Thursday, 26 June 2014

PATRI Framework for Scaling Social Impact

Some months ago I was approached by Ashoka's Globalizer team who were keen to develop a toolkit for scaling social impact based on the work I've done assessing, planning, designing and implementing scaling for projects around the world. While there are plenty of reports, articles and case studies on how various organisations have scaled, we have no practical frameworks specifically for scaling in the social sector, so I've put together a step by step guide that leads you through the journey of scaling, from making the initial decision through to implementation.

Scaling vs. Growth

Scaling essentially refers to a form of growth. However, there is an important distinction.

Growing typically involves adding resources at around the same rate as adding impact or revenue. The implications are primarily operational. If you've already increased reach to more people, more cities or even more countries, but your operating costs have gone up in a generally correlated way, then what you've really done is grown rather than scaled.

Scaling differs in that it involves adding impact at an exponential rate while adding resources at only an incremental rate. Although scaling is also commonly approached from an operational perspective, it typically has significant implications for design, not only in terms of the solution being scaled, but also for the way it is delivered.

In a sector where resources are scarce and very large numbers of people are affected by social issues, it is rarely practical to increase resources at the same rate as reach of impact. Hence why the sector focuses on scaling rather than growth, and why this framework does the same.

Growth is typically the first stage on the path to scaling. Once you've developed and proven a solution, then the next stage is to grow your reach in a direct and controlled manner in order to understand the process as well as the transferability of your solution.

Only when you've grown to a stable operational size and have understood what does and doesn't work in terms of both impact and operation, should you really start to think about scaling. This isn't necessarily what all organisations do, and many have scaled without taking this position, but the result is typically messier, less impactful and harder work than expected.

Scaling Challenges

Scaling is a critical shift in your ability to make a difference, and one that has significant implications for your organisation. There is a current trend towards rushing into scale, with a focus on quick wins, but this is a misleading and high risk approach in terms of both impact and organisational stability. Planning to scale should not be taken lightly, and it is important to put the right foundations in place if you want to ensure your ability to generate impact on a large scale without putting your organisation or the outcome at risk of failure.

The general assumption is that the main barrier to scaling lies with access to funding, when in fact financing challenges are often just a symptomatic outcome of underlying readiness and scalability issues.

There are actually five key reasons why organisations struggle to address the real scale of need around the world.
  1. Lack of outcome oriented purpose with poor problem definition, which leads to failures in design and decision making
  2. Inapplicable/Non-scalable impact methodology (solution), which limits the flexibility needed to address the varying needs of new environments and demographics 
  3. Non-systematic approaches to set-up and implementation, which limits replicability and decreases both efficiency and effectiveness
  4. Inflexible organisational design and lack of operational readiness, which limits ability to deliver at scale
  5. Poor implementation planning, and hence inadequate cost modelling, leading to challenges with raising funds or finance.
The goal of the PATRI framework is to help you scale your impact more effectively while avoiding these pitfalls. 

The PATRI Framework for Scaling Social Impact

At its highest level, the Framework consists of a corresponding set of five key questions that will help you scale successfully
  1. Is your goal valid and well defined? (Purpose)
  2. Is your design applicable at scale? (Applicability)
  3. Is your model systematised and transferable? (Transferability)
  4. Is your organisation ready to scale? (Applicability)
  5. Is your implementation planning robust? (Implementation)
These questions form the core components that give the Framework its name
  1. P = Purpose
  2. A = Applicability
  3. T = Transferability
  4. R = Readiness
  5. I = Implementation
The above components can be applied to any scaling context, and the Framework breaks down into detailed step by step decision-tree infographics. Even if you choose not to explore the detail, simply ensuring that you have these five pieces reasonably well considered should be enough to improve your likelihood of scaling successfully.

If you aren't sure quite how to do this yourself, then each of the main Framework questions has been further broken down into more detailed questions, instructions and guidelines. These will lead you through a journey that covers the most important factors you will need to consider and evaluate when scaling.

Thursday, 29 November 2012

A Framework for Impact and Solution Design

One of the most common issues I've seen on the ground is clarity of, and coherence between, Vision, Mission and Strategy. This is often the root cause behind poor solution design, difficulties in achieving lasting outcomes, and challenges with raising money.

To make it easier to explain how they fit together and the order in which they should be developed, I've put together a short video that connects the dots for you.

The video forms the start of a new series on social change, based on learnings from my work with more than a 100 projects around the world. I'll try and address common issues, myths and challenges faced by social organisations in both designing for outcomes as well as delivering them.

[Note: If the video doesn't play in your browser, view on YouTube at]

Here's the transcript with a downloadable graphic in case it makes the video easier to process:

Very simply, with social change, direction is laid down by your vision, and your mission is to achieve that vision. The trouble is that if your vision isn't clear or sensible, you end up without proper direction, and consequently without a proper basis for design. Your strategies end up all over the place, and you become very susceptible to mission drift. Outcomes lose coherence, and impact becomes a random pick n mix. Donors struggle to connect with unclear goals, and shy away from disconnected strategies. The end result as I mentioned earlier, is a struggle for survival, but more importantly a struggle to achieve the impact that is needed on the ground.

