I can certainly appreciate that the value of some social innovations may be realized via "diffusion" rather via "scale" as you have laid out.  If the end sought is improving social welfare, than we should, in theory, be agnostic between achieving those ends via our own proprietary efforts or via our ideas being successfully replicated (or "diffused") by one or more third parties. 

            However I wonder how well companies organized to maximize "diffusion" will fare against companies organized to maximize "scale" when in comes to raising capital from traditional or even blended capital sources? Any investor for whom a return on invested capital (or simply a return *of* invested capital) is any consideration is likely to prefer the former.  In traditional terms, a venture investor is going to look for a company that can maximize its "market share" given the relationship between market share, scale, and profitability.

 Last week you posted a link to an article in Business Week that listed a number of funds that provide ‘patient' capital.  While these funds all sought to direct their funds toward social ventures, these were investments were still intended to produce financial returns - in other words they are making "investments," not simply grants or donations.  In some cases, the financial goals are intended to be complementary to the social goals (so called "blended value") while in others, the return of capital may be simply aimed at ensuring the sustainability of the fund itself.  Although some social entrepreneurs may be perfectly content to have their ideas so widely copied as to put themselves out of business, it is not clear that such business will remain attractive to private capital. 

This is similar to the problem that pharmaceutical companies face when developing new therapies.  One reason that you almost never see pharmaceutical companies researching natural therapies, even highly promising ones, is that pharma companies cannot patent natural therapies, and therefore cannot ensure their ability to recoup the substantial upfront costs of research, clinical trials, etc.  The incentives are such that we would never get any drug development at all if it were not for the fact that we grant drug companies temporary monopolies to allow them to recoup the costs of the drugs they develop before allowing competitors to replicate them via generics.

Is it worth thinking about whether the diffusion model is itself sustainable, given that it is potentially adverse to the sustainability of social enterprises themselves?

To your point: "why would funders - such as foundations - who are ostensibly primarily concerned with the social return on investment balk at the diffusion model if it is better suited to the innovation which they hope to spread?"

As you state, I don't know that foundations would necessarily balk at funding innovations built to diffuse per se, other than the fact that foundations are probably more comfortable funding "organizations" than funding "innovations" in the first place.  There are at least two reasons why this is the case.  First, foundations (and private capital) are more likely to fund proven successes - either (A) people and teams with a track record of success (B) organizations that have already achieved some level of success with their current endeavor and need funding in order to grow (i.e. scale).  If you spend any time talking to traditional VCs, they will be quick to tell you that they fund teams rather than ideas.  Although foundations may be less explicit, I imagine they are often looking for the same thing (a quick look at the criteria Ashoka Fellows of Skoll Foundations Awards confirms this).  Second, and I think this is the really the key issue, is that it is hard to measure the impact of dollars spent on enterprises whose impact comes primarily through diffusion rather than proprietary growth.  Foundations, as much as entrepreneurs, want to be able to "take credit" for their success.  Ego aside, there are many altruistic reasons for taking credit for success (especially given the point just made about funders being more likely to support entrepreneurs/organizations who have already proven themselves to be successful).  What I am getting at here is that funders are interested in backing people/teams/organizations that are likely to succeed, rather than support ideas (even if widely replicable outside the organization) at organizations that are likely to fail because it is much easier to demonstrate their impact at the former.

From the perspective of pitching foundations (as opposed to private capital) for funding for diffusive organizations, what I think is needed are ways to clearly articulate and measure impact in ways that are proprietary, even if they do not involve than proprietary "growth" per se.  In other words, the organization needs to be able to show how, and to what extent, it is directly responsible for diffusing the innovation.  Sean's Steal this Idea! blogpost compares Nurse Family Partnership (NFP) and Homeboy Industries.  Sean describes how NFP replicated its program all over the country and "now offers services in 28 states and have over 16,000 families enrolled in their program."  In comparison, Homeboy Industries has refused requests to replicate its gang intervention program from Los Angeles to other cities, but, according to Sean: "they do act as a model for other programs and help other programs get started." 

Just looking at Sean's own descriptions of the two programs betrays the problem:  NFP gets credit for over 16,000 enrolled families while Homeboy Industries' claims only the rather vague impact of "helping other programs get started."  With foundations and NPOs focusing more and more on impact and accountability I think the reality is that most funders would prefer to contribute their scarce resources to the NFPs of the world rather than Homeboy Industries for just this reason.  

Instead, the onus will be on the entrepreneurs to think about how to approach diffusion in a way that is directed and measurable rather than the sort of vague, serendipitous diffusion that Sean describes for Homeboy Industries.  For instance, Homeboy could create a standard curriculum or standardize other components of its program in a way that could be copied and reused by other upstart programs in other cities.  With just a little work, Homeboy could track the number of organizations and students using their curriculum and could claim, for example, the "16,000 former gang members who have been trained for new jobs using their curriculum in 28 cities."  This certainly helps a potential funder more fully appreciate how the organization can achieve a large "footprint" even without achieving proprietary scale.  I think it will remain up to the entrepreneur to think proactively about how to design organizations for such "purposeful" diffusion and how to effectively measure the organization's diffusive impact.

Muhammad,I wrote a long comment, but it was lost when I tried to post it. I'm not going to rewrite it now, but I just wanted to say how interesting (and correct) I found our comments here. I'm glad to know you are a Tactical Philanthropy reader and I hope you stay in the conversation on this topic. Thanks for the insightful comment.

Many thanks to Nathanial for opening up this important line of debate. The social sector is full of examples of how scale/diffusion pans out in practice, and here are a couple from my experience.

In the UK there was a major re-invention of social housing in the late '60s and '70s. Inspired by a common understanding of the problem and solution, large numbers of entrepreneurs and communities developed very similar organisations. The energy this created developed into a movement which grew to the scale where government policy changed and funding flowed. Over time, some of these new social landlords have gone on to great scale - but their expansion relied in the early stages on the presence of many, with corresponding numbers of highly active social leaders.

However there are other sectors which seem held back by a diffusion position, with many small organisations none of which get to sustainable scale or impact adequate to the scale of the problem. Refugee support organisations might be an example, or womens refuges.

Perhaps a problem with the debate here is that it assumes the choice of scale or diffusion is rational and deliberate. Examples seem to suggest it is more about environment and circumstance. Refugee groups are small and fragile because of the poverty of their members and insecurity of their position, with each wave of refugees having to start afresh. 

Others have commented on the lack of intellectual property protection in the social sector - either because the concepts are not capable of protection or because of cultural choice. Sharing ideas and tools seems democratic and "social" but lack of IP protection will inevitably mean that big, high cost ideas or developments will not be viable. 

From UnLtd's experience in supporting social entrepreneurs, I do not think we can place a responsibility on individual entrepreneurs to go to scale or even construct methods to enable purposeful diffusion. They are too busy trying to get started and get sustainable themselves. How much can they - or we as support agents, or policy makers - construct an environment which assists the right sort of diffusion/scaling for each idea or sector? The right answer will be different for each idea and each stage of its development - how often could we get this right? 

At UnLtd we deploy both games - open programmes which support an ecology of social entrepreneurs with different attitudes and abilities to scale, and themed programmes which can bring the entrepreneurs together with sector experts and policy makers for a more conscious approach. We already evaluate each programme, but it would be fascinating and useful to evaluate the different approaches.