This lecture identifies three functional mechanism or means of developing successful base of the pyramid business models--value creation, cost reduction, and market penetration. Successful ventures simultaneously utilize all three of these mechanisms in localizing technology, establishing a business model, and interfacing with local ecosystems. An emphasis on value creation through stakeholder engagement and collective agency are differentiating characteristics of efforts to serve unmet needs.

1. AN ORGANIZING FRAMEWORK &
REPEATABLE BUSINESS MODELS FOR
MARKET CREATION IN
IMPOVERISHED COMMUNITIES
LESSONS FROM THE GSBI AT SANTA CLARA
UNIVERSITY
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. 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

3. TWO THOUSAND YEARS
OF PROSPERITY IN
WESTERN EUROPE
What does
this graph tell
us about
technology,
prosperity,
and justice?

4. APPLYING 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
ark et Dis ption
N ew-M c onsum
st non
et e agai n
Comp
or
e rs Time
g
um
s in
m
on u
n -c ons exts Company improvement trajectory
c t
N o on - on Customer demand trajectory
N C

5. DISRUPTION IN HEALTH CARE
Provider-Level Disruption Point-of-Care Disruption
lists
Performance*
Performance*
cia ls
b spe pita
d su hos
an ral
lists ici ans Ge ne
Sp ecia hys litie
s
a re p faci
al c ie nt
erson pat
ily/p rs O ut
Fam on e car
e
a ctiti ffice
pr
N ur
se In-o
e
re car
f-ca om
e
S el In-h
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

6. E-HEALTHPOINT
PROBLEM:
No clean water, no
medical facilities, no
reliable medicines in
rural India
SOLUTION:
Provide whole solution:
diagnostics, validated
pharmaceuticals, clean
water, telehealth

7. 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

8. LEAPFROG AS A DEVELOPMENT PLATFORM

9. DISRUPTING UNJUST MARKET EQUILIBRIUM
MINIMUM CRITICAL SPECIFICATIONS
Value Creation
Cost Reduction
Market Penetration
Innovation from below

10. 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

11. 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

12. DELIVERING VALUE:
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

13. EXECUTING A COMPELLING VALUE
PROPOSITION
 Value Proposition
 Customer Segments
 Cost structure
 Key activities
 Key resources
 Revenue streams
 Customer relationships
 Channels / distribution
 Key Partnerships

14. 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

15. 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

16. ACCESSING PATIENT
CAPITAL

17. LEGAL STRUCTURE AND ORGANIZATION LIFE
STAGE
 Leveraged Non-profit
 For-profit Social Business
 Hybrid Social Business

18. 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

19. 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?

20. IT CAN BE DONE
We are witnessing the gradual evolution of
a new category of organization, one that
reflects a “rationality” that is better suited
to the realities of underserved
communities than profit maximizing
models

21. SOCIAL BENEFIT PROGRAMS
GOAL
Enable social enterprises to scale, creating systemic change for the poor.
Innovation Entrepreneurship Social Capital
STUDENT AND FACULTY ENGAGEMENT

22. 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.

23. E-HEALTHPOINT
PROBLEM:
No clean water, no
medical facilities, no
reliable medicines in
rural India
SOLUTION:
Provide whole solution:
diagnostics, validated
pharmaceuticals, clean
water, telehealth

24. HUSK POWER SYSTEMS
PROBLEM:
125,000 villages
“off the grid” in India,
leaving 480 million
without electricity
SOLUTION:
45 million metric tons of
rice husks could light
145,000 villages

25. SOLAR SISTER
PROBLEM:
No mechanism to
distribute solar powered
lanterns to the >500
million people in Africa
without electricity
SOLUTION:
An Avon-style network of
“Solar Sisters” provides
livelihoods and light to
families

26. SUMMARY
SUCCESS FACTORS FOR SUSTAINABILITY AT SCALE
Applying disruptive innovation theory
 Value creation and cost reduction
 Localizing technology to fit target market segments
Establishing a scalable business model for market penetration
 Mission aligned incentives, shared value, and empowerment
Addressing market imperfections to enable systemic change
Accessing the right capital for your organizational life stage
 Organizational capabilities that increase investment readiness

27. THANK YOU
WWW.SCU.EDU/SOCIALBENEFIT
TWITTER.COM/CSTSSCU
FACEBOOK.COM/CSTS.SCU

28. AUGUST 23RD, 2012

29. ENERGY MAP

30. IMPACT CAPITAL