After addressing this issue a number of times, I've put together an easy DIY toolkit to help you visualise how all the pieces connect together.

Let's call it a Metamodel of Solution Design. A blueprint for your organisation. To keep it short, I'll focus here on a high level overview to show how everything connects, but I'll explore each piece and provide working examples in later posts to help make it a little more real.

People tend to start with either vision or mission, and sometimes even with strategies. In actual fact the first place to start is with the Problem Definition.

Without a good characterisation and deep understanding of the problem, none of the other aspects of solution design have any hope of being effective.

Contrary to general assumption, the problem definition is not a one-line statement. What we're talking about here is a detailed picture of the problem at hand, with data that validates and benchmarks the outcomes that indicate there is a problem that needs addressing.

Once you've got these, you need to understand the root causes behind those characteristics; in other words, understand what drives the problem.

The benchmarks in your problem definition will allow you to identify Macro Indicators, and thus the outcomes to aim for. These should be lasting % point changes on a regional level over a mid to long time-frame. Over time they will also tell you if your strategies are actually achieving anything useful, and whether or not you need to rethink.

Critically, the problem definition defines why you care, and why you set up your organisation in the first place. It is the fundamental basis for your existence as a social entity, so invest the time to get it right.


Once you have the problem well defined - you can then move on to Vision.

Your vision is what the problem looks like when it's fixed. Again, what is needed here is a detailed picture rather than a single statement. With this, you have the potential to inspire, and you have a proper target to aim for. You can later summarise this into a one-liner for communication purposes.

The vision also helps you define your targets. I recommend splitting it into at least three phases - a short term realistic vision, a mid-term challenging vision, and a long term aspirational one.

Overall your vision provides goals and direction. It is the fundamental basis for design and decision making.


Once you've got this in place, your Mission is then to address the problem and achieve the goals and targets set by your vision.


Your Strategies are how you will achieve the mission. In other words, how you aim to fix or eradicate the problem altogether. Focus your strategies on the root causes identified in the problem definition.


Roadmaps are how those strategies will be applied over the timeframes you set to achieve the mission. This is where you identify short and long term programmes, and understand dependencies and priorities.


Tactics are how your strategies breakdown into actions and delivery planning along the phases of your roadmap.

You are free to focus maximum detail on the short term, because the roadmap lets you understand what needs to come next. Keep your planning light for the later stages, because your blueprint will evolve as you go along.


Strategies and roadmaps together help define Organisational Design and operational structure, along with how they will need to scale or evolve over time.


Roadmaps and tactical programmes provide your Micro Indicators. These are numerical increases in size, impact or reach in short timeframes. Many organisations use these as actual success indicators, but this is a flawed approach. All they do is tell you if you're on track with your plan. They don't necessarily mean that your plan or strategies are solving the problem in the long term, which is what your design should be aiming for.


Finally, your detailed tactical planning enables you to Cost your work, which then allows you to raise the appropriate financing or funding.


I recommend reviewing the whole conceptual pyramid about 9 months into an annual cycle. You should aim to adjust targets, strategies and roadmaps based on learnings and/or how the environment is changing.

Then repeat the detailed tactical planning for the next year with higher level adjustments across the rest of the time-frame where needed.

If you've taken the time to really understand the problem, your core vision and mission on the other hand should remain constant until data on macro outcomes indicates that the problem has been resolved or that it is no longer an issue.

At this point you and your organisation are ready to exit that particular space. You can then choose to close down, or switch attention to another issue. With human transformation work, you're typically looking at between 8 and 15 years as a sensible time-frame to really start seeing impact on a macro level. Resolving an embedded issue altogether will likely take you even longer. Regardless of what anyone tells you, there are no quick fixes and no magic bullets.

Hope this helps. In the next few posts, I'll explore the various elements of the metamodel in more detail to help provide real world examples you can follow.

Many thanks to Akshay Cherian for helping me put this together, and credit to Barbara Holtmann for coining the phrase 'what it looks like when it's fixed', although I've used it here in a slightly different context.

Thanks for tuning in. Please share if you found it useful.

Tuesday, 20 November 2012

Financing Challenges and Solutions for Non-Profits and Social Enterprises

This post is about new alternative financing options and the challenges they present to social entities around the world.

Along my journeys around the world, I worked with more than a hundred social organisations of all types. From ‘first storey’ ones running programmes to secondary and tertiary social institutions like funding intermediaries and foundations. The full list is here. Given the financial stresses that the world is currently under, I’m sure you can imagine that much of my time was spent in helping design new structures and approaches for reducing dependency on traditional fund-raising.

