Scaling Up Social Enterprises

Talk to a few social entrepreneurs about the principal difficulties they face and one of the most common responses will certainly be the challenge of scaling up their operations. Like most businesses, social enterprises begin small, often involving a single pilot program, with the goal of expanding rapidly over time. For social enterprises, the goal of scaling up is not only to reach a larger target population but also to confirm that the business model is successful and replicable. However, few organizations have been able to achieve this in practice (microfinance institutions being the most obvious exception). This is because scaling up social enterprises usually involves very unique challenges that can be difficult to overcome, especially when it comes to reconciling economic, social and environmental goals. Wastepicker organizations provide a good example of the obstacles one tends to face in the field.

I have written before about the difficult tradeoff between efficiency and social inclusion that occurs in all productive segments of the economy. To scale up, a business must of course be financially sustainable and capable of rapid growth. This of course necessitates a certain level of business efficiency. It also necessitates using the requisite technology to become competitive in the field, such as conveyor belts for sorting. An organization that finds itself with a productive disadvantage against its competitors has little growth potential. Yet an organization that aggressively pursues growth and expansion can have trouble retaining its social purpose, as it finds itself turning into a regular business whose principal goals are increasing profits and revenues.

In trying to implement my proposed business plan for Cataunidos, I have become starkly aware of the fine line separating a regular business from a social enterprise, particularly when I call for greater centralization of management decisions and more operational capital to improve and expand operations (rather than simply dividing all sales revenue among the wastepickers as income). Sometimes I wonder if a better solution would be to simply create a new recycling business that prioritizes hiring of wastepickers as workers. This would certainly allow operations to expand more rapidly. But then, how long would it be before we become just another competitor in the marketplace of middlemen, solid waste management companies, and recycling factories? It would be difficult to keep a focus on wastepicker inclusion when having to respond to market pressure from these actors.

I have begun to believe that social enterprises may have such difficulty scaling up precisely because staying small is the only way for them to easily mix their social, economic and environmental goals. A local wastepicker cooperative certainly seems like a model social enterprise because it can successfully pursue a triple-bottom line by providing income opportunities to an at-risk population while promoting recycling in a community where such services are otherwise lacking. But such small-scale organizations represent marginal activities when compared to the impact of big business. When trying to move into the mainstream through scaling up, the contradictions often become more apparent.

Does this mean that social entrepreneurship has a low ceiling, confined to microbusinesses in underdeveloped markets and marginalized communities with little chance of achieving economies of scale? I would say that the evidence is mixed. Microfinance shows that a successful model that targets marginalized populations can be replicated, making a large difference on an international scale. However, microfinance is, as it name suggests, fundamentally a “micro” activity, based around community organizations and targeted individual or group loans. Waste management, on the other hand, is a macro activity involving sophisticated, high-tech operations and huge government contracts. This may be why it does not lend itself as easily to a social enterprise model.

But that does not mean that there is no space for social enterprises in the world of recycling. There are millions of wastepickers across the world currently eking out a living from waste that often goes untreated, especially in poorer countries. Innovative approaches are needed to improve the productivity and working conditions of these workers while providing a needed public service of waste collection, treatment, and disposal. Numerous organizations across the world, from Peru and South Africa to Egypt and India, are doing their best to provide answers. I am still optimistic that these efforts will lead to solutions.