Moving Beyond Business for Good: How Markets Can Transform Systems for Good

Josephine Lengapiano Josephine is an incredible Samburu woman who conducts half of her business with Pokots. She lives in an area with more markets and products, so Pokots will call her to place orders, send her money via m-pesa, then pick up the goods when they come to her village.

5 Entrepreneurial Case Studies

Can you use a business model to not just to do well, but also to radically change a system? At Ashoka, the global network for the world’s leading social entrepreneurs, we’ve met hundreds of groundbreaking entrepreneurs around the world who have taught us that social businesses can be a powerful pathway to social change.

Entrepreneurs we’ve learned from so far include the first free provider of Massive Open Online Courses (MOOCs) that’s registered over 12 million students, and an Indian eye care company that has provided affordable cataract surgery for over 32 million low-income patients, the majority of whom were treated for free or at minimal cost.

The fact that there are successful models for market-based social impact, however, does not mean that it’s easy. Social entrepreneurs have repeatedly asked: what are practical examples they can learn from? They want examples of how to use business models to reach greater scale of social impact, or to effect systems change, in a way that doesn’t compromise their original social mission.

To address this challenge, we selected five social entrepreneurs from diverse sectors that serve as examples of market-based models of systems-change.

Why Does Market-Based Systems-Change Matter?

Traditional models of social impact are funded through philanthropy: an NGO raises grants and donations, and uses these to provide services for free to beneficiaries. However, social entrepreneurs often adopt business models to deliver increased impact through a market-based approach.<

Why would a social entrepreneur prefer a market-based solution over one that is funded for free? There are several reasons social entrepreneurs often cite:

Firstly, with the right solution, it’s possible to bring in greater capital than is possible with aid or other models. The volume of investment capital far exceeds the capacity of the donor markets.

Secondly, it enables the entrepreneur to diversify their funding sources away from philanthropy, which can be quite precarious. And by switching to an earned revenue model in which they can earn income directly from customers, social ventures also have the potential to be more sustainable than projects that rely solely on donations for funding.

Thirdly , market-based-solutions can mobilize many actors as a result of engaging partners, competitors, suppliers, and consumers along a supply chain. The market is a particularly powerful way of opening up systems as, in contrast to NGOs or aid agencies, actors in the same market begin to co-operate and collaborate with many others to solve a shared problem.

Consider a platform such as M-Pesa, for example. M-Pesa is the mobile money platform through which more than 30% of transactions in Kenya are now conducted. Launched as a private service by telecoms provider Safaricom, M-Pesa has enabled millions of small businesses and vendors to move their services onto the platform, greatly improving security for small shopkeepers and reducing the risk of cash transactions.

Finally, the first market mover is often also a market catalyzer. By demonstrating there is a new, untapped opportunity, they open up the possibility for many others to also participate in the marketplace and thereby accelerate the spread of a solution.

What is Market-Based Systems Change?

Market-based systems change can be defined as any approach that leverages supply and demand for goods or services in order to tackle the root causes of a problem. Purpose-driven businesses can introduce new products and services into a system to create shifts that tackle the root causes of a social problem (systems-change). This can be a much more lasting solution than charity or aid which is often a short-term relief for an issue.

We’ve observed five types of market-based innovations that also create social impact. These include:

1. Unaddressed Market Innovation: these are innovations based on the realisation that there is an untapped or missing market that is not being addressed by current solutions, or is only being addressed through philanthropy when a business model could work instead.  An unaddressed market, for example, can exist due to intellectual property challenges - with a producer being unable to monteze the value of the intangible asset (e.g. LightYears IP has helped create patents for more premium coffee for Ethiopian farmers and supported the Masai people in creating a trademark to ensure they are benefiting from the tourism industry). Another unaddressed market can be due to Informal economies and asymmetric information, where one of the players does not know enough about the other participant in order to be able to interact with them (e.g. Indian Housing Federation find new ways to qualify workers in the informal economy who can’t prove their income for affordable housing loans).

Additional examples include: Riders for Health, d.Light, NUUP, M-Pedigree, Karibu Homes.

2. Pricing Innovation: these are innovations based on finding a new pricing structure that enables many more people to be reached with affordable products than before. This might be through: the use of a cross-subsidy model (e.g. Aravind Eye Hospitals) - where one customer group’s payments are high enough to cover the needs of a customer who can’t pay as much, a ‘Two-for-One’ model (e.g., TOMS Shoes, Warby Parker) where the purchase by one set of customers can create a donation to people who can’t otherwise afford the product, and a flip the payment model , where the way a customer buys the product is changed entirely, such as by enabling new types of products to be bought by installments or rented (e.g., Village Telco offers consumer financing for telecommunications access, Angaza, M-Kopa, and SELCO enables clean energy access by offering financing, rent-to-own, or pay-as-you-go options for solar panels).

Additional examples include: Aurolab, VisionSpring

3. Product Design Innovation: these innovations involve taking a product and radically redesigning it so that it becomes affordable to customers that would not otherwise be able to access that product Designing for affordability might be achieved by finding ways to lower cost margins or by sourcing components at a lower cost. (e.g., DripTech created a low-cost drip irrigation for smallholder farmers who can’t afford a pump by designing it to be distributed by gravity, Sound World Systems created a hearing aid for a fraction of the regular price by adapting bluetooth headset technology, and Embrace created an infant incubator to reduce child mortality at 1% of the price of traditional incubators by ensuring it can operate without electricity.)