Traditional Fundraising

  1. Donations from Friends and Family
  2. Street level and online collection campaigns and donation drives
  3. Larger scale hand-outs and Endowments from High Net Worth Individuals
  4. Grants from Foundations and Funding Intermediaries
  5. International Development Funds – Governmental (eg USAID) / Trans-Governmental (eg WorldBank)
  6. Corporate Social Responsibility
Discussing sustainability with Sustentavia at Ashoka in Mexico 

The big challenge that non-profits, intermediaries and social entrepreneurs have been facing is that traditional funding has dried up with the recession, while at the same time the number of entities effectively vying for the same funds is increasing as the internet levels the global playing field. Couple this with the fact that most funders haven’t really got a clue what they’re doing and you’ve got a situation where organisations are forced into a pied piper situation. Follow the funder into whatever hole they dictate. This is both demoralising and unproductive en-route to any desired social impact.

In most countries around the world, there is also limited or no Government funding for social or non-profit enterprises, so organisations are having to consider other alternatives.

Alternative Financing Options

The following in no order of priority are rapidly growing in take-up all over the world
  1. Revenue Streams
  2. Sponsorship from large corporate or multinational entities
  3. Crowd-funding
  4. Social Loans
  5. Social Investment
  6. Hybrid Value Chains (Inclusive Business Models)
  7. Self Financing Business Models (Social Enterprise)

1. Revenue Streams

Most people would have you believe that non-profit entities generally have no financial or business acumen. This is not true at all. Many mid-sized and large non-profits operate a range of activities that generate income. Social organisations can directly or indirectly monetise a range of things from Products to Services to Advice, Brand, Data and I.P. (knowledge, learning, methodology, tools). Thinking along business principles brings a range of operational benefits including agility and efficiencies. This is the option I usually recommend, but organisations have to be watchful to maintain priorities.

The simple reality is that transformative work can rarely be funded by revenue generating activities alone. It takes between 8 and 15 years to really transform the lives and environments of people and communities and that kind of intensive support and interaction can rarely be funded by peripheral revenue streams. If a social organisation in the transformation space is able to cover 15 or 20% of its operating cost through its own revenue streams, it’s usually doing pretty well.

The danger of revenue streams is that they often feel like high priority even though they are not the primary finance source. This means that they can often drain the time and energy of the leaders of the organisation away from the social mission, or worse still result in significant mission drift. The best way to take on revenue streams is to ensure that they have their own dedicated people and that they spin off from work that the organisation already does in delivering its social mission.

2. Sponsorship from large corporate or multinational entities

As social networks continue to humanise and change the face of brand perception, companies are ramping up their connections with social change. This presents an increasing opportunity to leverage sponsorship for social movements and campaigns. They can also provide a range of value from expertise to connections but often need exclusivity and/or adherence to their own set of conditions. The sponsor is usually looking for three things to make it worth their while: Reach, Scale and Impact. If your project can provide these, then this is an option worth considering. Here’s the basic proposal structure you will need.

Unfortunately, there's only a certain number of corporates large enough and interested enough to run social sponsorship programmes. In Mexico for example there were probably only about 20 obvious candidates... HSBC, AXA, Zurich Bank, Scotia Bank, Axtel, Kleenex, Kotex, Marti, Danone, Wal-Mart, Gamesa, Colgate, Novartis, Pfizer, Cemex, Bimbo, P&G, Cadbury, Kraft, Pepsi Co and Femsa - and only about 2 of these were actually local companies. What I found therefore was that social organisations, large and small, were all competing for funding from the same players. The small ones can't really compete with the bigger organisations, and the bigger organisations need more funding than is now available after the recession, so nobody wins except the funder, whose primary goal is brand kudos and audience recognition.

I'm not sure what the solution is, but I'd imagine that if all these companies and foundations co-operated to create a single fund, and then split this to cater for larger umbrella organisations and smaller grassroots organisations separately, there'd be a better distribution of funding. Specifying focus areas would still allow companies to be associated with the projects that fit the image they want to project, and they'd all benefit from the economies of scale and removal of duplication of administrative effort and cost.

3. Crowd-funding

Crowd-funding is simply a fancy word for getting lots of people to put in a small amount of money to your venture, typically online. In reality donation drives are an example of crowd-funding, but these typically only apply to projects and organisations formally registered as Charities. If you’re looking to set up revenue streams, finance local economic development or run a project without formal charitable status, your options used to be very limited. Today however there are a number of avenues to crowd-fund your projects. Some of them require a return on investment, while others don’t. Here’s some sites you can use

4. Social Loans

These may seem like an oxymoron, but they do exist, at least in the western space. Organisations like the Adventure Capital Fund provide development loans to non-profits and social enterprises which then have to be paid back the same as any other loan. These can be useful in moving organisations forward; come with a bit more flexibility than a standard bank loan; and usually involve useful coaching and business development support to help ensure ability to pay back. In principle this ought to work, but for all the talk of the triple bottom line, my experience has been that lending and investment entities do not weigh the social impact the same as financial return. Inability to pay back the loan will not be overlooked regardless of how much benefit is being provided to the community, and compromises to the social mission all the way down to liquidation will be enforced in order to ensure recovery of finance. In other words, be careful!

