Scale: What’s the difference between growth and sustainability?

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As I examined in a previous post, Harvard Business School professor Michael Porter thinks that profit is the key to scale, even for nonprofit organizations. Lack of profit might be what keeps social enterprises from reaching the scale necessary to make a difference in the world.

A recent Stanford Social Innovation Review article, “Four Approaches to Nonprofit Sustainability,” discusses ways to scale a social or public organization:

  • Move up the value stream to work on root causes
  • Expand horizontally to address related audiences
  • Increase promotion to attract more of the same work
  • Partner with other organization to reach new audiences

These are all ways to find more clients, more projects, more funding, and more exposure. Do these and your organization will grow. Growth is a good thing for public and social organizations. If you’re not growing, you’re dying.

Will any of these actions increase sustainability, as in bring in more revenue than they cost?

They can, if they allow you economies of scale. Economies of scale happen when you  lower your unit cost by creating more. This comes from buying goods or services in bulk, or by being more efficient with your current facilities or processes. Economies of scale often results from standardization and automation. Since much of public and social sector work involves person-to-person interaction, it’s hard to standardize and automate.

Without economies of scale, simply taking on new or more work won’t necessarily make your organization more sustainable. Bigger, maybe, but not more sustainable.

Don’t get me wrong–growth is a good thing. Expanding what you do and the audience you serve makes a positive impact in the world. But without changing the fundamental economics of cost and price, true sustainability and therefore scale will elude social and public organizations.

Instead of simply looking for more work and more funding, think about these questions:

  • What new markets need my existing product or service?
  • If I can reach new markets, do I gain any economies of scale?
  • What costs must I incur in product design, packaging, or promotion to reach new markets and thus gain economies of scale?
  • What changes to pricing must I make to reach a new market?

Some market research helps when investigating these questions. You can download the free business model templates to experiment about how different answers to these questions impact your organization and I hope make it more sustainable.

 

(Image courtesy of Flickr)

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