A successful start-up, TechChange is wrestling with the question of scale – be it in depth or breadth. When should an enterprise scale and how?
TechChange is a DC-based for-profit online education company. Think edtech for the development industry. They train NGOs, the World Bank, and UN agencies on how to use technology for rural health care, delivering aid, mapping disasters, and dealing with humanitarian crisis. It’s part of an emerging industry termed “tech for good,” empowered by the expansive reach of cell phones in the developing world.
Nick Martin, a former web developer, is the founder of TechChange. With friends Will Chester and Chris Neu, who quickly turned into colleagues as CTO and COO, respectively, Martin bootstrapped TechChange in 2010 with $150,000. In 2013, they had a gross revenue of just under $500,000. This year, Martin wants to double that, striking near the $1 million mark. With nine full-time staff and about a dozen contractors, TechChange would be classified as a small business.
Scale: Depth or Breadth?
Martin is aiming for efficiency, however that may be, he says. “If what we build is applicable across other markets, then we’re interested, but that’s more of an added bonus.
To scale does not always mean bigger. A thought that seems to get lost in the relentless drive to scale businesses across continents.
Sonal Shah, senior fellow at Case Foundation, is a proponent of scale. But scale, she says, is not just about reaching more cities, more geographies. “You can scale in depth also.”
TechChange charges clients such as the State Department or USAID for the online training, which is made available to their staff. In many cases, they’ve actually custom-built online courses for clients. After the costs are recovered, TechChange makes the content of their courses free.
TechChange could be factored into the economy of MOOCs, online learning platforms, which have garnered some serious investment dollars recently. Just in the first quarter of 2014, edtech companies have raised reportedly $500 million in investments. Coursera, perhaps the hottest of the MOOCs, raised over $60 million last year.
With a new platform open to the public, not just development experts, Martin feels that TechChange could have deeper social impact. But his business model is distinct from other online learning classrooms like Khan Academy, which operate as a non-profit and rely primarily on grant funding. More professional training sites such as Code Academy have a for-profit model that better resembles what Martin is aspiring to create.
To build out their online classroom, Martin needs more tech talent on the team. And they can be pricey, he says. “As we grow and develop it is harder to match the salaries and perks of the Silicon Valley.”
Either way, Martin has decided that he wants to grow the company. The question is at what pace and with whose money?
He is contemplating two options: continue to be bootstrapped, expand their clientele and build the brand, as they’ve been doing for the past three years. Or bring on board investors. It’s a question most entrepreneurs face, and particularly those with social impact where the returns on investment could be a decade away.
Investors: Do they get it?
TechChange is a B corporation, meaning that it emphasizes its social impact as much as its financial returns. For an investor to back TechChange, they’d have to be aligned with the company’s values, says Martin.
Saul Garlick was recently at a similar crossroads, looking to scale his venture. He is the founder of Think Impact, an educational company that sends young people to developing countries for hands-on learning in running a social venture. Garlick iterates Martin’s concerns.
“You want to find investors who are aligned with your vision. Too many concerns about the B corp structure might be a red flag.”
Garlick also runs a B corp and finds that it can be an advantage, actually, in fundraising. “A sophisticated investor will understand the implications which are basically an assurance that you’ll implement good ESG practices.”
Shah, though, is more cautious. “You have to find the ones that are trying to understand what you’re trying to do. Not every VC is going to get that…I don’t think that most traditional investors understand a B corporation – to measure both financial and social metrics.”
But that’s because, she continues, “we as the impact sector haven’t really done a good job explaining that to investors.”
Making the decision
Garlick suggests entrepreneurs such as Martin ask a few questions before leaping into fundraise mode: “Is the product ready for scale? Is the staff structure and systems in place for growth? What would happen if there were 10x growth over expectations? Could I deliver?”
Shah who once ran the White House Office of Social Innovation agrees. “Have the structure in place to grow, if you’re going to go for it. Don’t underestimate the people power required to make it happen.”
Before that even, Shah says that Martin and his team need to have an open conversation with their board, current investors (in their case, the team), and their staff.
“This is not just an exercise in profit-making. This is a conscious effort to have some impact. So everyone needs to be on board, not just one person,” she says.
Adapted from Forbes.com