5. Social Investment

This is the big hype of the moment. The apparent answer to all our scaling prayers. Social Investment of course is really only an option for social businesses and not a viable funding strategy for general development work. Investors aren’t interested in non-profit or human transformation programmes. They’re looking to fund new technologies, utilities, energy, products, enterprise and saleable services. The typical IRR is still 30% and for many investors this is just another opportunity to make money, gain competitive advantage in an increasingly socially aware market, and look good at the same time. Aside from the few that are really trying to do something positive, I’ve already been pulled into extricating a series of social organisations from investors doing everything from under the radar land grabs, to fraud and brute exploitation in the sharing of profits. It’s all still too new and exciting for much of the negative aspects to surface, but be sure that it will in the next few years.

My usual advice is that if your organisation isn’t simply an alternative business, and doesn’t have legal, contractual and financial expertise equivalent to that of the investing entity, the power imbalance is too steep. However good it looks on the surface; best avoid.

6. Hybrid Value Chains (Inclusive Business Models)

The hybrid value chain model is relevant only to the limited spaces where social enterprises are working with local or indigenous producers or communities, and can connect these with commercial organisations looking to reduce production costs or to scale their markets; thus creating partnerships that should result in financial and social benefit for all parties. From my experience however, I find that the winner here is usually the corporation. They receive brand kudos and often a massively subsidised entry into new markets, while social and community players absorb the brunt of cost and complication. This is because they are usually entering new operational spaces without the expertise to cost, plan or deliver what they’re taking on. Not because they aren’t capable, but because their skills are differently focused. The result is usually a massive underestimation and under-costing of commercial deliverables by the social players, putting them at much higher risk than the commercial partner.

7. Social Enterprise and Self Financing Business Models 

Self-financing business models are the obvious answer for complete independence, but it isn't really that simple for many social organisations. For starters, many of the founders don't have deep business skills or experience because their expertise is focused on human challenges. More importantly they don't have the spare time or resource available to identify and set these models up. The standard funder solutions all focus on up-skilling the people that run social organisations, but over the past few years I've begun to realise that while this is needed, it is not going to address the problem. The reason is that business model innovation in a social context is harder than simply starting with a business idea that sells. There are of course exceptions to every rule, but redesigning organisations to cope with these new practices is often more complicated than anything you could expect someone without significant experience to achieve.

Where organisations start out as social businesses or ‘social enterprises’ they may avoid the problem of managing business models in context, but immediately face the ongoing challenge of balancing out social impact and profit. This is simple enough with one-dimensional products or services like solar lamps or microfinance, but not so easy with long term transformative or development goals. The big myth being perpetuated by the sector is that impact and profit are not mutually exclusive, but in reality they often collide head-on. The ongoing exploitation and failures of Microfinance across the world are a good example of this. At some point the commercial entity’s priority typically shifts from social benefit to financial survival and/or growth. Without very clear ongoing definitions and regulation of priority, the grey area often blurs and we’ve ended up in a sector that is massively based on spin.

It is definitely possible and desirable to design transformative programmes so they can be self-financing, but the sector is neatly ignoring the fact that they take longer to break-even than equivalent businesses that don’t have to cost for ethical and development practices. These entities may be financially viable but are unlikely to ever make serious money for their owners, and the number of small and mid-sized social enterprises that operate at survival levels bears this out.

Out in the field and away from the ‘first world’, I found most social enterprises to maintain non-profit rather than commercial status. Their charity status usually goes a long way towards subsidising costs and provides them with alternate means of financing if their revenue streams fail to meet operating expenses in the pursuit of social impact.

Coping with Financing and Operating Challenges 

One of the things I’ve been advocating for is for umbrella organisations to set-up Shared Service (Resource) Centres that add the skill and resource capacity that smaller organisations need in order to be able to innovate and grow. I've helped set these up for Local Government when I was working as a Consultant in the UK, and don't believe this would be difficult to set up for the social sector. I wrote a bit about them in my article on partnerships for the social sector ( and put up some scribbles from a workshop with UnLtd on designing Shared Resource Centres in a presentation here:

Designing Shared Service Centres For Social Enterprises V0.1

It’s specific to their context, but you’ll get the jist.

Some organisations like Sustentavia are also starting to provide this improved operating capacity as consultancies. They have clever business models which recognise that you can't really expect cash strapped social organisations to pay for services up front when they don't have the money, and hence aim for long term partnerships and investment in future financial success instead.

Overall, you could suggest that I paint a bleak picture, but this is the reality out there. We still have a way to go. Of course, as mentioned earlier, there are exceptions to every rule and laudable successes in every financing category, but exceptions aren’t going to solve problems on the scale we’re dealing with around the globe.

My usual suggestion is to understand the risks and challenges that the different options present. Then pick and choose the financing mechanism, or combination of, that your organisation is best able to manage and cope with. If you proceed sensibly then any of the above should work reasonably well for you.

