This workshop examines conceptual frameworks and practical strategies for scaling social ventures based on a decade of work in the GSBI. It addresses four key analytical tools--market imperfections, disruptive innovation design, scalable business models, and investment readiness with examples from the GSBI.
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
Practiced-based Models for Scaling Social Mission Enterprises
1. PRACTICE-BASED MODELS
FOR SCALING SOCIAL MISSION
ENTERPRISE
GLOBAL SOCIAL BENEFIT INCUBATOR (GSBI™)
JAMES L. KOCH, PH.D.,
BILL & JAN TERRY PROFESSOR OF MANAGEMENT
DIRECTOR, GSBI NETWORK & SECTOR STRATEGY
UNITE FOR SIGHT GLOBAL HEALTH & INNOVATION CONFERENCE
YALE UNIVERSITY| APRIL 21-22, 2012
2. OBJECTIVES
1. Examine conceptual frameworks and
practical strategies for scaling social
ventures based on a decade of work in
the GSBI
n Apply these lessons to your enterprise
3. OUR GLOBAL IMPACT
Helped more than 140 social entrepreneurs build sustainable, scalable
business models to benefit the lives of more than 74 million people
worldwide. 93% of ventures are still operating and 55% are scaling.
4. SCALING IMPACT
How could you positively influence the
lives of a billion people?
Government
The Market
Business Models and Market Mechanisms
Branching
A really big organization
Affiliation
Co-opt other organizations/ Network of networks
Dissemination
Viral spread / Social Movement
GAME CHANGING TECHNOLOGY
5. TWO THOUSAND YEARS
OF PROSPERITY IN
WESTERN EUROPE
What does
this graph tell
us about
technology,
prosperity,
and justice?
9. GSBI THEORY OF CHANGE
• Develop technology based
total solutions
• Execute innovative business
models for sustainability at
scale
• Advance social enterprise
eco-systems
10. SOCIAL BENEFIT PROGRAMS
GOAL
Enable social enterprises to scale, creating systemic change for the poor.
Innovation Entrepreneurship Social Capital
STUDENT AND FACULTY ENGAGEMENT
13. KEY CONCEPTS FROM GSBI
Market Imperfections
Disruptive Solutions
Business Model Innovation
Impact Capital
14. WHAT YOU SHOULD BE ABLE TO DO
Diagnose Market Imperfections
Apply Disruptive Innovation Design
Develop a Scalable Business Model
Specify a Path to Investment Readiness
16. OVERCOMING MARKET IMPERFECTIONS
HELPING MARKETS ALLOCATE RESOURCES TO
SOCIETY’S PREFERRED USE
Market Inefficiency
Market power (buyer/seller, information, barriers)
Transaction costs (access to markets)
Externalities (who pays)
Public goods
Free riders
Private opulence and public squalor
Who pays for basic services: Government, industry, cooperative,
family, individual
Market-Oriented Motivations and Behavior
Fairness in incentivized value chains
Alternative rationalities to individual as purely economic agent
17. OVERCOMING MARKET IMPERFECTIONS
HELPING MARKETS ALLOCATE RESOURCES TO
SOCIETY’S PREFERRED USE
Making markets more just and inclusive
Markets respond to rich, not poor
Value of non-market production
Relative returns f (value creation v. value appropriation)
Questions
How do market imperfections impact your venture?
How would you overcome these imperfections?
Poverty premium as arbitrage
19. DISRUPTION AND GROWTH
Many of history’s greatest growth markets were
created when a disruptive technology enabled a
larger population of less skilled or less wealthy people
to do things in a more convenient setting that
historically could be only done by expensive
specialists in and inconvenient, centralized, setting.
(Clayton Christensen)
These disruptions have been one of the fundamental
mechanisms through which the quality of our lives
have improved.
