GLOBAL SOCIAL BENEFIT INCUBATOR (GSBI™)JAMES L. KOCH, PH.D., BILL & JAN TERRY PROFESSOR OF MANAGEMENTDIRECTOR, GSBI NETWORK & SECTOR STRATEGY
PRACTICE-BASED MODELSFOR SCALING SOCIAL MISSION ENTERPRISE
UNITE FOR SIGHT GLOBAL HEALTH & INNOVATION CONFERENCEYALE UNIVERSITY| APRIL 21-22, 2012
1. Examine conceptual frameworks and practical strategies for scaling social ventures based on a decade of work in the GSBI
2. Apply these lessons to your enterprise
OBJECTIVES
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.
GovernmentThe Market
Business Models and Market Mechanisms
Branching A really big organization
AffiliationCo-opt other organizations/ Network of networks
Dissemination Viral spread / Social Movement
GAME CHANGING TECHNOLOGY
SCALING IMPACT
How could you positively influence the lives of a billion people?
What does this graph tell us about technology, prosperity, and justice?
TWO THOUSAND YEARS OF PROSPERITY IN WESTERN EUROPE
Open Innovation - 2010 Gala
TECHNOLOGY BENEFITING HUMANITY TENTH ANNIVERSARY OF 2001 FOUNDING
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
GOALEnable social enterprises to scale, creating systemic change
for the poor.
Innovation Social Capital
Entrepreneurship
STUDENT AND FACULTY ENGAGEMENT
GSBI ON NBC
WHAT WE’VE LEARNED
Market Imperfections
Disruptive Solutions
Business Model Innovation
Impact Capital
KEY CONCEPTS FROM GSBI
Diagnose Market Imperfections
Apply Disruptive Innovation Design
Develop a Scalable Business Model
Specify a Path to Investment Readiness
WHAT YOU SHOULD BE ABLE TO DO
MARKET IMPERFECTIONS
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 IMPERFECTIONSHELPING 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
OVERCOMING MARKET IMPERFECTIONSHELPING MARKETS ALLOCATE RESOURCES TO
SOCIETY’S PREFERRED USE
DISRUPTIVE INNOVATION DESIGN
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.
DISRUPTION AND GROWTH
DISRUPTIVE INNOVATION THEORY
Time
Time
Company improvement trajectory
Customer demand trajectoryNon-c
onsu
mer
s or
Non-c
onsu
ming
Conte
xts
New-Market Disruption
Compete against nonconsumption
Low-End Disruption
Target overshot customers
with lower-cost business model
Pe
rfo
rma
nce
Diff
ere
nt
pe
rfo
rma
nce
me
asu
re
• Discount retailing• Steel mini-mills
Sustaining Innovation
Bring better products into
established markets
DISRUPTION IN HEALTH CARE
Time
Company improvement trajectory
Customer demand trajectory
Provider-Level Disruption
Pe
rfo
rma
nce
*
Self-careNurse practitio
nersFamily/personal care physicians
Specialists and subspecialists
*Can mean either outcomes or complexity of diagnosis and treatment
Time
Point-of-Care Disruption
Pe
rfo
rma
nce
*
In-home careIn-office care
Outpatient facilitiesGeneral hospitals
Community Health Workers eHealth Services / Rural Clinics
Sustaining path of innovation Better product Higher margin Best customers
Disruptive innovation Less wealthy
Lower cost/improving quality Less skilled Greater convenience
SUSTAINING AND DISRUPTIVE INNOVATION
MARKET SIZE OF THOSE MAKING LESS THAN $1,500 DOLLARS
Emergence of consumer class targeted by MNC’s @ $1,500
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
A “NEW SANDBOX”
Based on resident ethnographers in IndiaProduct 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?
TECHNOLOGY AND INFRASTRUCTURE FOR EMERGING REGIONS: RURAL PC EXAMPLE
SURPRISING PATTERNS SHOWING LATENT DEMAND
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?
TAPPING LATENT DEMAND: ICT
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
TECHNOLOGY AND BUSINESS MODEL
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
DISRUPTIVE INNOVATION EXAMPLES
New Mkt. Disruption
Low End Disruption
Sustaining Innovation
Customers Non-consumer or non-producer
Overshot customer at low
end of market
Undershot customer
Technology Simplicity, customization
Good enough performance at
lower prices
Improve along primary basis of
competition
Business Model
Completely new model, different from core bus.
Attractive returns at low prices
Extension of winning model
Competitor Responses
See market too small to matter, lack key skills
Motivated to flee incursion
Lack skill to compete
successfully
STRATEGIC CHOICE
Source: Clayton Christensen
Resources Processes Values (Decisions)
People Hiring & Training Ethics/rewards
Technology Product development
Cost structure
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
INCUMBENT DILEMMAS
ARAVIND
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?