Saturday, 13 October 2012

Dummies Guide to Fair Trade

I've recently been looking into Fair Trade as a follow up to some of the work I was doing in Mexico. Since I was putting was notes together for my own reference, I thought I'd tidy them up and share them. Hopefully it will save others from going through the whole effort themselves. Note however that most of what I've outlined is based on second hand research, i.e. reading up and interviews. Since I haven't been deeply involved in the fair trade system I cannot say that I've personally verified all of it. I'd suggest using the outline as a fair introduction to the complexity of fair trade, but then recommend you do your own research into the facts before taking it for granted.
Beginner's Guide to Fair Trade v1.1

For reference here's some of the links I used to build my own picture of fair trade

Monday, 14 November 2011

22 Questions You Should Ask Before Starting a New Social Enterprise or Non-Profit

While in Northern Thailand last year, I was invited to the Payap University in Chiang Mai for a session with some budding social entrepreneurs. A group of University students that were starting a project on multi-lingual learning for one of the local communities they had been working with, needed help with understanding how to implement their ideas. This post is based on the questions we identified during that session.

Payap University, Chiang Mai

As with many new projects, the solution here was pre-assumed and taken as given; based on their particular point of academic focus. In other words they had something they believed would be beneficial to local communities and set about finding a place to fit their solution, without first answering the difficult questions that need to be asked.

Having worked with over 100 social organisations around the world, I’ve found that this is a major reason why projects struggle to both survive and/or make any meaningful impact. Many ‘unexpected’ challenges can quite easily be extrapolated in advance if someone just bothers to model (think critically about) the implementation cycle before rushing in.

Truth is it’s not that the group or individual is being wilfully negligent. Since most people in this space mean well and start out with the assumption that their idea/approach will be useful…

  1. There is a natural and understandable tendency to gloss over anything that might indicate the project is not worth starting.
  2. For most new entrants without previous experiences of starting up and implementing solutions, the questions to ask are not always obvious.

So for all you budding social entrepreneurs out there, here's a list of some basic questions that you must be able to answer before starting a project, raising money, or writing proposals.

As I mentioned in my other post on the 20 Keys to Building a Successful Social Enterprise, vaguely ‘knowing’ the answer in your head is not good enough. You must be able to document at least half a page on each.


3 Basic Steps in Starting a Social Project

  1. Imagine the programme/project in detail to understand start-up design and cost.
  2. Ensure you have a clear long term vision and expectations, plus a development plan to get there. These are critical for both credibility and sustainability.
  3. Identify (research) the mechanism of fundraising and the type of funder based on the amount of funding required. Note that small funding has different criteria to large funding.

Overall, it is point 1 i.e. imagining the project in detail that most people have trouble with. The approach is usually to get started and see what happens, instead of doing the difficult diligence first.

So this post is about help with the first step in the start-up cycle.

Questions to help you flesh out and imagine your project in detail


Solution/Project Design

  1. What tells you there is a problem in the community i.e. What are the specific indicators of the problem and what is the size of the problem? (This is your Problem Definition and initial Benchmarking)
  2. Which specific bit are you most worried about i.e. trying to improve/change? (This is your Mission)
  3. How will you address those problem indicators? (This your Idea/Strategy/Solution)
  4. What are the challenges you see i.e. Why might your plans fail? (These are your Risks
  5. How will you know if these are the right approaches? (This is your Pilot i.e. where you test your ideas with the community and/or ensure that you have involved them in the design)
  6. How would you start, and how long would it take to get your idea working eg. How long to build and set up community support, or get planning permission, or train staff, or test/pilot your idea etc? (This is your initial Start-up Timeline)
  7. How would it evolve from a pilot into a mature programme, and over what timeframe? (This is your long-term development Roadmap)
  8. How and When would you know that the problem is solved? (This is your Vision and defines your Outcome Targets)


Short Term Effectiveness and Efficiency

  1. Who else is doing the same thing and can you just help them instead?
  2. Who can you partner with?
  3. What solutions can you copy?
  4. What more do you need to learn to do this properly?
  5. How can the community help and how can they stay involved?
  6. How could you use volunteers?


Costing and Budgeting

  1. What infrastructure does the project need (physical, organisational, technological, logistical)?
  2. What people/skills does the project need?
  3. What other things like materials will the project use?
  4. How much would it cost to start/set-up the project?
  5. How much would it cost to maintain?
  6. What might be the ideal size for your organisation, and what would you need to grow it to that point?


Long-Term Sustainability

  1. How would you make this sustainable either financially, or in terms of staffing and replication?
  2. How could you pass the project over to the community?

When you can answer all of the above in some detail, you're probably ready to start your own project. The answers don’t have to be perfect. Most of what you come up with is unlikely to match the reality that will play out, but you absolutely have to try. 

Until then, hold off and do the groundwork to ensure that you and your idea won’t just waste money that could be put to better use.

Finally, make the difficult decision – Go or No-Go.

Tuesday, 2 March 2010

The Definitive Guide To Scaling Social Enterprises

I was recently asked to give a talk on scaling social enterprises to Oxford MBA students at the Saïd Business School via their partnership with the Skoll Centre for Social Enterprise, which prompted me to put together an outline of the different mechanisms of scaling that I've used or considered in the work I've been doing with social enterprises around the world.

There is more detail and explanation in NOTES attached to many of the slides, but you will need to either download the presentation or view it on slideshare and click on the notes tab below the slides to read them.

