Transcript: Growing pains: mastering sustainable growth in social enterprises
How can social enterprises expand while staying true to their core purpose?
00:00:01 Onya Idoko
Hi everyone. My name is Onya Idoko. Welcome to another episode of the Life of PIE podcast. My guest today is Jacob McMahon. Jacob is an MSc PIE alumnus from the 2022–23 cohort. In his dissertation, he explored how established social enterprises navigate the complexities of scaling while managing the tensions associated with their mission, which is the focus of our conversation today.
Hi Jacob. Welcome to the studio. It's great to see you again. How are you?
00:00:35 Jacob
I'm very well. I'm very excited to talk about my lovely dissertation.
00:00:40 Onya Idoko
Great. Let's dive in. I want to start with this question. What are hybrid organisations? Are social enterprises hybrid organisations and why are they important?
00:00:52 Jacob
Yeah, so hybrid organisations are organisations that combine multiple logics within one body, so normally this is a social environmental mission combined with a commercial mission.
Social enterprises are the typical hybrid organisation, but we are starting to see them in different fields, so nonprofits maybe becoming a bit more commercially-minded. Or enterprises may be taking on some sort of social and environmental missions as well. So, social enterprises are seen as the typical hybrid organisation.
00:01:26 Onya Idoko
Great. And when you talk about scaling, what are some of the challenges that these hybrid organisations or social enterprises typically face when it comes to scaling?
00:01:38 Jacob
Yes. So, there's a lot of different ways of thinking about tensions. I guess the way to think about it from my way of conceptualising it through my research was to think about resources and engagement.
From a resource perspective, these organisations face challenges acquiring human, financial and social capital – much harder than a charity or a normal business. They then face challenges working out how to allocate that internally, so they might prioritise a commercial mission or they might prioritise their social mission. They also have to face challenges in terms of whether they allocate it to new products and services, new innovations or growth, or whether they improve what they have. So it's a real challenge from that resource perspective.
From an engagement point of view, they've got a really good, passionate staff base, with a lot of different beneficiary groups, so they've got to manage internal cohesion. So that's what I mean by internal engagement and externally because they work in so many different ways and are very diverse, as we'll see later, they really have to have quite good management of the expectations of customers, funders and partners, which they use quite a lot. So, a lot of different challenges for these organisations especially enhance when they scale.
00:02:59 Onya Idoko
That's really interesting, especially when you think about these two missions that might be antithetical to each other or oppose each other, and therefore that's where we would see tensions arise. That's where you might see something like mission drift, which is where the organisation or the social enterprise shifts away from its social mission or environmental mission, or its purpose, and focuses more on the economic mission. Which is legitimate because in the first place they need to survive. That's why they're a social enterprise. They have to be financially sustainable.
There are certain situations or circumstances that cause these organisations to shift away from the very purpose that they existed for in the first place, so we're going to dive into that a little bit more, but I guess my next question is how can these challenges be addressed? And has our understanding actually changed?
00:04:07 Jacob
Yeah, so, that's a great question. Early research thought about tensions in structural ways and how to solve them was very much seen as a starting approach when setting up the organisation, so this was seen as a different governance, different ways to find clients and beneficiaries and find them overlapping or maybe even employing beneficiaries within the organisation. So, these ways of thinking about those challenges were very much thought of in the early stages of these organisations. I guess, as research has developed, we're now looking at different ways of managing tensions as organisations are maturing, so these are almost conceptual ways of reinventing, revisiting those structures that they put in place and sort of adapting them to their context and as they develop over time.
00:05:00 Onya Idoko
Good. And what do you mean, what do we mean by social impact and why do these social enterprises try to scale?
00:05:10 Jacob
Yeah. So that's a really great question. The social impact concept is quite fraught with difficulty and the reason is, is that it is unlike something like profit, which is very quantifiable. It can be both, so, it could be quantifiable or qualitative. There are many different ways of measuring it. It can be at an individual level, so a social enterprise might help someone on the street, they can work it out – how many people they're helping. Or, they could be challenging policy or a government and really talk about creating system change.
