@IBGC_Fletcher & Word Economic Forum
At the Stockholm Tech Fest this year, Swedish entrepreneur Niklas Zennström issued a rare and refreshing call to implement the UN Sustainable Development Goals (SDGs) in their next startup idea. As founder of Skype, he knows a thing or two about opportunity-spotting.
The UN goals involve complex problems, but when it comes to clever startups, a lot can happen between now and 2030. After all, some of the most exciting ideas in recent decades have come from the “guerilla” startups rather than from the “gorilla” corporations; use of the guerilla’s creativity could help to find solutions to sustainable development problems.
However, it is important to ask: Is Zennström’s call to action just fluff, or is there are a deep enough bench of entrepreneurs with robust ideas? Are there resources to support such startups through different phases of growth?
Historically, keeping the growing body of “social” entrepreneurs nourished has largely fallen to impact investors, foundations, NGOs and a few progressive government agencies. so far, the track record of guerillas has not been stellar; far too often it is the same handful of examples that make the rounds. This is a field that, while not starved for people or ideas, is in need of fresh sources of nourishment. Getting big “gorilla” corporations to work with the “guerilla” startups could provide this nourishment.
Findings from our Inclusion, Inc. research initiative suggest that large corporations are well-placed to unblock startups’ path to wider impact.
How do we find ideas?
There is a growing pool of budding social entrepreneurs; the Skoll World Forumevent alone offers an encouraging and uplifting glimpse of the many guerillas in our midst. We are experiencing a surge in interest and ideas on university campuses. At UC Berkeley, the Blum Center has highlighted examples of businesses and people already helping to fulfil the goals.
Closer to home, The Fletcher School’s collaboration with the One Acre Fund’s D-Prize draws numerous contestants with ideas for social enterprises that take on “poverty solutions”; in recent years, we have funded a startup that used bus networks to distribute solar lamps to far-flung communities in Burkina Faso; a venture finding sponsors for girls’ high school education; and a ground transportation brokerage to serve as “the connective tissue” between smallholder farmers and transporters.
A second piece of good news is that capital is ready to be mobilised. A 2014 study by J.P. Morgan and the Global Impact Investing Network (GIIN) identified $46bn in impact investments under management, with annual funding commitments estimated to increase by 19% in 2014. Sir Ronald Cohen, chair of the Global Social Impact Investment Taskforce, believes the impact investing market can grow to match the “$3tn of venture capital and private equity.”
According to Judith Rodin and Margot Brandenburg of the Rockefeller Foundation: “Aspirational estimates suggest that impact investments could one day represent 1% of professionally managed global assets, channeling up to hundreds of billions of dollars towards solutions that can address some of our biggest problems, from poor health to climate change.”
What are the bottlenecks?
So, why does all this good news not translate into more meaningful outcomes? Two bottlenecks are worth highlighting. The first is what a Monitor and Acumen study calls the “pioneer gap”. Their 2012 study, From Blueprint to Scale, observes that pioneer firms are starved of capital and support at very early stages in their development.
The second choke point occurs in the phase of actually getting to scale. A second report, Beyond the Pioneer, identifies a chain of barriers to scale, ranging from those within the firm and the industry to those in the domain of public goods and the government.
These bottlenecks represent different forms of market failures. An approach to the first of them involves “de-risking” early stage social ventures. However, a key source of risk is the chain of barriers to scale in later stages. If we can make meaningful advances on lowering the barriers, it helps in de-risking and also supports early-stage startup development.
Given the breadth of the barriers to scale, impact investors, NGOs and foundations would find it challenging to facilitate end-to-end solutions. Apart from funding and convening, such organisations have few other levers. Large corporations, on the other hand, can tackle business model and managerial issues within the firm and help boost negotiating power within the value chain or the public sector.
The biggest questions, of course, have to do with whether the gorilla corporations can ever be organisationally and culturally compatible with the startups. Given the potential for value creation these gaps are worth taking on.
The Monitor and Acumen study lists potential barriers: “firm level” barriers, which include weak business models, propositions to customers/producers, leadership and managerial and technical talent and a lack of capital.
Eye Mitra, launched in 2013, had trained over 1,000 young entrepreneurs and reached 150,000 people by the end of 2015. The business helps individuals to set up eye care provider businesses in rural communities using low-cost products.
According to a study by Dalberg Global Development Advisors [pdf], the programme added $4m a year in impact across the six districts surveyed; with Essilor’s scaling resources, Eye Mitra could represent the potential to unlock economic impact of $487m a year across India.
“Value chain barriers”
There are also value chain barriers which include lack of suitable labour inputs and financing for bottom-of-the-pyramid (BoP) producers and customers, weak sourcing channels and weak distribution channels involving BoP producers and customers, and weak linkages and support service providers.
Corporations with experience have become adept at finding creative ways around barriers in the value chain. Consider Unilever’s Project Shakti, which enables rural women to become entrepreneurs by distributing goods to hard-to-access rural communities.
Over 70,000 Shakti Entrepreneurs distribute Unilever’s products in more than 165,000 villages, reaching over 4m rural households. At the other end of the value chain, Coca-Cola’s Source Africa initiative facilitates sustainable and financially viable supply chains for key Coca-Cola agricultural ingredients, e.g. mango production in Kenya and Malawi and citrus and pineapple production in Nigeria.
In another sector, when Saint-Gobain builds a plant in a new country, it trains the local workforce in collaboration with YouthBuild. The latter trains disadvantaged youths in professional skills, while Saint-Gobain adds training in construction science.
“Public goods barriers”
Then, there are the public goods barriers: Lack of hard infrastructure; lack of awareness of market-based solutions; lack of information, industry knowhow and standards.
Olam offers a good illustration of a company’s deep involvement in a nation’s hard infrastructure. Olam jointly owns Owendo, a port in Gabon and is a key partner in the country’s special economic zone. On the “soft” public goods front, Janssen, a unit of J&J, works with multiple stakeholders to increase access to medicines and has formed the Janssen Neglected Disease Task Force to advocate for legislation to support new research into treatments for neglected diseases. It also coordinates a consortium to support HIV patients and their caretakers in managing the disease.
Fourth and finally, there are the government barriers: inhibitory laws, regulations and procedures; inhibitory taxes and subsidies; adverse interventions by politicians or officials.
MasterCard and its growing collaboration with the Association for Financial Inclusion to educate public officials about issues relevant to financial inclusion. This includes technical capacity building, developing national-level public-private engagement strategies, research and best practices to inform policymaking and exposing officials to innovative products, business models and approaches.
Combining global reach with entrepreneurial creativity
Perhaps the best mechanism for bringing gorilla and guerilla together is through a corporate venture or impact investing fund. Consider Unilever Ventures as an example. It has invested in a range of enterprises, including ones that focus on water management as part of its “sustainable living” portfolio, e.g. Recyclebank, a social platform that creates incentives for people to take environmentally responsible actions, WaterSmart, that develops tools for water utilities to help customers save water and money or Aquasana, Voltea and Rayne Water that develop water purification, desalination and filtration technologies.
Gorillas have the global reach and scale but they need the proximity to the problem, local knowledge and the entrepreneurial creativity of the guerillas. Zennström’s call-to-action requires guerillas and gorillas to dance. It is, no doubt, an awkward coupling; but it can – and must – happen for guerilla entrepreneurs to have gorilla impact on the world’s hardest problems.