10
Growth versus focus
EXPANDING SENSIBLY

For most economists and business leaders, a single word defines success: “growth.” At the very heart of the state religion that is our NSE-dominated economic system is a fundamental article of faith that states that gross national product (and its variants) must continuously increase.

In turn, the income statements and balance sheets of businesses must grow as well. Indeed, only through continuous growth can the relentless hunger of ownership be sated. As we proposed at the outset, the need for social enterprise—the very market opportunity, if you will—is borne in response to the fundamental social ills that are the unfortunate result of the single-minded focus on growth above all. If businesses were no longer driven, in their quest for continual growth, to offload true costs onto society as a whole, there would be fewer environmental problems for Seventh Generation to reverse, less generational poverty for Rubicon to redress, fewer human-rights abuses for Benetech’s software to track, and less pressure on the rainforest for Guayaki to preserve.

How, then, should a social enterprise consider the inevitable issues of growth and expansion? A traditional business need only follow its default instinct—grow!—and put its 142attention on how to do so at any cost. But a social enterprise must take one step back and ask a more fundamental question: Why grow?

■ UNLOCKING THE NINTH PARADOX
Avoid the seduction of growth for growth’s sake. Grow only for the right reasons.

This is not the traditional world of business, where the guiding force is to increase shareholder value and enterprise growth is the Holy Grail.

Do you want to grow because, well, that’s what businesses do? We humbly suggest that that is not a very good reason if you are leading a true social enterprise, even though it may feel like a biological imperative. If you find yourself on this path, you must quickly conduct a reality check with yourself and your stakeholders. Failure to do so can seduce you toward decisions that make it increasingly difficult to remember why you started your enterprise in the first place. Before you know it, you may find yourself no longer single-mindedly serving the common good. Growth decisions can be vastly different from mission decisions.

Are you expanding because you must, and if you don’t, the enterprise will die? This is neither an uncommon nor an unreasonable explanation. Many businesses are forced to expand because their current revenue stream is insufficient to cover the underlying overhead expenses. If they don’t expand they will either run out of resources through lost dollars on each sale of a product or service or, if they choose to raise prices, they will lose their customer base. Expanding to cover overhead is understandable; a certain level of critical mass is necessary to cover fixed costs and achieve sustainability. Beware that the need to act out of survival may lead to 143erroneous assumptions about the market. However, it can also rightly lead to a frank discussion about the current business model.

Or are you expanding because the social mission demands that you go to scale? In the long run, in our view, social impact is the only reason that is really worthy of the effort to grow. The current scale of social enterprise as a whole is not sufficient to make a big enough impact, fast enough, on behalf of the common good. Our enterprises need to expand not because we want bigger enterprises but because we want bigger impact. That’s the point of a conversation Clara Miller frequently has with enterprises that come to her seeking expansion capital:

Greyston doesn’t want to employ more people to make more brownies. It wants to make more brownies to employ more people. See the difference?

Grow What?

Two primary routes are available to a social enterprise that is ready and able, for all the right reasons, to expand its social impact through business growth. One way is to do more of the thing it does. The other is to do more things.

We can’t tell you how many times we’ve met folks at social enterprise conferences who are running two or three separate, unrelated businesses within their organization and are thinking about adding a couple more. They are following the second route. Although we have not examined their success empirically, this approach seems fraught with difficulty.

We know of only a small handful of social enterprises with the bandwidth and capacity to even consider the conglomerate model of owning many different businesses. Even in the world of traditional businesses, we see large conglomerates exiting businesses that do not leverage their core competencies. Many years ago, a large salted-snack company announced its intention to take over the cookie business. It said, “We are great at making salted snacks. We can be great at making cookies.” Hundreds of millions of dollars later, it wrote off its investment and is a bit player in the cookie business.

Unless you are running a ninety-nine-cent store, you cannot be “anything for a buck.” It is impossible to drive business success when the focus is not on one reasonably defined product or service scope. The world today is too fluid to allow your business to be competitive at making crayons and doughnuts or at providing tax service and dentistry. The skill sets to be successful in those businesses are so particular as to not be transferable.