Wednesday, 27 January 2010

The Case for Critical Thinking

Somewhere along my recent Latin American journey I had a conversation with a friend who suggested that the big problem with people is that they use whatever hammer they possess to hit any nail they're presented with. In other words, management consultants will tell you the answer to your problem is strategy; marketing specialists will tell you it is presentation; IT consultants will chuck technology at it; sociologists will focus on impact; and business people will apply numbers.

This is a classic example of the lack of critical thinking seen in problem solving today. The trick is not to start solving the problem immediately, but to strip it down to it's root causes or underlying success factors and go from there, rather than defining the problem by it's surface presentation.

Marketing is the perfect case. Charities often tell me that they struggle to raise funds because their marketing is ineffective, or because they really can't afford any. When you strip it down however, you rapidly find that the problem is not marketing but what's attempting to be marketed. The vision is unclear, the services don't really fit together cohesively, outcomes are not compelling, and no one is really sure what this marketing is supposed to achieve. Your typical marketing person has no idea how to address any of these issues, and for the most part would never think to ask the questions - their skills are differently oriented. But the problem has been defined as marketing, so along comes the person with the marketing hammer and what you get is basically a paint job that doesn't stack up to closer look.

Here's a couple of real examples from the last three months. I have tons of these from the last few years of advisory work.

Simple Problem
  • Startup: We need to build a better looking website.
  • Obvious Solution = Web Designer + New Site
  • Real Solution = No you don't. Your organisation is too small to waste money and doesn't have the skills to manage a fancy website. Set your site up as a blog, using free platforms. What you really should do is to figure out how the web fits into your organisational strategy and then focus on creating more compelling content. 
Complex Problem
  • Medium sized NGO: We need to scale into other countries.
  • Obvious Solution = Management Consultant + Business Plan
  • Real Solution = No you don't. Your organisation is not financially stable in its current location, doesn't yet have a neatly systematised model, lacks transferable skills/people and is still completely dependent on the CEO for direction. Scaling will spread limited resources even thinner, divert from delivering the core mission, and jeopardise both organisational survival and social outcomes. You should focus on developing a stable and replicable organisational model, both financially and systemically; and on developing human resource that can either run the organisation in the CEO's absence, or is at least capable of set up new entities without central direction. 
    • But someone has already offered us the funding for it.
    • Turn it down politely and maintain the relationship until you're really ready to scale
So the million dollar question: If you are the CEO of a social enterprise, how do you approach these challenges?
  1. The ability to look at root cause or key factors is a skill you must have in-house, or on your board. Only once you know what you're really dealing with, should you start looking for people to help you solve the problem. 
  2. Another other trick is to only contract help from people who question the validity of your problem definition. 
  3. Finally, if you can, try and find advisers that understand holistic/multiple aspects of organisational development (yes they do exist!).

Friday, 4 December 2009

Dummies Guide To Microfinance

(From My global journey covering social enterprise)

While in Mexico I had the fantastic opportunity of spending time with Frida Ruiz Fernandez who worked in regulation for microfinance and banking for Peruvian Government for 4yrs, and Juan Ahedo who works with Fin Comun, a microfinance organisation based in Mexico. From Frida I learnt a bit more about Microfinance, much of which is summarised below, and through Juan I was able to accompany a couple of branch managers on their site visits around the city.

Fascinatingly for me, I learnt that microfinance is not just about lending to rural populations, but also a support system for tiny shops, restaurants and stalls all over low-income areas in cities too. The most fascinating thing was being transported back to a world of notebooks and hand-written accounts.

Microfinance in the City – Typical Clients

P1000590 P1000591 P1000593 P1000596 P1000597 P1000601 

Introducing Microfinance

Traditional Banking

The mechanisms of traditional banking essentially function around monetising (investing/re-lending for financial return) deposits that people store with the bank; and on providing interest based credit that is offset either by collateral, or risk managed through the use of standardised credit rating systems for medium to high income populations.

Why Low Income Populations Can’t Use Traditional Banks

Low income populations typically have neither the collateral nor ratings needed to access credit, because their wealth base is too small for collateral and standardised credit rating systems are not designed to assess their circumstances. Traditional banks therefore have to invest in completely new mechanisms for managing these demographics, which isn’t worth their effort so they ignore the space altogether.

Finally, where low income populations do have savings, they generally don’t deposit their money in normal banks because
  1. There is a lack of accessible infrastructure. i.e. no branches in their areas since it is not profitable for traditional banks to provide these.
  2. Low income populations are not used to going into big banks. They feel out of place and intimidated by the experience.
The Critical Problem

Since low income populations often have greater immediate needs around borrowing money, the lending space has traditionally been covered by loan sharks, where exorbitant interest rates mean that people can end up paying many multiples of the money they borrowed, under threat of personal violence. This simply exacerbates their poverty.

The second problem is that without access to mechanisms of depositing, managing and growing money, these populations are typically excluded from opportunities to create the longer term wealth that can help them to escape the poverty cycle.