So, the reason why when we talk about scaling social impact is it can be qualitative and quantitative. And I guess the reason why these organisations look to scale their social impact is, well, as I said before, they have these logics quite centrally. The people that run them are very altruistic in what they want to achieve. But also there are some benefits in terms of growing your organisation and scaling it. It gives these organisations credentials and allows for further opportunities to scale further. So not only is it something that's a sort of value, it's also something that they will do to drive financial sustainability that will drive further impact. So, it's quite important to them.
00:06:25 Onya Idoko
OK. And are there any problems or negative consequences associated with scaling social impact?
00:06:35 Jacob
Well, yes, there absolutely are. It's an interesting concept because one way of thinking about it is, there's a very classic term we've talked about – mission drift – which is a classic one for the microfinance institutions from Mohammed Yunus, where we set up these organisations to help with financial prudence with these lower income people and we saw them commercially exploited as more people entered the market.
The other downside is that if an organisation was to grow and focus too much on the social mission and demise, you've then really helped beneficiaries and then the support is then evaporating quite quickly. So, the danger is of scaling is that there are heightened tensions during this period and if an organisation falters or fails, it can really have a negative impact on people that it's trying to help. If it's very successful commercially, it can exploit them. So, it's a very fine balance.
00:07:33 Onya Idoko
So, when you say if it's successful commercially, it can exploit them, what do you mean though?
00:07:42 Jacob
Yeah. So, I guess the way of thinking about it is it comes back to those logics. So, where an organisation might need to shore up more commercial funding, it might change its pricing structure, or it might look at developing new initiatives that benefit one beneficiary group over another. So these are very tough decisions. They're not very easy, and the exploitation thing is more unknowingly. It's very rare that these organisations actively look to exploit the people they're trying to help but they can unknowingly do it if they prioritise a mission.
I mean a good example that I found in my research was a student incubator in Brazil. They basically were tasked with setting up cooperatives. They were very successful – in a decade they set up over 100. They then looked to expand geographically and they got financial private investors and they really changed the nature of the business. So rather than having the permanent staff doing multiple missions, they separated them into the social or economic mission. And basically overnight, this university funding dried up for this incubator because it was no longer achieving the sort of social or environmental missions it was meant to do. So, in this case, you know, mission drift led to mission failure.
00:08:58 Onya Idoko
Hmm, that's really interesting and thanks for that example, that really sort of illustrates or brought these concepts to life for me. And so, how can social impact be scaled even in the midst of these tensions that we see?
00:09:15 Jacob
Yeah. No, it's a great question. And I guess when you think of scale, it's very easy to think of a normal business. You think of a business just growing its operations almost exponentially. And that is very true in some cases of these impacts. So, you know, expanding geographically, creating new products or services or even improving your existing products and services, which can really generate more social impact to your existing beneficiaries, is one method. The other method is actually something we see and we call this ‘ecosystem growth’. So, this is where social enterprises engage in activities that assist and benefit others or challenge the very systems in which they operate. So, an example would be an organisation that, alongside their organisational growth, might do some sort of research. They might engage public movements to influence policymakers and that is actually something which can generate a lot of social impact, but it isn't something that you can really measure in the same way as, say, I don't know, just a growing in how many people you're helping. So, it's a term that really needs some sort of nuance to it and it is important to recognise that these organisations will look to ecosystem growth strategies as they reach higher levels of maturity.
00:10:38 Onya Idoko
And speaking of strategies or scaling strategies, what are some of the scaling strategies that you identified in your research? And are there any new insights?
00:10:49 Jacob
Yeah. So I guess there were some very interesting things for me in terms of their shifting of these strategies over time. I also found examples where these organisations developed products and services that were almost completely unrelated to their original tasks.
So, for one of my case studies they were very focused on the local economy in their area, they were doing stuff around immersive technology and then they started to do different concepts around nature and neighbourhoods – a very different aspect of their organisation, completely almost unrelated. From an ecosystem strategy, they were very prolific. All of my cases were very prolific in these ecosystem strategies and I think what happened a lot of the time is they reached the boundaries of where their organisation could grow and they needed to use those ecosystem strategies to find new avenues or new innovations.
