3 top tips for ‘thinking big’
This article is part of a series of blogs offering our tops tips on surviving the process of raising impact investment. Investment raising is difficult and time consuming, and the process can seem daunting if it's your first time. We have written this series of blogs as a way to share some insight in to what impact investors are looking for.
Social entrepreneurs are always thinking big right?
Well, I’d agree that the scale of the problems we see them taking on are large. Those tackling financial exclusion, for example, are faced with 8m people who can’t get access from banks.
But do social entrepreneurs really think about and plan for some other aspects that are key to scale? I’m going to look at three aspects of scale I think are important: scale of delivery; scale of capital required; and economies of scale.
1. Meaningful scale relative to the size of the problem
Meaningful scale is one of those subjective terms we use a lot in our office, assuming we know what each other means, without ever writing it down. So here’s my attempt to do so: the solution could be delivered to 10% or more of the population experiencing the problem. So 800,000 financially excluded people; 85,000 dementia patients etc. Right from the start, I think we need to be designing and supporting solutions that can credibly claim they could be delivered at meaningful scale.
2. Recognise the scale of capital investment and identify sources
So once we’ve thought about meaningful scale, we need to think about what it will take to build an organisation that can supply at that level: usually a lot of money, much more money than social entrepreneurs expect/plan for.
So, for example, if you want to make affordable £500 loans to the 2m people currently confined to payday lenders, you’ll need access to £1bn plus the capital needed to build the capability to deliver on this scale (£20m+ surely?). Even to deliver on a meaningful scale, you’ll still need access to £100m to cover 10% of the affected population.
My point is not that you shouldn’t bother because those numbers are massive. Rather, those numbers take us into territory that the social impact investment market and grant makers can’t service at their current scale.
3. Economies of scale and improving economics with scale
If we have an intervention that can achieve meaningful scale it’s likely that the cost per person served could come down – you just have to focus on trying to achieve this as well as increase your sales. There are a number of reasons why this should be true:
- Economies of scale - getting things cheaper when you buy in bulk
- Economies of utilisation - sharing the cost of fixed items like an office across more units
- Value engineering - improving the design of the product/service and way you deliver it to make it cheaper
- New technology enables you do it differently (think skype call rather than face to face)
Remember that the cost of the Motorola mobile phone in 1983 was $4000 and nobody would have told you the problem of being able to call anybody from anywhere was an easy one to solve. Adjusted for inflation over the period 1983 - 2015 the cost of a mobile phone today should be £12,000. But instead it’s more like £25 for a basic model.
Scale doesn’t just happen. The best innovators design - and plan their venture - for scale.
By Joe Ludlow - Nesta Impact Investments