So microfinance is really just a fancy name for the mechanism of providing safe small (typically high interest) loans to people, groups or enterprises who’s incomes are too small to provide collateral or credit ratings, and are therefore risky and highly cost intensive to manage.

Microfinance organisations make it cheaper and profitable to provide these services by basing themselves and working in the same areas as these populations, and they have adapted their credit methodologies to lend to low income sectors in 3 ways
  1. Their assessment model is very human intensive in terms of finding entrepreneurs, getting to know them personally, helping them with paperwork etc, typically by having branch managers which personally go out to meet clients rather than have them come into a branch, which means a much higher cost base than traditional banking.
  2. They provide loans without collateral, and manage the risk by replacing collateral with information about the people they are lending to. Hence they are significantly more diligent than traditional banks about each individual being lent to. Branch managers establish close relationships with borrowers and work to understand their networks and personal circumstances.
  3. They charge higher interest rates than traditional banks – anywhere between 25% and 40% for non-profits, which although high, is usually still less than loan sharks. Commercial microfinance entities, which are rapidly becoming the dominant form, lend at even higher rates of 40%-140% across fixed repayment terms.
The Goal

Enable people to exit poverty through profits from assets or activities enabled by small loans.

The Gap and Issues

Microfinance organisations however are typically not banks, which means that they still do not address the issue of saving and wealth accumulation. One reason for this is that lending entities (like store finance) operate without much scrutiny, but taking deposits makes you a bank, which requires compliance with a whole new range of costly financial regulations that can otherwise be avoided.

Since these organisations fall outside traditional banking mechanisms, in many countries they often exist without any regulation. This means they often grow too quickly and operate at very high risks of bankruptcy.

Another issue that is also now being recognised is that the mechanism of micro-finance still struggles to bring people out of poverty. The reason is to do with the focus on funding entrepreneurs rather than stable business models or even helping create enteprise for people who don't have any income streams, and because of the lack of education and understanding of money management in low income populations.

Finally, microfinance is a profit model, and many of the players are not in it for the social goal. They don’t always operate ethically, and are not necessarily interested in mobilising communities out of poverty. Education and health components added to the financing model, can cynically be seen as mechanisms to reduce the risk of default, but the really good ones invest significantly in the development and mobilisation of the communities they work with.

The exorbitant interest rates can often be equivalent to loan sharks, and more importantly, as the sector matures and costs of managing clients and risk reduces, these rates don't drop (see lack of regulation and monitoring). This means that after a while, commercial microfinance entities typically just mint money and will continue to do so. This is one of the reasons for the huge financing boom for these organisations and new startups, but goes entirely against the ethics that the public associates with social enterprise.

The real trouble in the end is that any development model whose sustainability/profitability is based on offering debt, and which has financers as the primary stakeholder, is likely to result in exploitation unless it is ethically run or strongly regulated. At some point any commercial lending entity will end up having to convince (manipulate) people to take loans regardless of whether they need it, just to keep its business model and profit margins going. As the market booms, more entrants seeing easy money are rushing in under the radar of public goodwill.

Solution 1: Regulation

Peru recently won an award for the creation of regulated environments for successful growth and scaling of microfinance. They minimise the risk of failure of microfinance orgs by enforcing a step by step system of growth by modules. Every step in scaling operations requires governmental approval, using a risk based approach covering 4 areas:
  1. Credit
  2. Market
  3. Liquidity and Operations
  4. Capital adequacy (i.e. having enough capital to support operations).
This approach prevents microfinance organisations from growing too fast or taking risky decisions, and unregulated Microfinance organisations are not allowed to take deposits.

Benefits of regulation
  1. Access to ratings and ranking makes these organisations open to investment
  2. They get feedback that helps them grow and get better
  3. Regulation means they are better run, so they have access to better human resources
  4. Access to guarantee funds up to a certain amount of deposit to help offset risk.
  5. Protect against and reduce risk of exploitation of vulnerable low income populations.
Solution 2: Education & Community Investment

Microfinance organisations are now beginning to provide financial and health education, in order to offset risk (well educated and healthy populations are better placed to repay loans), but the really good ones also invest in education and community programs to transform civil society in low-income areas. Education must focus on savings and wealth management and not be used to encourage take up of more debt.

Solution 3: Microfranchising

Entrepreneurs are great at finding opportunities to set up ventures, but not necessarily so good at scaling or creating stable and repeatable business models. Since microfinance typically lends to small entrepreneurs in low income populations, the quality of enterprise is typically not suited to scale or growth. Your average tiny corner shop isn’t very likely to become 10 large corner shops. Results are starting to show that while microfinance has benefits, it isn’t necessarily mobilising communities out of poverty in the long term.

The solution may involve offering finance for proven micro-scale business models that can be scaled by franchising. Local product reseller models for example. The value here lies in the creation of new jobs as it does not involve funding existing enterprises. It would also open up economic possibilities for people who don't already have stable incomes.