20. DISRUPTIVE INNOVATION THEORY
n
atio
In nov ts into
ng uc
aini r prod rkets
Performance
st
Su bette d ma
g e
Brin tablish
e s
tion
rup ers
Dis
nd tom odel
Different performance measure
-E s
Low t cu m
rsho siness
ve bu
o
ge t st
Tar wer-co • Discount retailing
o
w ith l • Steel mini-mills
Time
on
rupti
ar k et Dis ption
N ew-M c onsum
st non
e agai n
Co mpet
or
s
er Time
m ing
su
on um
c
n- co te ns xts Company improvement trajectory
No on- on Customer demand trajectory
N C
21. DISRUPTION IN HEALTH CARE
Provider-Level Disruption Point-of-Care Disruption
lists
Performance*
Performance*
cia ls
b spe pita
d su os
an ral h
lists ans Gen
e
ecia hy sici i es
Sp arep a cilit
al c nt f
rso
n p atie
/pe O ut
Fa mily ner
s
re
titio ca
p rac -off
ice
se In
N ur
re
f-ca
re
m e ca
Se l In -ho
Community Health Workers eHealth Services / Rural Clinics
Time Time
*Can mean either outcomes or complexity of diagnosis and treatment
Company improvement trajectory
Customer demand trajectory
22. SUSTAINING AND DISRUPTIVE
INNOVATION
Sustaining path of innovation
Better product
Higher margin
Best customers
Disruptive innovation
Less wealthy
Lower cost/improving quality
Less skilled
Greater convenience
23. MARKET SIZE OF THOSE MAKING LESS
THAN $1,500 DOLLARS
Emergence of consumer class targeted by MNC’s @ $1,500
24. THE FORTUNE AT THE BOTTOM OF THE
PYRAMID THESIS
Top Billion Bottom 4 Billion
• Declining growth/margins • Growing markets
• Consumption (2/3 of GDP) • Non-consumption
• Message “cacophony” • Market creation
• Stimulate needs • Many unmet needs
• Low “friction” markets • Constraints
• Low transaction costs • High transaction costs
• Costs of search
• Marginalization
• Costs of information
• Access barriers
• Contracts/rule of law
• No rule of law
• Value migration to services
• Value creation • New products/new markets
• Remove constraints
25. A “NEW SANDBOX”
Beyond trade-offs of cost and quality
Radical new price-performance levels
World class quality (adverse environments)
Scalable business models
Universal access
From innovation driven by top of pyramid to
innovation from below
26. TECHNOLOGY AND INFRASTRUCTURE FOR
EMERGING REGIONS: RURAL PC EXAMPLE
Based on resident ethnographers in India
Product specifications for rural PC (2006)
OLPC sought 10 times reduction in. . .
Device cost
Power usage (e.g., 210 watts v. 5)
Connectivity costs
Rechargeable
Extreme temperatures, dust, moisture
Classmate Computer . . . what are the 4 P’s?
28. TAPPING LATENT DEMAND: ICT
Grameen Phone
Market opportunity—3 billion people< $2/day
Technology—cell phones
Business model
Phone ladies (100,000)
Micro-payments (customer surplus/call=2-3% of monthly
income, prepaid swipe cards)
Total revenue in Bangladesh ($500 million); profit=$80 million
(2005)
How would you disrupt this model?
