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Practiced-based Models for Scaling Social Mission Enterprises

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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, …

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.

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  • 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
  • Transcript

    • 1. PRACTICE-BASED MODELSFOR SCALING SOCIAL MISSIONENTERPRISEGLOBAL SOCIAL BENEFIT INCUBATOR (GSBI™)JAMES L. KOCH, PH.D.,BILL & JAN TERRY PROFESSOR OF MANAGEMENTDIRECTOR, GSBI NETWORK & SECTOR STRATEGYUNITE FOR SIGHT GLOBAL HEALTH & INNOVATION CONFERENCEYALE UNIVERSITY| APRIL 21-22, 2012
    • 2. OBJECTIVES1. Examine conceptual frameworks and practical strategies for scaling social ventures based on a decade of work in the GSBIn Apply these lessons to your enterprise
    • 3. OUR GLOBAL IMPACTHelped 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 IMPACTHow 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 YEARSOF PROSPERITY INWESTERN 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
    • 8. OUR APPROACH
    • 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 PROGRAMSGOALEnable social enterprises to scale, creating systemic change for the poor. Innovation Entrepreneurship Social Capital STUDENT AND FACULTY ENGAGEMENT
    • 11. GSBI ON NBC
    • 12. WHAT WE’VE LEARNED
    • 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
    • 15. MARKETIMPERFECTIONS
    • 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
    • 18. DISRUPTIVEINNOVATION DESIGN
    • 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 trajectoryNo on- on Customer demand trajectory N C
    • 21. DISRUPTION IN HEALTH CARE Provider-Level Disruption Point-of-Care Disruption listsPerformance* 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?
    • 27. SURPRISING PATTERNS SHOWING LATENT DEMAND
    • 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 ofBusiness 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/rewardsTechnology Product Cost structure developmentProducts Manufacturing Income StatementEquipment Planning & budgeting Customer demandsInformation Market Research Size of opportunityCash Resource allocation Vision/culture changeBrand Double bottom lineDistribution New organization Flexible Not Flexible Not Flexible
    • 34. ARAVIND
    • 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 EcosystemsFunctional 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 ASCALABLE BUSINESS MODEL FOR THESOCIAL 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 CREATIONValue 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 PROPOSITIONValue Proposition: A brief description of yourorganization and the value it provides which articulateswhy target beneficiaries will choose your product orservice 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 [targetbeneficiaries], and thereby creates [statement of socialvalue/impact], unlike [alternatives].
    • 45. VALUE PROPOSITION EXAMPLE IDEAS AT WORK (IAW)Ideas at Work - provides alow cost, easy to use andmaintain, manual waterlifting device, which isoffered through a microcredit loan system to ruralCambodians, therebybuilding up credit history,while at the same timesaving time and improvinghealth—providing a solutionthat is superior to the threeavailable water pumpalternatives in cost, ease ofuse, 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 YEARCash 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 Inflowsby source- Cash Outflowsby use= Net Cash Flow+ BeginningCash = EndingCash (CashBalance)
    • 50. CASH MANAGEMENT EXAMPLE IDEAS AT WORK3 Year Cash Flow 2007 2008 2009 2010Starting Cash $40,000 $37,553 $25,408 $17,938Cash In $107,213 $332,500 $516,500 $744,000Earned $19,000 $232,500 $466,500 $744,000Contributed $88,213 $100,000 $50,000Cash out $109,660 $344,645 $523,970 $655,895Operation $60,700 $206,045 $278,270 $307,895Cost of goods $48,960 $138,600 $245,700 $348,000Ending 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 PROPOSITIONValue Proposition: A brief description of yourorganization and the value it provides which articulateswhy target beneficiaries will choose your product orservice 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 [targetbeneficiaries], and thereby creates [statement of socialvalue/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 ActivitiesPartnerships 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 OPTIONInvestors Banks: * Commercial Loans * Equity Social Investors: Foundations: Social Investors: * Equity * Social Loans (PRI) * Grants Foundations: Social Venture Funds: Foundations: * Mission Related Equity * Social Loans * GrantsEntities For-Profit Entity Not-For-Profit Entity Hybrid Social Enterprise
    • 60. IMPACT CAPITAL & INVESTMENT READINESSCommitment 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) •GovernancePotential 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
    • 63. AUGUST 23RD, 2012
    • 64. ENERGY MAP
    • 65. IMPACT CAPITAL