Solution 4: Debt and Wealth Management

For any microfinance entity seriously interested in driving economic development for low income populations, there absolutely must be a focus on debt management and reduction, followed by support for creating and growing wealth. Cash in hand is not wealth. Assets are. A savings account with interest for example. It not only grows money, but also safeguards it. Another example is ownership of housing. A lot of poor people have historical debt that keeps them locked in poverty. Debt reduction systems are not necessarily profitable, but could be justified in the longer term of creating a base of clients whose wealth can be monetised without fear of exploitation. The key here is replacing short-term profit maximisation with long term profitability and social impact.

Monday, 23 November 2009

How To Write Successful Funding Proposals

At it’s core, the goal of any corporate funding is Return on Investment i.e. what your project is going to do for them or their brand. Large corporations want mass recognition and kudos through their association with social projects, and clear indicators of social impact that can go into their stakeholder reporting.
So the first thing you need to remember is that corporate funders really only care about 3 things that underpin this
  • Scale (how big in terms of geography and replicability)
  • Reach (who are the audiences that will know about or benefit from the project)
  • Impact (what will it achieve for all the different stakeholders)
FOCUS!! on these 3 things in your proposal, rather than infinite details about the content, structure and cost of the project and it’s planning/delivery mechanisms. Corporates need enough detail to assess your approach and likelihood of success, but this does not cover their goals.
Finally if it is possible to demonstrate that you can use their money to create sustainable revenue streams that mean you won’t need to go back again year after year, you’re probably onto a winner!

Suggested Proposal Structure

  1. Executive Summary
    • Introduce the structure of the document
    • Outline the project that needs funding
    • Summarise what you’re looking for
  2. Context
    (This is critical for sharing the big picture)
    • Introduce your organisation
    • Outline the problem
    • Outline your vision and what you believe can be done
  3. Project
    (Here’s where you cover details)
    • Repeat overview of the project / solution (more info than in the Exec Summary)
    • Describe the mission and goals
    • Discuss the mechanisms (strategies/tactics) it will use to achieve those goals
      • If there is a creative aspect cover it here.
      • If the funding will enable future self-financing, describe how
    • Describe the reach
      • Target audiences: groups you will impact; groups you will mobilise; and groups you will engage. Outline what this means in numbers
      • Geographies – Local, National and Global Networks you will mobilise; Locations of online audiences you will target e.g. US, UK; and the Offline locations for mobilising action and support.
    • Describe the mechanisms of engaging audiences across different channels
      • Offline
      • Online
    • Delivery Planning
      • Timelines and Milestones
      • Resources and Materials
      • Costs
    • Impact (This is IMPORTANT!)
      • Specify and reiterate what your project will aim to achieve for all it’s different audiences
      • Outline the metrics you will to use to monitor and report on the change you are creating
  4. Funding/Sponsorship Proposal
    (Here’s where you sell)
    • Outline the type/nature of Funding/Sponsorship e.g.
      • Number of funders
      • Focus area
      • Timeframe of association 
    • Describe opportunities for Funder/Sponsor involvement e.g.
      • Signage (name/logo) on project material
      • Personal appearances for key staff
      • Events, Speeches, Talks
      • Opportunities to showcase product and brand 
      • Engagement with project audiences
      • Engagement with web traffic
      • Potential opportunities to influence positioning and geographical location of advertising
    • Value of association with your organisation/project e.g. 
      • Reiterate scale and nature of exposure
      • Exclusive/Non-exclusive rights to use project branding (subject to appropriateness with project mission)
      • Networking and recognition opportunities with key partners including Local or National Government, and/or other Corporates.
      • Other services you can offer them
      • Long-term value
    • Reason why you want this particular Funder/Sponsor
      (Do your research and show you understand their needs and why you believe they fit)
    • Financials
      • Total you need to raise or want from them
      • High level reiteration of what the money will be used for and the impact it will have
      • Financial ROI for the Sponsor (try and guesstimate if possible, but don’t worry if too complicated) e.g. reduced costs of engaging audiences, brand value, new markets, product sale
      • Decision deadline if you need the money by a specific date, plus the reason why

Download Funding Proposal Template

For reference, here’s a real world brainstorm of a sponsorship pitch for a large corporation that should give you a quick overview of what you need.

Sponsorship Proposal Outline

Wednesday, 18 November 2009

Fundraising - Recruitment Strategies for Corporations & HNWIs

One of the biggest fundraising mistakes that social organisations make is chasing anyone who might potentially have some money, without really assessing whether or not their goals or interests fit the project.  This is why generic applications get nowhere, and why creating specific proposals often fails too. You absolutely must have some kind of selection criteria to filter the right organisations to approach, before you spend time on funding proposals.

The next mistake involves assuming that presenting the social need and tugging on heart strings is enough to get people (HNWI = High Net Worth Individuals) or organisations to part with their money. This is a hit and hope affair – you might get lucky, or you might not. The real trick is to understand what your target audiences needs are, then make sure you are actually able to deliver the benefits they might want from their association with your project, and finally, stay true to your promises.

Fundraising - Recruitment Strategies for Corporations & HNWIs

Above is a real life example of how to select your fundraising targets and then work out the benefits that might attract them. Once you understand these you can then create the messaging and marketing needed to attract them, and the engagement plans to manage the relationships over time.

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