We are huge advocates of the first approach: become very, very good at our core business, constantly improving both how we serve the market and how we create social benefit through the business, and take that business to scale. Fail to do that, and all we will have done is create another whole bunch of little, inefficient, duplicative social enterprises tilting at windmills without making a substantive, sustainable impact on the common good.

If you are already spread thin in multiple enterprises, you may even find yourself in the position of having to exit existing businesses to grow the core. This is difficult at many levels, not the least of which is that of the organization’s self-image and its leader’s ego. A large number of the mistakes made regarding growth and expansion are driven by the blind need to not admit failure.

Both Greyston and Rebuild have found it necessary to “shrink to grow”: Greyston, by getting out of the “fancy cake” business that had long been part of its self-identity, and Rebuild, by shedding three of its five businesses in 2006. For Lynch, this was one of the most painful and ego-bruising, but necessary, chapters in his career. Rebuild had literally stumbled into a collection of little enterprises that had each seemed like an opportunity when Rebuild first had got into them. Some years later, Lynch joined Rebuild. When he did, he came in with his chest puffed up, figuring he could get all of them firing on all cylinders. But once he was handling all of them, there was no way to give any of them the attention or resources they deserved. Lynch had never been so frustrated as a leader as when he realized after a couple of years that he was doing a lousy job on all of them. So he and his board did an objective analysis of which ones were both advancing the mission and creating some margins, and three of them could not be justified. He pulled the plug on those three. Probably the darkest day of his career was 146the day he had to tell the good people who were working in those enterprises that he was closing them down so Rebuild could survive. That was two years ago. Rebuild has had a lot more success and growth as a focused effort, but letting go of the people is something that still haunts him.

■ PRACTITIONER’S TIP
Do more of the thing you do, not more things.

Mission Creep

The term “mission creep” originated in the military to describe the all-too-common phenomenon of sending troops to do a job and then failing to notice as they slowly but surely get sidetracked—often for the best of reasons—to the point where they are no longer in position to complete the mission. This is the very opposite of recognizing that what you are trying to accomplish will no longer meet your needs or is no longer wanted in the market, or you simply can’t carry it off. This is where the discipline of business shows up. Mission creep will kill your core business. It will drain your dollar and human resources into areas that simply suck energy from areas of more successful application of that energy.

To keep you and your organization focused, you need to draft some mission criteria—ones that do not easily bend in whichever direction the wind blows yet are flexible enough to allow you to incorporate your learnings as you progress along the business expansion process. Rick Aubry speaks of three criteria that Rubicon uses:

In summary, these are the key criteria for evaluating an expansion opportunity:

• Does it produce measurable mission outputs?
• Can you succeed at the business?
• Does it fit your brand image?

One Basket, Too Many Eggs

Paradoxically, it is possible to be too focused. As we discussed in chapter 4 on planning, you need to remain ever available to the possibility that the universe is going to hand you an opportunity that defies everything you have learned about discipline and single-mindedness.

Now, if you’re doing a great job with your product and with your marketing, you may wake up one day with another kind of potential problem. It’s a good problem and one that any enterprise without it would love to have: the mixed blessing of a big gorilla customer. That’s that single customer with 148the kind of volume requirement that can put you on the map, absorb a huge portion of your overhead, justify substantial overhead or personnel investments, and spell the difference between profit and loss.

According to Scott Leonard, landing that kind of customer was a profound turning point for Indigenous Designs: “In 1995 we got our first big break. We were asked to produce nine thousand units for The Nature Company in a single order and we had to produce them in a 120-day window, with all of them having quality control. It was a reference product, a $450K purchase order, and a landmark for the company.”³

But that same big customer can also keep you awake at night. Last year, Joan Pikas did a lot of business with a very large retail apparel company that was buying The Enterprising Kitchen’s products as a gift-with-purchase item and as an employee gift. The company put in several large orders, a primary reason that sales went up. But, says Pikas, “My fear is that they will decide, maybe not this year but maybe next year, that they may want to do some other gift-with-purchase item that’s not soap and go to another very worthwhile organization. So you can’t put all your eggs in one basket.”⁴

We daresay that this is a universal problem for just about every social enterprise that has made it, or is going to make it, to scale. You can choose from two equally valid ways to deal with it.

