When you think about the growth trajectory of a social enterprise, the narrative typically goes like this: get a great idea, develop a minimum viable product, test it and iterate, then scale your proven concept through impact investment, partnerships, and/or new sales.
This seems to suggest that all you need is an innovative idea, and the rest will follow. Unfortunately, it doesn’t always work that way. The reality is that 9 out of 10 startups fail — even if they have a potentially world-changing idea — because they get stuck in what we call “The Pioneer Gap.” The term pioneer gap was initially coined by Sasha Dichter, Robert Katz, Harvey Koh, & Ashish Karamchandani in this Stanford Social Innovation Review article in early 2013, which explains “…few impact investors are willing to invest in companies targeting the poor, and even fewer are willing to invest at the early stages of the creation of these businesses, a problem that we call the Pioneer Gap.”
Learn more about why the pioneer gap exists, why it matters, and how early-stage interventions can unlock new opportunities for social impact below.
What Is the Social Enterprise Pioneer Gap
The pioneer gap is the long and winding road between the exciting point of building a first prototype and achieving impact at scale.
To understand the pioneer gap, we first need to understand the social venture growth curve from a variety of different perspectives:
- What founders think will happen: The idea is built, everyone uses it, it grows rapidly, and the world gets better.
- What researchers think will happen: The idea is built, it doesn’t get much traction, the team keeps working, the idea grows slowly, then it grows quickly, then the growth slows down.
- What actually happens: An idea is launched, and everyone is excited. Then the idea doesn’t work (or doesn’t work well enough) so the team madly scrambles to try and make it work. There are lots of wins, but even more failures. Those that make it through the early stage start to find some success, only to then face more competitors and the next round of failures. Those that keep working, operationalize effectively, and learn faster are then able to scale the idea.
In our research, and in that of many others, the pioneer gap is that stage where partners, funders, and investors are scared to invest because the concept isn’t “proven” enough yet and therefore perceived as being too risky. It’s in that stage between idea inception and scale where there is going to be a lot of failure and experimentation – but also a tremendous amount of opportunity.
Making Sense of the Pioneer Gap
In the MovingWorlds Institute, we use the graphic below to explain the Pioneer Gap. Essentially what it says is that the Pioneer Gap is that stage between the initial idea and achieving scale, in which social enterprises are not able to access needed capital and support to help with growth because they are considered too new or too risky.
Why Does the Pioneer Gap Exist
The gap exists because funders either want to be the first people in so that they get credit for launching an idea (which is why social entrepreneurs have access to capital in the first phase of the graphic above), or they want to invest only when they know the idea will work (or, it is at least de-risked enough to have a really high likelihood of working). In other words, capital is very risk averse. Investors, donors, and even foundations do not like to fund experiments – everybody wants to fund proven bets. However, only one out of 10 social enterprises is a proven bet. Most are still too early and need more time to experiment in the market to make the model work. The Pioneer Gap exists because it takes longer for social ventures to scale than purely for-profit ventures, and there is not as much financial upside for investors.
While all startups will go through a pioneer gap, how long they spend there varies. A number of factors determine the duration spent in the pioneer gap, which you can think about it as an equation:
Why Is the Social Enterprise Pioneer Gap Important
According to the World Economic Forum, social enterprises are critical to a more sustainable, just, and equitable economy. And, as Catalyst 2030 reported, the United Nations Sustainable Development Goals are not going to be achieved without more support for social enterprises.
According to the Shift’s 2019 report, SMEs and the Corporate Responsibility to Respect Human Rights, “The approximately 400 million SMEs are the backbone of economies around the world. They are the main sources of job creation globally, accounting for over 95% of firms and 60%-70% of employment.”
Beyond employment, social enterprises operate in a way that cares for the environment and communities, while making the systems around it more sustainable in the process. They generate social value without propagating environmental degradation and income inequality in the process.
In other words, social enterprises show that a more sustainable, just, and equitable form of capitalism is possible.
Social Enterprise Growth vs. Normal Startup Growth
A recent article published by Marker on Medium argues that social enterprises should aim to be more like camels, less like unicorns. The analogy is this: people want to invest in unicorns, which are magical, mythical beings that outshine all possible expectations. In reality, social enterprises are going to be camels – uniquely positioned, strong, smart, and resilient creatures that can make it through inhospitable environments while carefully caring for the people and goods they are carrying.
How to Address the Pioneer Gap
While more early-stage funding would certainly help many organizations make it though the pioneer gap, capital is not the (only) answer for three reasons:
- Capital can also be harmful if the company’s leaders are not strategic in its use.
- “Early stage” capital is becoming increasingly risky. It used to be that accelerators, known for helping seed-stage companies grow, now require the company to be at some level of maturity and preferably revenue.
- Getting capital to social ventures in the Pioneer Gap is tricky. Especially as many investors, foundations, and philanthropists grow their pool of capital, they want to give away bigger pieces of, not smaller pieces.
Earlier this year, MovingWorlds conducted research on how to help social enterprises scale, and we published our findings in the report “Can Capitalism Lead a More Sustainable and Equitable Recovery? The Case for More Social Enterprise Inclusion in Corporate Supply Chains and the Global Economy.”
Here are some of the key takeaways:
- Social enterprise should pursue partnerships with the corporate sector for revenue, investment, grant support, and perhaps more importantly, capacity building opportunities (S-GRID is designed to help with this)
- Capital distribution organizations need to be less risk-averse. Over $18 trillion of capital is sitting in zero or negative interest bonds. Certainly, that money could do more if it was invested in social enterprises.
- Corporations can play a major role by engaging in social procurement and doing business with early-stage ventures, like SAP’s 5 and 5 by 25.
- Individuals can volunteer their skills with early-stage social enterprises to help them build internal capacity (Learn how in the MovingWorlds Institute)
- Accelerators and impact investors can think beyond capital to support their social enterprises, for example by building more connections to the corporate sector and other potential earned-revenue partnership opportunities.
In Summary: If We Can’t Solve the Pioneer Gap, We Can’t Reach the SDGs
The Sustainable Development Goals can only be achieved if the social enterprise movement can take a firm hold on the global economy, and this will only be possible if we figure out how to address the Pioneer Gap. While supporting social enterprises through the Pioneer Gap might not be as exciting as idea generation or as financially rewarding as scale-ready social enterprises, it is where meaningful change happens, world-positive jobs are created, and social businesses can achieve their full potential.