Additional examples include: d.Light, IkoToilet, FrontlineSMS, ColaLIFE

4. Supply Chain Innovation: these are innovations that create impact by changing a part of the network between a company and it’s suppliers needed to produce and distribute a specific product. These include innovations that can reach previously unreached customers by borrowing another supply chain (e.g., ColaLife distributes medicine to new parts of Africa by packaging its medicine to fit into Coca Cola crates), aggregating information that allows more ethical decisions within the marketplace (e.g. SokoWatch enables small shopkeepers at the base of the pyramid manage their inventory via a mobile app - making it possible for buyers and suppliers to plan for bulk orders), making ethical practices the norm by creating certification (e.g., GoodWeave aims to end the use of child labor by creating a certificate that recognizes child labor free carpets) or by creating brands rooted in transparency and accountability for ethical practices (e.g., Patagonia for athletic wear, Oro Verde for ethical coffee and chocolate), or by substituting supplies from unsustainable sources to sustainable sources (e.g., Canopy works with over 750 companies to change their suppliers to environmentally friendly options such as ensuring the Harry Potter series is printed on environmentally-friendly paper).

Additional examples include Village Telco, Community Enterprise Solutions, Frontier Markets, and Previta.

5. New Marketplace Innovations: these innovations are creating new marketplace mechanisms where people can come together to exchange value where they were not able to previously, or where they are not able to exchange value at greater scale and efficiency. Online platforms, the sharing economy, or crowdfunding have all been some of the critical enablers of these new marketplaces. (e.g., Alison.com has enabled employers and over 12 million students receive practical job training via an online learning platform, Donorschoose.org has enabled over 3 million donors help meet the supplies needs of teachers in their classrooms and Kiva.org has helped provide over $1.3 billion to the underserved in affordable loans in over 80 countries.)

Additional examples include: Previta, Village Telco, Kickstarter, Couchsurfing, Timebank, and peer to peer lending platforms serving the bottom of the pyramid.

6. Case Studies on Market-Based Systems Change

Being able to create innovations that can create social impact while remaining market-based is a journey. Five case studies are offered as a way to better understand the key decisions, lessons learned, and pitfalls avoided in order to reach impact. Case studies include:

  • Alison - First Free Massive Open Online Learning Platform, Designed to Meet Modern Job Needs Serving 12 million registered learners and 2 million graduates read case study
  • Aravind Eye Hospital - Eliminating Needless Blindness Treating over 4.1 million outpatient visits a year; replicated by over 320 hospitals in 27 countries read case study
  • FrontlineSMS - Saving Lives through SMS Downloaded over 200K times by citizen organizations in over 190 countries read case study
  • Toast Ale - Brewing with Fresh Surplus Bread. Catalyzing a Movement Against Food Waste Model adopted by international brewers in Brazil, South Africa, and Ireland read case study
  • VillageTelco - making telecommunications accessible to the last mile Over 7,500 devices sold to provide low-cost wireless access points read case study

Lessons learned and pitfalls to avoid cited by the entrepreneurs included the importance of:

Putting free or affordable access as a core company value and goal, since innovation that brings down cost is good for business and creating greater impact

  • Choosing investors wisely to ensure they match your social impact goals and stage of growth
  • Looking for pathways to scale beyond growth such as open-source consultation and replication, training, and consulting, developing trainings for trainers, and outreach and education campaigns.
  • Having a shared-vision to create partners, not competitors
  • Investing in ways to measure impact, particularly indirect impact, which is especially critical if relying on donors as an additional source of funding
  • Being aware of the strengths and weaknesses of open source - it allows a venture for build trusting a project and engage partners quickly, but can also make it more difficult to find investors that share the same vision.
  • Being patient. It’s not feasible to open up without first establishing your market-based solution, and it takes time to reach a more open model that can enable systems change

Why Opening Up is Critical to Scale

If a social entrepreneur's focus is systems change, it’s vital to open up. Explained masterfully in, On Innovators and Pinballs, opening up is to “scale through the indirect inspiration or motivation of copycats and competitive responses that build on, extend, and sometimes even replace the initial pioneer.” A single company by itself is unlikely to create the amount of change needed to address the size of problems in urgent need of solutions.

While opening up seems scary for businesses - we’ve encountered social entrepreneurs who have found that opening up can maintain or even sometimes improve their financial bottom line, and radically increase the scale of social impact they can create. As FrontlineSMS founder Ken Banks describes, “few challenges can be fixed by any individual. We need to think of scale from the outset. We need to think about sustainability. We need to stop taking in silos. We need a real shakeup.”

Join us in exploring the journeys of five such social entrepreneurs and consider ways you can shake up your approach to impact through two critical levers: leveraging market-based solutions and opening up.

ACKNOWLEDGEMENTS

Case Studies authored by Reem Rahman, Olga Shirobokova, Odin Mühlenbein, Nadine Freeman, and Mark Cheng, Ashoka Globalizer

Made possible by the support of SDC-Hystra and interviews by Ken Banks (FrontlineSMS), Michael Feerick (Alison), Steve Song (VillageTelco), Dr Devendra (Aravind Eye Care Systems), and Tristram Stuart (Toast Ale)

Licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.