The first may be painful and counterintuitive, and it will take a great deal of courage and intellectual honesty to carry out: turn down the customer. If you are not convinced that you can figure out a way to deliver in every way—without driving past your headlights—then you need to take a deep breath, say no, and go immediately to work fi xing the parts of your enterprise that were not ready for Mr. Big. We guarantee the customer will respect you today. And we almost guarantee that the 149customer will give you another shot in the future or give you a piece of business on which you can succeed.

The second solution is a little bit more fun and a lot more work: take on the customer, pull out all the stops to deliver, and immediately go out and find two or three more customers just like it. But before you make this decision, have a frank conversation with the customer to assess the following:

• Why are they buying from you?
• Do they just want a competitive product or service? Or is there something about your product or service and mission that matches theirs, thereby motivating them to buy from you?
• Does your mission bring them some goodwill in the market?
• How long are they committed to you as their supplier?
• Is this a one-time purchase?
• Can you secure a contract for a specific time frame or dollar value?
• Are they buying similar products from another supplier?
• Are you the primary or the backup supplier?
• If you are the backup supplier, do you have an opportunity to become the primary supplier?
• Who is making the change decision? How will it be made?
• How much notice will you have when the partnership ends?

These aren’t just good business questions but business questions that help you assess the impact the relationship and its eventual dissolution may have on your social mission. A good partner will appreciate the conversation and have a very similar set of concerns of its own. The one who won’t engage frankly in this discussion is the one with whom you don’t want to get into bed.

■ PRACTITIONER’S TIP
Begin replacing the big customer the moment you land it.

What It Takes to Grow and Expand

Given a thorough understanding of why you seek to grow, a thorough commitment to growing in a focused and disciplined manner, and a clear vision of the balance between mission creep and concentration of risk, you can now go merrily on your ever-expanding way. Or can you? You still need to have a few more essential ingredients in place:

• Market opportunity
• Resources, financing, and capacity
• Culture
• Discipline
• Leadership

Market Opportunity

Focused growth starts with answering the question, Is your model scalable? That is, can it be expanded? You need intellectual discipline and honesty to answer this objectively. Be careful to not get confused between your need to expand the business and the marketplace need for your expanded business. This question must be answered from the critical view of

• Do we have a product or service the market can use more of?
• Do we have a service or product the market wants in addition to what we already offer?

The market is unforgiving. It will let you know that your product or service is not needed at all or in any additional 151quantity. Be certain to get in touch with what the market needs when determining if you will expand.

Many businesspeople have the illusion that they do not have any competitors. They assume that if they increase their capacity to service or produce, the market will emerge to absorb that capacity. For example, at first glance, Greyston Bakery has no competitor in the nationally branded premium brownie market. There are a number of regionally distributed brands but none nationally. However, everyone that markets a dessert item is a competitor. Greyston competes against other sweet baked goods such as cookies and cakes, against every ice cream manufacturer, and against every candy manufacturer. In some homes, a brownie will even compete with fruit for the dessert spot on the table.

A business must humbly compare its product or service to any and all possible competitors. If it does not, it may misread a void in the marketplace or find itself blindsided by competition that it is ill-prepared to handle. Remember, the results of a miscalculation are doubly severe for a social enterprise: your risk capital is more precious, and what the world needs you to accomplish on its behalf is greater.

Resources, Financing, and Capacity

You have decided you have a product or service of which the market wants more than you are currently supplying. Now you must learn how, responsibly, within your means, to meet that demand. Can you actually meet the demands of the customer if it gives you that large order? Customers like nothing less than being promised a product or service that doesn’t materialize. They want the product or service when they want it. Your late delivery isn’t what they want. They can get that elsewhere. It is better to forgo the large customer now and attempt to secure it later than to secure the order and then lose 152it. Customers have bad memories for good things but great memories for bad things.

Even if you gather every possible resource to support your expansion, you can become so overleveraged that if a particular expansion strategy doesn’t work, you are in trouble. If you are attempting an expansion from the standpoint of “expand or die,” you may not care about the consequences of failure because this is the potential consequence that is steering you to expand in the first place. That is a reasonable logic stream, but please consider that a prolonged failure is more excruciating than a swift one and may be a worse use of resources than allowing someone else to fill your place in the market.

