Editors’ Note: This article was originally published on NPQ’s website, on May 1, 2013.
When we attempt to scale social enterprise, we usually try one of two paths: growing small organizations or spreading ideas across a range of organizations to scale impact. A path less traveled is to leapfrog by converting a large business into a nonprofit social enterprise that can more easily and effectively thrive and grow at a larger scale.
There is no practical reason why such a strategy should not be considered more regularly. Large social enterprises are not new, especially in distributed businesses; consider The Co-operative, in the United Kingdom, or the Mondragon Corporation, in Spain, each with $19 billion U.S. in revenue. In the developing world, microfinance has spawned brawny social enterprises like BRAC of Bangladesh, with its half-billion dollars in revenue.
Here’s the story of how Social Ventures Australia led a consortium of nonprofits to create a scale social enterprise out of the wreckage of a bankrupt business, and what lessons can be learned from their efforts.
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When Evan Thornley, a businessman and member of the state parliament of Victoria, Australia, heard that ABC Learning, a for-profit business with $600 million in revenue, was floundering, he saw a “once-in-a-generation opportunity.”1 Could the chain of day care centers serving over seventy thousand children across Australia—a full 15 percent of the market—also deliver early learning under new ownership?
Michael Traill, the head of Social Ventures Australia (SVA), a $10 million nonprofit, saw a chance to leapfrog to scale while improving the quality of what was being offered. SVA nurtures small social enterprises, and acquiring ABC Learning would be the largest takeover yet of a for-profit by a nonprofit. But Traill had an eye for the task; he was no stranger to mergers and acquisitions. Before founding SVA, he had spent fifteen years leading private equity at Macquarie Bank.
The Social Context
In international comparisons, Australian education performs well for the average child but poorly for the disadvantaged one. According to the Programme for International Student Assessment (PISA) statistics from the Organization for Economic Cooperation and Development (OECD), the average fifteen-year-old Australian scores better than the average American, German, or British counterpart in reading, literacy, and mathematics. The only large nations with better scores for the average fifteen-year-old are Canada and Japan. Scores for disadvantaged fifteen-year-old Australians, though, are closer to their disadvantaged peers in the United States and the United Kingdom.2
Australia spends less on preschool education than its OECD peers, measured by percentage of GDP. In 2010, with