The last thing that I would say, is that some of my case studies really showed quite a prudent way of looking around and monitoring their environment. So, when they did grow, they were doing it very carefully and when they saw other organisations, they didn't really look to challenge them or compete, they were looking to find collaborative ways, or maybe not even take on things that they were originally doing. So, rather than owning everything, they're looking at giving away a lot of things. So that was a very novel insight for me.
00:12:17 Onya Idoko
That’s really interesting and we've seen that more and more nowadays. Now I want to dive into the tensions. So, resources are required to scale impact – what tensions did your case studies face? Let's start with that first.
00:12:30 Jacob
Yes, so, a lot of the time I think people focus on the financial aspect of resources and, actually, although they faced some financial difficulty, they were pretty innovative in the way that they acquired funding. So, they could find grant funding, they found innovation projects, they found actual commercial revenue through some of their activities.
Human resources was a massive challenge for these organisations, especially in examples where they might want to develop a new product or service. So, one of my case studies was looking doing eco efficiency. They couldn't find the engineers in their local environment. That was a massive challenge for them.
And then the last one was around social capital. Now, as I said, they were very good at interacting with other organisations in the area, but they also found challenges interacting with partners that would actually create difficulties with them. So, a lot of them wanted to use partners, but this also came with difficulties sometimes. So yeah, rather than it being financially challenging, a lot of these guys were pretty innovative in that sense.
00:13:42 Onya Idoko
I guess the question that comes from that for me is, you talked about the challenge with human capital, and I'm wondering why that's unique to these social enterprises, because there are other organisations, even for-profit organisations, where they might struggle to access the human capital that they actually need. For example, perhaps they're working on a new technology and the skill set required is quite rare. So why is that unique for these social enterprises anyway?
00:14:14 Jacob
Yeah, it's a good point because a lot of organisations struggle from this lack of skills. I guess when I talk about it in this sense, there is a specialist sense of like how do we get the right specialties in a very particular way. But when they actually talk about people working for the social enterprise, it becomes a bit more challenging because what you actually need is people that can combine that social and commercial logic within the organisation. Some of these organisations sought to keep a social and commercial distinction between the way that they hired. But most of them really tried to find people that could do both, and that's actually a very particular skill and it takes a really nuanced understanding of not only that we are trying to do something good, but we need to be commercially-minded to achieve it. So that's something that's quite hard to find.
00:15:07 Onya Idoko
That's really interesting because, as you mentioned earlier, in the literature they have mentioned or pointed out that at these hybrid or social enterprises the hiring is intentional, in that they hire some employees to focus on the social mission and hire others to focus on the economic mission. But what you're saying is that in these social enterprises that you studied, they're looking for employees that can carry these two elements that create tension, meaning that people are actually almost embodying the tension as well as they go about their day.
00:15:48 Jacob
Yeah and it does seem quite paradoxical, but it is actually something which I think generates higher innovation within these organisations. It leads to more open discussions and more frank conversations where difficult decisions have to be made. Rather than prioritising one or the other and seeing it as a clash, they almost use those as opportunities to come together, find different ways, find new ways of thinking, and I think that's kind of what impressed me quite a lot with these organisations.
00:16:17 Onya Idoko
I completely agree with you, because even in the literature on creativity it does talk about these paradoxical frames and how they enable creativity, so, that's just a side note. My next question then is why do you talk about social capital? Why is it even important when we think about social enterprises scaling?
00:16:37 Jacob
Yeah. So, I guess it's not necessarily a new concept in terms of business speak, we do talk about creating relationships and networks. I guess the importance here for these organisations is that they really need those level of connections. They do have a sort of hybrid approach to income, so they will find a lot of grant revenues, a lot of innovation streams, they'll look to change that way of thinking. And really, their influencing opportunities really can't be underestimated.