29. TECHNOLOGY AND BUSINESS MODEL
Fuel Cell Energy—distributed generation
Market opportunity 1.6 billion people
Current technology (kerosene, wood, cow dung)
Technology alternative (example)
Rechargeable fuel cell
LED (90% >efficient, 10-year life)…array 2-3
Storage battery
Wiring
Business model
Unit cost = $75
Micro-credit to finance or lease to own
30. TAPPING LATENT DEMAND: SHS
SELCO, Bangalore (Harish Hande, Ph.D)
Market opportunity - 1.6 billion off the grid
Technology - solar electric lighting systems for areas lacking
access to reliable electricity
Business model
25 distribution centers supply, finance and service solar PV solutions
(in home design consultations)
Partner with rural banks, leasing companies, micro-finance
organizations
Superior lighting and electricity at cost of $400 with 20% down and
purchased over 4 years @ $10-12/ month (comparable to less
efficient/healthy systems)
Solar panel costs declining
2010 – 2012: $1.75 to 90 cents/watt
2012 forecast: decline to 60 cents
31. DISRUPTIVE INNOVATION EXAMPLES
Haier Group, China
Founded in 1984: Low cost, compact, energy efficient refrigerators
for the Chinese market
Today: Largest appliance manufacturer in the world
Also, in air conditioning, consumer electronics, mobile phones
Galanz, China
Tiny, efficient microwave for small apartments
1993 sold 10,000 units (profitable business model at $39 price)
2010 sold 15 million, largest in world (40% share)
Recent move: air conditioning
Suntech Power, China
World’s largest producer of solar panels (sales in 80 countries)
China will double 2011 installation in 2012 to 4,000 MW
CEO forecast parity with fossil fuel generation by 2015
32. STRATEGIC CHOICE
New Mkt. Low End Sustaining
Disruption Disruption Innovation
Overshot
Non-consumer or Undershot
Customers customer at low
non-producer customer
end of market
Good enough Improve along
Simplicity,
Technology performance at primary basis of
customization
lower prices competition
Completely new
Attractive returns Extension of
Business Model model, different
at low prices winning model
from core bus.
See market too Lack skill to
Competitor Motivated to flee
small to matter, compete
Responses lack key skills
incursion
successfully
Source: Clayton Christensen
33. INCUMBENT DILEMMAS
Resources Processes Values (Decisions)
People Hiring & Training Ethics/rewards
Technology Product Cost structure
development
Products Manufacturing Income Statement
Equipment Planning & budgeting Customer demands
Information Market Research Size of opportunity
Cash Resource allocation Vision/culture
change
Brand Double bottom line
Distribution New organization
Flexible Not Flexible Not Flexible
35. QUESTIONS
How did values, processes, and resources enable
Aravind to serve the poorest of the poor with world
class eye care?
What resources and processes could you use to
“disrupt” existing product or service markets for the
target population you seek to serve?
36. APPLYING DISRUPTIVE INNOVATION
THEORY AT THE BASE OF THE PYRAMID
Decision Making Domains
Localizing Establishing Interfacing
Technology Business Model Ecosystems
Functional Mechanisms
Technology
Value Firm Level and
Empathy Capital
Creation Customer Finance
Governance
Cost Extreme
Unit Economics Capital Efficiency
Reduction Affordability
Market Left & Right Crossing the
Partnering
Penetration Brain Thinking Chasm
38. ORGANIZING FRAMEWORK OF MARKET
CREATION
Technology The material system employed for
providing a product or service
Business Model The mechanism for providing a
product or service in a manner that ensures the
ongoing viability of the venture
Eco-System Key actors/facets of the community that
the venture interacts with (and influences) as part of
delivering its products or services
All driven by mission, vision,
and values of social enterprise
40. SO●CIAL EN●TRE●PRE●NEURS (NOUN)
Society’s change agents
Creators of innovations that disrupt the
status quo and transform our world for the
better
Equilibrium change
41. SCU SOCIAL VENTURE BUSINESS
PLANNING
Mission and Vision
Enablers/Obstacles
Beneficiary Needs (Market) Analysis
The Product (Service)
Business Model
Competitive Advantage
Management Team, Key Partnerships, Governance
Financial Model for Sustainability at Scale
Metrics Dashboard
42. BUSINESS MODELS & VALUE CREATION
Value Proposition What value do you create & for
whom?
Income (Revenue) Drivers How do you obtain money to
create value?
Expense (Cost) Drivers How do you spend money to
create value?
Cash Flow How do you maintain sufficient
cash to sustainably create value?
Critical Success Factors What are the key assumptions for
sustainable value creation
(revenue and expense streams)?