A lack of resources may cause you to think with the same poverty mind-set we cautioned about earlier. You might use lesser-quality materials because you are stretched too thin. You might make a sale but fail to make the customer a repeat customer or, worse yet, induce the customer to tell others about the bad quality of product or service received from you. You might reduce your marketing budget below the proper percentage allocation for your market and go unnoticed, saving marketing dollars, but dooming your product for lack of exposure. You might pay less than a competitor, saving labor dollars in the short term but eventually losing your best employees or, worst of all, losing them and the customers they take with them.

In addition, a lack of resources may trick you into being more conservative in the marketplace than is necessary to achieve success. You may have some of the resources, but if you don’t have what is necessary to do a job right, don’t do it at all. Wait. Wait until you get the resources. This, too, is a tough discipline, but remember once again that the market is unrelenting. It will not prop you up and take care of you until you are ready. You must be mature enough in resources to grow up in the market. A lack of resources will drive you to make mistakes 153

on product or service decisions. You will make mission-adverse decisions. You will not shoulder your basic responsibility to live to fight another day.

Culture

The greatest of ideas with the most abundant of resources will fail if the culture is not conducive to success. You will want to be proactive in establishing your culture such that it is aligned with your mission, objectives, and the message you want to deliver through your marketing.

The moment of growth and expansion is not when you should begin to think about culture. For better or for worse, you have been building a culture all along. The atmosphere, the interpersonal relationships, the individual personalities, and the business needs have all been coming together, since day one and maybe even before, to create your culture. It may or may not be the culture you want.

We could have put this section on culture in several different locations in this book. We chose to put it here for one simple reason: the moment of growth and expansion is when your culture will be most put to the test.

Your employees contribute to the culture and are impacted by it. They will adapt to the culture of the place or be miserable. If they fail to adapt, they’ll leave or make the rest of the place miserable, thereby creating a new culture of miserable people. Miserable people are viral. They infect the rest of your staff. Miserable people do not perform well, no matter what you ask them to do. Ask them to go beyond the status quo, as is necessary during expansion, and you are sunk.

Your only choice is to create a healthy culture. In chapter 6, we spoke of four practices for improving the life of the people in your organization: aspiration, say, voice, and ritual. These practices are the building blocks of a healthy culture for 154your enterprise. As you add more people during this expansionary time, you must attend to these practices constantly.

• With regard to aspiration, recognize that “going for it,” in the big way you now intend, is an enormous amount of work and risk. It also gives people something new toward which to aspire. Harness that energy around the greater social impact your growing enterprise will create.
• Growth and expansion require vision, discipline, and innovation, all within an environment requiring quick and facile decision making. Giving say in this environment is more important than ever, although your temptation may be to do everything yourself.
• The burgeoning enterprise has more points of contact with more stakeholders than ever before. Here again, awarding voice to as many employees as possible allows you to effectively present the organization at every point of contact.
• And finally, don’t forget to make time for ritual. Working at the speed of growth makes this practice the easiest to leave by the wayside. Do you really have time to start each meeting with a moment of silence (if that is one of your rituals) when you are at warp speed? You don’t have time not to!

Discipline

If you are expanding because your business is doing well, the discipline of market examination is still important. Act aggressively but responsibly. Don’t become reckless just because things are going well now. Follow the biblical principle of Joseph and save for a drought. Things do not always go well. Create a reserve fund that will be available if—strike that, when—things go wrong.

Once you have asked the questions and answered them honestly and without the blindness of personal or corporate ego, return to the principles of chapter 4 and put them down on paper in the form of a business plan. Don’t make the fatal mistake of not following the discipline of planning because “this is just an expansion.” This expansion needs and deserves every opportunity to succeed, just like your start-up did. Failing to plan is planning to fail. It is not just a cliché. It is Business Start-Up 101 and Business Expansion 102.

Leadership

Another kind of discipline is perhaps more important than anything else we’ve touched on in the area of growth and expansion. This is your discipline as a leader. More specifically, it is your attention to how you gather your own capabilities and resources to lead the organization through this phase. Discipline is far from easy as the excitement of growth, the demands on your skills, and the toll on your energy and your own ego all collide. Take none of this for granted. It is so critically important to your enterprise’s health that we’ve devoted the entire following chapter to it.