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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
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
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.
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
TWO THOUSAND YEARS
OF PROSPERITY IN
WESTERN EUROPE
                     What does
                     this graph tell
                     us about
                     technology,
                     prosperity,
                     and justice?
TECHNOLOGY BENEFITING HUMANITY
    TENTH ANNIVERSARY OF 2001 FOUNDING

 Open Innovation - 2010 Gala
LEAPFROG AS A DEVELOPMENT
        PLATFORM
OUR APPROACH
GSBI THEORY OF CHANGE




     •   Develop technology based
         total solutions
     •   Execute innovative business
         models for sustainability at
         scale
     •   Advance social enterprise
         eco-systems
SOCIAL BENEFIT PROGRAMS

GOAL
Enable social enterprises to scale, creating systemic change for the poor.


     Innovation             Entrepreneurship            Social Capital




                  STUDENT AND FACULTY ENGAGEMENT
GSBI ON NBC
WHAT WE’VE LEARNED
KEY CONCEPTS FROM GSBI


 Market Imperfections

 Disruptive Solutions

 Business Model Innovation

 Impact Capital
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
MARKET
IMPERFECTIONS
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
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
DISRUPTIVE
INNOVATION DESIGN
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.
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
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
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
MARKET SIZE OF THOSE MAKING LESS
     THAN $1,500 DOLLARS




     Emergence of consumer class targeted by MNC’s @ $1,500
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
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
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?
SURPRISING PATTERNS SHOWING LATENT
             DEMAND
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?
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
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
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
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
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
ARAVIND
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?
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
MINIMUM CRITICAL SPECIFICATIONS


Value Creation
Cost Reduction
Market Penetration
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
DEVELOPING A
SCALABLE BUSINESS
   MODEL FOR THE
SOCIAL ENTERPRISE
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
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
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)?
“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
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].
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.
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
EXPENSE DRIVERS EXAMPLE
 IDEAS AT WORK: 4 YEAR
INCOME DRIVERS: HYBRID EXAMPLE
                 IDEAS AT WORK: 4 YEAR




Cash flow positive:
end of 2009
(6000 pumps)
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)
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
CRITICAL SUCCESS FACTORS EXAMPLE
                     IDEAS AT WORK

 Key value proposition assumptions




 Key income assumptions




 Key expense assumptions
VALUE PROPOSITION
         EXERCISE
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].
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
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
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
ACCESSING PATIENT
         CAPITAL
ARE YOU A SOCIAL BUSINESS?


 Leveraged Non-profit

 For-profit Social Business

 Hybrid Social Business
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
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?
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.
THANK YOU
 WWW.SCU.EDU/SOCIALBENEFIT
 TWITTER.COM/CSTSSCU
 FACEBOOK.COM/CSTS.SCU
AUGUST 23RD, 2012
ENERGY MAP
IMPACT CAPITAL

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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?
  • 6. TECHNOLOGY BENEFITING HUMANITY TENTH ANNIVERSARY OF 2001 FOUNDING  Open Innovation - 2010 Gala
  • 7. LEAPFROG AS A DEVELOPMENT PLATFORM
  • 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
  • 37. MINIMUM CRITICAL SPECIFICATIONS Value Creation Cost Reduction Market Penetration
  • 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
  • 39. DEVELOPING A SCALABLE BUSINESS MODEL FOR THE 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
  • 47. EXPENSE DRIVERS EXAMPLE IDEAS AT WORK: 4 YEAR
  • 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
  • 52. VALUE PROPOSITION EXERCISE
  • 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
  • 57. ACCESSING PATIENT CAPITAL
  • 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.
  • 62. THANK YOU WWW.SCU.EDU/SOCIALBENEFIT TWITTER.COM/CSTSSCU FACEBOOK.COM/CSTS.SCU

Notas do Editor

  1. 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
  2. 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
  3. Video
  4. 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
  5. 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
  6. Video
  7. 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
  8. How would your disrupt this model? Low cost handsets with “top off” billing in micro-units (30 cents) Movirtu (Cloud-based PIN)
  9. Cantennae is $1.00 wireless antennae developed in Ghana for connect poor communities (antennae market price is $40) Also: Suntech Power, Huawei, Cantennae
  10. 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
  11. Video
  12. Empirical regularities reflect the rationality of social entrepreneurs.
  13. 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