Why so many impact ventures fail to scale

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By Jason Goldberg

We’re in a decade of unparalleled seriousness. Climate change and inequality are urgent crises. Achieving the Global Goals / SDGs is a matter of profound importance to our children, and hopefully theirs as well.

Like it or not, these Goals are in the hands of Founders. We can’t incrementally tweak or legislate our way to the required degree of change. We need to innovate our way there, which requires scaling the proven concepts of great innovators. And of course, that’s what Impact Investing is about: finding and scaling the solutions we need.

And there-in lies our conundrum. We need M-pesa stories. But we have far more WeWork stories. M-pesa became the most successful mobile-phone-based financial service in the developing world in three short years, and went on to fundamentally change financial inclusion in Kenya.

But most of the promising innovations we back don’t work out that way. More go the way of WeWork: stellar rise, followed by colossal fall. Still more simply get stuck at some irrelevant scale: making a small difference, sure; but not creating the ecosystem-level change we’d hoped for.

Why do so many promising impact ventures fail when they scale?

Less than 3% of start-ups last for a decade. After more than a decade of experience in supporting and investing in founders, we believe that the main problem isn’t the quantity of entrepreneurial activity taking place in developing countries (although of course, we’d like more), but rather the ability of successful start-up teams to scale up.

1. Organisations change dramatically as they transition to new lifecycle phases

The issue is how organisations change when they succeed. As they grow, they move from start-up phase into the scale-up phase. And that’s much more dangerous than it might at first appear to be.

2. Different business lifecycles require different leadership styles

The reality is that each stage requires a different set of skills and leadership style. And most successful Founders have what’s required to succeed initially, but not later. In a word: ‘they’re not scalable’. At least not without the right sort of help.

The major challenges begin when successful start-up entrepreneurs (who are fundamentally good hustlers) need to evolve into builders and managers (which fundamentally requires good system architects and builders, and then good system managers).

This requires a completely different set of skills to what the early stages of their businesses required of them, and in fact different mindsets and ways of being as well.

Building Founders that can grow with their businesses

And that’s why so many successful, innovative start-ups fail. Sadly, our experience and research over the last decade suggests a minority of founders who are great in the entrepreneurial start-up stages adapt well to the scale up stages without the right kind of support. In a way, that’s intuitive: the later stages require a fundamentally different kind of leader to succeed than what the start-up stages required. And most Founders just don’t know that!

In addition, where there is assistance, it tends to focus on start-ups, ignoring scale-ups because they’ve ‘made it’. That couldn’t be further from the truth. In some ways, Founders are much more out of their depth when the scale-up stage arrives and they need more support than ever. Absent that support, the result will likely be more disappointing results that aggregate to missing the Global Goals, with all the tragic consequences that follow.

Jason is the founding director of Edge Growth and co-founder of Vumela Fund