GLOBAL SOCIAL BENEFIT INCUBATOR (GSBI™)JAMES L. KOCH, PH.D., BILL & JAN TERRY PROFESSOR OF MANAGEMENTDIRECTOR, GSBI NETWORK & SECTOR STRATEGY

AN ORGANIZING FRAMEWORK & REPEATABLE BUSINESS MODELS FOR MARKET CREATION IN IMPOVERISHED COMMUNITIESLESSONS FROM THE GSBI AT SANTA CLARA UNIVERSITY

UNITE FOR SIGHT GLOBAL HEALTH & INNOVATION CONFERENCEYALE UNIVERSITY| APRIL 21-22, 2012

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

APPLYING 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

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

LEAPFROG AS A DEVELOPMENT PLATFORM

Value CreationCost ReductionMarket Penetration

Innovation from below

DISRUPTING UNJUST MARKET EQUILIBRIUM 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

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

Key Partnership

sKey Activities

Value Proposition

Customer Relationships

Customer Segments

Key Resources

Channels

Cost Structure Revenue Streams

DELIVERING VALUE: LEFT AND RIGHT BRAIN THINKING

Alexander Osterwalder and Yves Pigneur, Business Model Generation 2010

Value PropositionCustomer SegmentsCost structure

Key activitiesKey resources

Revenue streamsCustomer relationships Channels / distribution

Key Partnerships

EXECUTING A COMPELLING VALUE PROPOSITION

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

ACCESSING PATIENT CAPITAL

Leveraged Non-profit

For-profit Social Business

Hybrid Social Business

LEGAL STRUCTURE AND ORGANIZATION LIFE STAGE

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

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

IT CAN BE DONE

SOCIAL BENEFIT PROGRAMS

GOALEnable social enterprises to scale, creating systemic change

for the poor.

Innovation Social Capital

Entrepreneurship

STUDENT AND FACULTY ENGAGEMENT

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.

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

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

HUSK POWER SYSTEMS

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

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

SUMMARYSUCCESS FACTORS FOR SUSTAINABILITY AT SCALE

THANK YOUWWW.SCU.EDU/SOCIALBENEFITTWITTER.COM/CSTSSCUFACEBOOK.COM/CSTS.SCU

AUGUST 23RD, 2012

ENERGY MAP

IMPACT CAPITAL