation of individual client stories is relevant for any organization. Scaling can lead to the collapse of informal control systems and require the construction of more formal ones. Organizational values on a new scale may also be at risk.
At the stage of origin of the project idea, the organization discovers its consumer. At the embryonic stage, the organization first encounters with it and checks its needs and basic properties. Only after this comes the early stage at which the company forms its audience. What is typical, as a rule, at this moment the owners usually run out of money and the project has a high risk of dying. If this does not happen, then the company enters a stage of development and builds its audience on its own.
So, where do you start when scaling a project? First of all, answer the question: what problem does it solve, what barrier does it overcome? What caused it: the market or the state? What barriers stand in your way?
Next, you need to form a vision. At this stage, you will have three questions:
- Who is your project for? What is its audience? Who is the beneficiary and benefits?
- What new needs do you have when scaling?
- And the most important: why are you doing this?
After answering them you will form a model. You need to choose the type of scaling, understand why this type suits you, what are its strengths and weaknesses. What is the strategy for step-by-step launching a new model? How to convince decision makers that we need it?
In the next step, you create the initial conditions for scaling. What new skills and resources do you need? What changes within an organization need to be made? How to mobilize the necessary support?
And in the process of starting a project you need to monitor, analyze and evaluate. How to make sure the new model works? Do you keep track of the process? How do you use information? There are many projects that do not receive positive answers to questions about the work and the effectiveness of the project from the first time. It happens that the proposed solution does not work. Either works, but is not suitable for scaling. You tested it, and this negative experience is also an experience. This is not a reason to close the project. If the problem does exist, think up another solution for it and test it. This cycle can be repeated many times, but if there is demand, you will definitely be able to create a working solution sooner or later.
Perhaps the processes of scaling projects – the most difficult to find funding. There are a lot of microbusiness assistance programs, small non-commercial projects in the world. There are also large grants that can be provided by the state, donors and the private sector. Just the middle, unfortunately, is running out of resources.
As a rule, an organization passes the following funding hierarchy in its path, depending on its scale:
- Own funds
- Self-raised loans
- State startup support programs (loans or grants)
- Unsecured, consumer loans
- Angel investing
- Mortgage loans (including receivables)
- Venture capital
- Direct investments
- Stock market
Own funds and initial research grants, as a rule, are enough for conducting research, analyzing the audience and business plan. Further, the project is very likely to die if it does not find funding. Business angels can help with the creation of the team and the first prototype. Further, venture financing can come to the rescue. It will help create a working model, pay for supplies and distribution. Private direct financing comes at the stage of launching the product to the market. And after that the company begins to return the money.
Scaling social projects
Scaling is especially hard to social entrepreneurs and projects. From them, investors expect both profit and social effect, which imposes dual responsibility. In addition, investors require them to spend funds primarily on social effects, and are not enthusiastic about financing current and administrative activities, which are still needed. Most often they work just with the low-income strata of the population, while they are small organizations that work outside the level of acceptance by the government. They are the most under-resourced, and they are expected to not be distributed, but refinanced again. They can not provide as many opportunities to exit the investment as a business structure. The stage of market verification for them lasts much longer. And, of course, they create risks for investors, especially in the initial stages.
However, they have strengths. It is easier for them to get feedback from their customers, they are closer to them. They are mobile enough, can change and adapt, and even can easily receive payment in kind, which makes them more flexible. The most accessible options for them are philanthropic private projects, microfinance, state support programs and the resources of social entrepreneurs themselves.
Financing social projects
Usually investors seek to see profits from funded projects. However, there are socially responsible investments that will be a little more focused on the social effects of your work. At the first level, they favor the risks of your social project compared to other projects, while still expecting a profit from you. At the second level, they include social metrics in project performance indicators. Higher level – investment in social change. For them, the possibility of obtaining a social effect comes to the fore, using market opportunities. At a higher level, they are even ready to suffer losses for the sake of these effects. The highest level is philanthropists. They are ready to fully invest in social effects, not expecting their return at all.
Thus, the social project is gradually moving from its own funds to returnable, non-refundable or convertible grants. Then it begins to attract investments in social change. These can be debts, securities combining equity and debt characteristics (quasi-capital), property attracted on non-market terms. They can be included in investment portfolios as the most risky parts of capital. And after that, they can move to market-based financing models, such as loans, financing by angels or venture funds, crowdfunding and direct financing. In addition, funding is available for them by attracting volunteers or conducting internships.