QUESTIONS
APPLYING DISRUPTIVE INNOVATION THEORY AT THE BASE OF THE PYRAMID
Localizing Technology
Establishing Business
Model
Interfacing Ecosystems
Value Creation
EmpathyFirm Level and
Customer Finance
TechnologyCapital
Governance
Cost Reduction
Extreme Affordability
Unit Economics Capital Efficiency
Market Penetratio
n
Left & RightBrain Thinking
Crossing the Chasm
Partnering
Decision Making Domains
Fu
ncti
on
al
Mech
an
ism
s
Value CreationCost ReductionMarket Penetration
MINIMUM CRITICAL SPECIFICATIONS
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
ORGANIZING FRAMEWORK OF MARKET CREATION
DEVELOPING A SCALABLE BUSINESS
MODEL FOR THE SOCIAL ENTERPRISE
Society’s change agentsCreators of innovations that disrupt the status quo and transform our world for the better
Equilibrium change
SO●CIAL EN●TRE●PRE●NEURS (NOUN)
Mission and VisionEnablers/Obstacles Beneficiary Needs (Market) AnalysisThe Product (Service)Business ModelCompetitive AdvantageManagement Team, Key Partnerships, GovernanceFinancial Model for Sustainability at ScaleMetrics Dashboard
SCU SOCIAL VENTURE BUSINESS PLANNING
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)?
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
“VALUE” ECONOMIC AND SOCIAL DIMENSIONS
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].
THE VALUE PROPOSITION
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 EXAMPLEIDEAS AT WORK (IAW)
Product: IaW provides a rope pumpOperations: IaW develops, manufactures, and
distributes the rope pumps (value chain roles)Service: IaW provides operation and repair
training for the rope pumpsMarket Creation: Karaoke, product
demonstrations, and customer testimonials educate the market and create sales
Financing: IaW arranges micro-credit for their rope pump customers
VALUE PROPOSITION INCLUDES ELEMENTS OF PRODUCT OR SERVICE
EXPENSE DRIVERS EXAMPLEIDEAS AT WORK: 4 YEAR
INCOME DRIVERS: HYBRID EXAMPLEIDEAS AT WORK: 4 YEAR
Cash flow positive: end of 2009(6000 pumps)
Source: Multi-year budget Period by period statement of cash inflows and
outflows (usually monthly or quarterly)
CASH REQUIREMENTS(CASH FLOW STATEMENT)
Year 1 Year 2 Period “n”
+ Cash Inflows by source
- Cash Outflows by use
= Net Cash Flow
+ Beginning Cash = Ending Cash (Cash Balance)
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
CASH MANAGEMENT EXAMPLEIDEAS AT WORK
Key value proposition assumptions
Key income assumptions
Key expense assumptions
CRITICAL SUCCESS FACTORS EXAMPLE IDEAS AT WORK
VALUE PROPOSITION
EXERCISE
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].
THE VALUE PROPOSITION
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
WHAT ARE ELEMENTS OF YOUR VALUE PROPOSITION & HOW WILL YOU CAPTURE VALUE TO SCALE?
Value PropositionCustomer SegmentsCost structure
Key activitiesKey resources
Revenue streamsCustomer relationships Channels / distribution
Key Partnerships
VALUE PROPOSITION IS PIVOTAL IN BUSINESS PLANNING PROCESS
Key Partnership
sKey Activities
Value Proposition
Customer Relationships
Customer Segments
Key Resources
Channels
Cost Structure Revenue Streams
LEFT AND RIGHT BRAIN THINKING
Alexander Osterwalder and Yves Pigneur, Business Model Generation 2010
ACCESSING PATIENT CAPITAL
Leveraged Non-profit
For-profit Social Business
Hybrid Social Business
ARE YOU A SOCIAL BUSINESS?
FINANCINGHYBRID SOCIAL ENTERPRISE OPTION
Not-For-Profit Entity
Investors
Entities For-Profit Entity
Hybrid Social Enterprise
Foundations: * Social Loans (PRI)Social Venture Funds: * Social Loans
Social Investors: * GrantsFoundations: * Grants
Banks: * Commercial Loans * EquitySocial Investors: * EquityFoundations: * Mission Related Equity
Commitment• BoP• Market Solution• Ambition to ScaleFinancial Sustainability• Financial Plan• Cost Recovery• Sustainability • Grants v. Loan (cash flow)Potential to Scale• Market Risk (socio-political)• Output Growth• TAM (> 1 million)
Potential for Social Impact•Quality of Life for the Poor•Cost Effectiveness (BACO)•System Change (transformative)Management Capacity•CEO/Entrepreneur•Management Team•Management Information System•Governance
How are these criteria different than conventional
V.C. criteria?
IMPACT CAPITAL & INVESTMENT READINESS
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.
WHEN DOES THE NIGHT END AND DAY BEGIN?
THANK YOUWWW.SCU.EDU/SOCIALBENEFITTWITTER.COM/CSTSSCUFACEBOOK.COM/CSTS.SCU
AUGUST 23RD, 2012
ENERGY MAP
IMPACT CAPITAL