So, in one of my cases they were completely financially sustainable. They didn't actually need any grant money to do or grow their services further, but they used it anyway because they were working in renewable energy and they really needed to work with, here in the UK, our network energy provider to change the grid systems on a national scale. So, when I talk about social capital, it's very, very important for these guys, not only from a like, “oh, it'd be nice to influence”. It's almost seen as part of their strategy.
00:17:42 Onya Idoko
That's interesting and I think what you're referring to is almost the network or partners, I think it's the word that we're looking for here. So they have to partner, of course, with institutions that exist within the country, within the region, within the UK, and when we think about social capital, I think that's a more nuanced concept when you're thinking about working with other people. And I'll come back to that point later on.
One other question that comes up is, when there is availability of resources because you just talked about this social enterprise that had the resources to do the work, but they still had to partner with others. So, you almost cannot achieve the kind of systemic or structural changes that you're looking for in isolation, you have to partner with people, right?
00:18:41 Jacob
Absolutely. And I guess one thing that I found very interesting is that those organisations that were almost resource abundant, one of them had an investment vehicle for the local population to invest, and they were constantly approached for more money. People wanted to give them money, but they didn't have enough projects to do it. To develop those projects, they needed partners, they needed the special skills as I was saying earlier. And this wasn't just one organisation, another organisation, another case that I studied, they developed buildings, took over grade-listed buildings and turned them into social enterprise hubs and they were constantly approached with new additional buildings, but again they couldn't take it on because they didn't have the level of partnership. So, it’s very interesting to think of resource abundance almost creating its own tension.
00:19:35 Onya Idoko
And so that leads to the next question which is: Well, why are there tensions when there are resources?
00:19:42 Jacob
I mean the real one here is around the level of engagement. So, you will see what I'm trying to talk about, these tensions are very interrelated and almost cyclical. So you know you get these resources, you find challenges allocating these resources. That creates internal engagement challenges with your staff, so, where staff might have come on and stayed with the organisation, you're now developing new products and services that might be related or unrelated. They might find that quite challenging. It also creates real difficulties with people outside your organisations. So, when your organisation is developing a new service, your funders and partners, but also your customers, might be a bit confused what your organisation stands for. Unlike, say, a traditional business model, which just looks to expand one service, that's somewhat seen as the primary way, if you think of like the Ubers or Deliveroos of the world. These guys really are having to diversify their operations and that creates a lot of internal difficulties and a lot of challenges explaining your organisations to others. So yeah, these resource and engagement tensions go round and round and are very interrelated.
00:20:53 Onya Idoko
Can you give us some examples of these internal difficulties?
00:20:56 Jacob
Yeah, sure. So, I think one way of thinking of it is the growth aspect. So, one of my case studies, they grew quite massively, so their turnover went from about 7,000,000 to almost under 15,000,000 in less than five years. So they went from 200 staff to 400 staff, and to grow, they often had to find human resources that they didn't necessarily have. Pay was a big problem in the sector because they were working in social care, so they sometimes had to get agency workers to fill the gaps in terms of scaling further. Now this wasn't seen as necessarily a bad thing, but it did create challenges with internal staff because they had a family culture before this, this growth really did challenge that family culture. They did find ways to adapt to this, but there was a growth aspect to that.
The other way of doing it was new products or services. New innovations create a cohesion with some of the staff. So, one in of my case studies, they really were developing these new renewable energy initiatives, new eco home initiatives and the staff weren't really clear on the priorities of the organisation and that really creates some complications, you know, if the organisation is suddenly challenged which of these are our actual priorities. So, those are examples of the internal engagement tensions these organisations face as they grow or develop new products.
00:22:19 Onya Idoko
Did these resource tensions create other challenges for social enterprises?