43. “VALUE”
ECONOMIC AND SOCIAL DIMENSIONS
Economic Definition of Value:
Beneficiary/customer is willing to pay (Economic
buyer may be a third party)
Social Benefit Definition of Value:
Improvement in well-being (quality of life) of
beneficiary/customer (outcomes/impact). . .
including environmental sustainability
44. THE VALUE PROPOSITION
Value Proposition: A brief description of your
organization and the value it provides which articulates
why target beneficiaries will choose your product or
service offerings over other alternatives (including non-
consumption).
Value Propositions often are sentences in the form of:
[Name of organization] provides [products/services],
which are [statement of key differentiators], for [target
beneficiaries], and thereby creates [statement of social
value/impact], unlike [alternatives].
45. VALUE PROPOSITION EXAMPLE
IDEAS AT WORK (IAW)
Ideas at Work - provides a
low cost, easy to use and
maintain, manual water
lifting device, which is
offered through a micro
credit loan system to rural
Cambodians, thereby
building up credit history,
while at the same time
saving time and improving
health—providing a solution
that is superior to the three
available water pump
alternatives in cost, ease of
use, and maintenance.
46. VALUE PROPOSITION
INCLUDES ELEMENTS OF PRODUCT OR SERVICE
Product: IaW provides a rope pump
Operations: IaW develops, manufactures, and
distributes the rope pumps (value chain roles)
Service: IaW provides operation and repair training
for the rope pumps
Market Creation: Karaoke, product demonstrations,
and customer testimonials educate the market and
create sales
Financing: IaW arranges micro-credit for their rope
pump customers
48. INCOME DRIVERS: HYBRID EXAMPLE
IDEAS AT WORK: 4 YEAR
Cash flow positive:
end of 2009
(6000 pumps)
49. CASH REQUIREMENTS
(CASH FLOW STATEMENT)
Source: Multi-year budget
Period by period statement of cash inflows and
outflows (usually monthly or quarterly)
Year 1 Year 2 Period “n”
+ Cash Inflows
by source
- Cash Outflows
by use
= Net Cash Flow
+ Beginning
Cash = Ending
Cash (Cash
Balance)
50. CASH MANAGEMENT EXAMPLE
IDEAS AT WORK
3 Year Cash Flow
2007 2008 2009 2010
Starting Cash $40,000 $37,553 $25,408 $17,938
Cash In $107,213 $332,500 $516,500 $744,000
Earned $19,000 $232,500 $466,500 $744,000
Contributed $88,213 $100,000 $50,000
Cash out $109,660 $344,645 $523,970 $655,895
Operation $60,700 $206,045 $278,270 $307,895
Cost of goods $48,960 $138,600 $245,700 $348,000
Ending Cash $37,553 $25,408 $17,938 $106,043
51. CRITICAL SUCCESS FACTORS EXAMPLE
IDEAS AT WORK
Key value proposition assumptions
Key income assumptions
Key expense assumptions
53. THE VALUE PROPOSITION
Value Proposition: A brief description of your
organization and the value it provides which articulates
why target beneficiaries will choose your product or
service offerings over other alternatives (including non-
consumption).
Value Propositions often are sentences in the form of:
[Name of organization] provides [products/services],
which are [statement of key differentiators], for [target
beneficiaries], and thereby creates [statement of social
value/impact], unlike [alternatives].
54. WHAT ARE ELEMENTS OF YOUR VALUE PROPOSITION
& HOW WILL YOU CAPTURE VALUE TO SCALE?