00:22:27 Jacob
Yeah, I guess the main challenge is around that external engagement as well. So not only would these create internal difficulties with the staff and the beneficiaries, it would create difficulties with their customers and with their partners. Partners in grant schemes are quite fickle at the best of times and these organisations, as I said before, they're not charities, you know, these are organisations that are looking to commercially make money. So, you're already fighting a battle with your funders to really explain who you are and what you stand for. By becoming more diverse in your activities, it can create challenges, it says well, are you a specialist organisation? What are you actually focusing on? If you're working over there, are you really giving the time and effort that's needed to work over here? It also creates difficulties with customers. Customers really want to understand these organisations. They're very passionate about them and they're almost wanting to help them in a way of using their services. But if you start developing new products or new organisations too quickly, they get a bit confused as to who to contact and who to go to where and how the organisation really operates. So those are some examples of some really tough external challenges for these organisations.
00:23:45 Onya Idoko
Thank you for that. So, we've talked a lot about these tensions. We have a good idea of the external tensions and internal tensions that these social enterprises experienced. What sort of tension management strategies or approaches did you identify from your research that some of these case studies were using?
00:24:04 Jacob
Yeah, absolutely. I guess I like to split them into categories and buckets. So, I would call them: organising, monitoring, socialising and vocalising. So from an organising point of view, this is very much around the structures that they use. So they created new legal forms, new beneficiary organisations and found quite novel ways of introducing management structures to manage not only their diverse operations internally, but explain their organisations externally.
From a monitoring perspective, I actually think this is very, very important. So these organisations were very astute to the internal challenges that they were facing, were very aware of this external environment as well and this isn't just done through social impact measurements, they really were quite cute with how they were paying attention to how their staff felt, making sure that they were influenced, which brings me to the socialising aspect. They had what has been termed in research as spaces in negotiation internally and herding spaces externally. So spaces in negotiation are areas where different parts and different people can come together and really discuss the organisation and set organisational goals together and this won't just be the beneficiaries and the staff, it will be the partners, the funders, all the relationships with the organisation. Herding spaces is that, but, almost turned outwards. So they were engaging in university networks, using those herding spaces to reconceptualise how they were thinking.
And the last one is vocalising. Performance stuff and social impact is often talked about, but I think the key difference between these guys is that what they really did is they revisited their mission and used it to set quite articulate goals that were within a certain time frame. So, they weren't just saying, well, this is what our organisation stands for, they were saying this is what our organisation stands for and this is what we're doing in this area or this is what we're doing within the next five years. Even using independent reporting as a way of connecting in different groups and really talking about performance in a more specialist approach rather than just a quite general way.
00:26:22 Onya Idoko
And if we start to bring it all together, what were the key takeaways from your research?
00:26:32 Jacob
I guess the key takeaways for me were that the scaling strategies and the tension management strategies were very overlapped, just like those tensions happen. So when I talk about those ecosystem approaches, they were seen as not only like a way of managing their tensions, they were also a way of enhancing their impact. And also what I would almost call a growth paradox. I think sometimes we think of these organisations and think “Oh, well they shouldn't grow” maybe, but actually growth really did alleviate some tensions. So, by being notorious, it gave them better access to different financial arrangements with their funders. You know, one of my cases moved to a bank rather than working with a grant funding operation or a social investment vehicle because they could negotiate better rates, they could only do that because they were a larger organisation and could prove their success. So, growth really does sort of enhance and lessen tensions, but it also creates them and I think that's sort of a big concept for me.
00:27:36 Onya Idoko
So that's the paradox of growth. What else was a key takeaway?
00:27:41 Jacob
I think the other one is the concept of setting scaling boundaries, so there were quite a few cases where these organisations really didn't look to grow further than a quite defined boundary, and this was normally done in a geographical sense. So, for a lot of them they were saying, well, we're going to really try and do the best we can within this defined geography. And I do think that's actually something that's quite important. The reason why I think these organisations were so successful, is that they were very alert to the needs of their staff and their beneficiaries and their partners and then use their research or advocacy in a more external sense. And they could really influence national conversations or even international in some cases by not looking to grow, but looking to share their knowledge further afield. So by really trying to specialise in a certain area, those scaling boundaries, I think that's something that we can really learn from these organisations and, you know, it takes a lot of bravery to recognise other organisations and know that they're better suited to deliver something. That's something that I think really personifies the wisdom of these organisations – that awareness of others and almost looking to help them, rather than owning everything.