Product: A physical item that creates value
Service: Augmented product or information that
creates value
Market Creation: Activities that create awareness
and educate the market
Operations: Processes that create value
Financing: Methods of enabling payment, creation
of an economic buyer
55. VALUE PROPOSITION IS PIVOTAL IN
BUSINESS PLANNING PROCESS
Value Proposition
Customer Segments
Cost structure
Key activities
Key resources
Revenue streams
Customer relationships
Channels / distribution
Key Partnerships
56. LEFT AND RIGHT BRAIN THINKING
Key Value Customer Customer
Key Activities
Partnerships Proposition Relationships Segments
Key Resources Channels
Cost Structure Revenue Streams
Alexander Osterwalder and Yves Pigneur, Business Model Generation 2010
58. ARE YOU A SOCIAL BUSINESS?
Leveraged Non-profit
For-profit Social Business
Hybrid Social Business
59. FINANCING
HYBRID SOCIAL ENTERPRISE OPTION
Investors
Banks:
* Commercial Loans
* Equity
Social Investors: Foundations: Social Investors:
* Equity * Social Loans (PRI) * Grants
Foundations: Social Venture Funds: Foundations:
* Mission Related Equity * Social Loans * Grants
Entities For-Profit Entity Not-For-Profit Entity
Hybrid Social Enterprise
60. IMPACT CAPITAL & INVESTMENT
READINESS
Commitment Potential for Social Impact
• BoP •Quality of Life for the Poor
• Market Solution •Cost Effectiveness (BACO)
• Ambition to Scale •System Change (transformative)
Financial Sustainability Management Capacity
• Financial Plan •CEO/Entrepreneur
• Cost Recovery •Management Team
• Sustainability •Management Information System
• Grants v. Loan (cash flow) •Governance
Potential to Scale
• Market Risk (socio-political)
• Output Growth How are these criteria different than
• TAM (> 1 million) conventional V.C. criteria?
61. WHEN DOES THE NIGHT END
AND DAY BEGIN?
Disciple: When sunlight first illuminates the horizon?
Indian Sage: When two travelers from opposite ends
of the world awake and embrace each other and
realize they have been sleeping under the same stars
and share the same sky and the same dreams.
The GSBI is now in its 10 th year and metrics are compelling by any standards. Make most VCs proud. Social entrepreneurs not always non-profits. Earned income models often more sustainable and scalable than contributed revenue. Overview
Note: Difference between value appropriation v. value creation or social impact as criteria. Social enterprise as a means of providing essential services and a nuclei for empowerment and economic growth
Video
New Category of Enterprise— ” social business ” (value creation, cost reduction, market penetration). Also, new categories based on combinations of technology, business model innovation, and capital: mobile banking; Frontline SMS—platform bases on SMS (160 characters), low cost handset (Nokia 1100 @ $20), laptop, and modem as a low cost network (Frontline Medic and Kopo Kopo); impact outsourcing; trac phones—prepaid phone (my wife has one). Develop technology based total solutions Execute innovative business models for sustainability at scale Advance social enterprise eco-systems
Center aims to help through 3 programs GSBI signature program: sustainable, scalable businesses that serve as nuclei for economic growth, including accelerating access to capital Frugal innovation lab. Appropriate—rugged, affordable, simple—for the “base of pyramid” communities which are emerging markets Social capital or impact investing to accelerate ventures scaling Student and faculty engagement in all of these social benefit programs Switch innovation and entrepreneurship
Video
Systems Change is a Placeholder for other key concepts not addressed or introduced in IDIS: Partnerships and alliances Social Capital Empowerment (freedom as development) Individual Communities and cities Whole systems (change at the level of issues) Values
How would your disrupt this model? Low cost handsets with “top off” billing in micro-units (30 cents) Movirtu (Cloud-based PIN)
Cantennae is $1.00 wireless antennae developed in Ghana for connect poor communities (antennae market price is $40) Also: Suntech Power, Huawei, Cantennae
This is why the focus on multi-national companies (suggested by Prahalad’s original thesis) did not work. Why clustering in the context of polycentric innovation makes sense
Video
Empirical regularities reflect the rationality of social entrepreneurs.
Around the world, social entrepreneurs are pioneering methods to bring affordable renewable energy to these underserved customers. While they currently serve only a fraction of the existing market, the technologies and business models they are developing have the potential, if successfully scaled and replicated, to serve almost everyone. This site is designed to help you better understand energy delivery for customers underserved by traditional markets, and the technologies and business models being used to help empower the bottom billions. Best practices in technology and business model innovation http://energymap-scu.org