00:29:02 Onya Idoko
Can you give us an example of this preference to help others instead of owning something of your own?
00:29:10 Jacob
Yeah. So there’s actually a few examples. I guess the personal one to me is one of my case studies. They operate in the south-west of England around Plymouth, they were very prolific in that area. Now the south-west is a very poor area in England, if listeners weren't aware, but Bristol is also part of that and it's a very different environment and they were actually operating in Bristol. They were working all over the south-west, but they decided to scale down there. They decided that there were organisations that were delivering very good social impact. They were doing stuff in the local community around the economy, which was their mission, and so what they did is they decided that they were going to scale back there and focus on a particular area around Plymouth and further south in England. They still had connections to those organisations, it wasn't like they completely dropped the curtain, but they almost saw that as an influencing exercise rather than something that they had to own.
And in the case of another one, they used a lot of innovation around renewable energy and really, they were quite highly innovative and would find these new business models and then would almost give those innovations away if they didn't feel that it was part of their mission or they thought it would take away too much. They felt it was better to openly share those innovations, find other organisations that would then run them, which would then enhance the whole renewable energy sector in their county. So those are two examples where it takes real bravery to not want to own everything and help others.
00:30:42 Onya Idoko
One final question then is what are the implications of this for founders or people who lead social enterprises? What sort of advice do you have for them? Just drawing on the insights from the research that you've done.
00:31:00 Jacob
Yeah. I think they there are some really key things here. I think we talked about the difficulty of finding those quite specialist human resources. I think something that I would say is bringing the people that start the organisation with you is very, very important. From what I saw in my cases, they actually came on and went on to be leaders. So, for some of them they would then use these people to run different businesses, different community enterprises and that was really something quite important. It also meant that they had the awareness to have those conversations. So when you're bringing in new people, it takes a bit of time to really take on a commercial, social and environmental aspect. So, yeah, bringing the people with you is a really big one for me.
I also think just to be brave around changing your structures. We saw in my research that they actually were very innovative around the legal forms or management structures that they used, but they also continually adapted these. So, in the example of one of my cases, they were helping people with learning difficulties and mental health challenges and they set up a separate charity for these beneficiaries. It was run by these beneficiaries and then they engaged in diverse operations like training midwives into the challenges that these people face, or doing assessments of services for not only them, but for other providers as well, which also acted as employment opportunities for these people. So using a separate charity organisation to not only engage in activities that are different from your own, but allowing your beneficiaries to work. So they really were quite innovative in their structures and not afraid to open different avenues, different businesses and let them go as well. So, that awareness to not try and keep things really tight, not try to own things and find different structures that can almost keep the beneficiaries involved, and keep customers involved in discrete ways.
00:32:58 Onya Idoko
Thank you for that, Jacob. It almost reminds me of open innovation, if you engaged with that literature in your work? And the idea of open innovation, we almost talk about allowing ideas to come into the organisation from outside. So, for example, if you do any kind of crowdsourcing, etcetera. But when you look at what proponents of open innovation talk about, they talk about letting ideas leave your company as well, so you don't have to be the one who actually develops an idea or scales or, you know, develops that particular technology or innovation. Because it's probably not suited for you to do, and so you let it go and let someone else actually lead on that idea.
00:33:43 Jacob
Absolutely.
00:33:46 Onya Idoko
And I love you talked about, within a particular sector, these social enterprises weren't thinking only about their organisation. They were thinking about the sector as a whole, because then it makes it makes things work even better within the sector if everyone is doing well. I really like that and I think we're seeing a little bit more of that and it's sort of what we need today, particularly with a lot of the challenges that we face in society, whether socially, economically or even environmentally. So thank you so much for a great conversation, Jacob. It was really good talking to you about your dissertation, and hopefully we get to catch up some other time on the show.
00:34:37 Jacob
Thanks for having me, really enjoyed it. Thank you.
00:34:40 Onya Idoko
Great.