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BOP

It’s been a while since my last post: I was busy with school, different venture competition applications, and a (tiny) bit of travel.

Tomorrow I am going to Skoll:EMERGE and I am thinking about a divide between Business Plan Competitions and Social Enterprise Competitions. Do we really need it? What IF there is an idea that is very viable commercially and also creates a significant social change?

I think that current divide presents a problem for the best projects: when a venture creates both profit and social and/or environmental impact. This hypothetical successful business model could be altered to create even more profits or even more impact, but it will loose a part of its hybrid characteristics.

So, I am thinking about a trade-off between profit and impact. In any organization we could think that there is a trade-off between a profit and an impact: anything from a bagel shop to a homeless shelter to an multinational corporation to a global NGO could have either profit or impact or some combination of both.

What a for-profit will choose:

On the graph to the left, each curve represents  a posible sets of combination of profit and impact for four different hypothetical organizations. If we look at the graph, clearly, traditional business plans will just focus on maximizing profit, so in cases of both black line, green and red line they’ll prefer a point that has zero impact. But in case of yellow dotted line, they will actually be better off with some impact–this will increase the profit.

What a social enterprise will choose:

The idea behind social enterprise (as I see it) is that profit has a place in impact-oriented organizations. Profit solves the problem of scallability and increases the efficiency. With this in mind, a green line social enterprise will choose a combination that is furthest to the right–it will have a highest sum of profit and impact. But about red line organization? It seem to be inefficient as a hybrid organization, yet I don’t know why or if such cases even exist. And a yellow line organization will pick the same point on the curve as the for-profit–this will offer a highest combination of profit and impact. A black line organization can theoretically pick any point on the line, depending on its short-term and long-term goals: whether it puts more emphasis on sustainability or on current impact.

A few questions arise:

1) For-profit and SE seem to merge in yellow–is that a problem? Wouldn’t SE funders push to a higher impact, even though it decreases efficiency?

2) How to distinguish a for-profit from SE in black organization? Is there any cut-off profit/impact ratio (like 60/40) for SE?

3) What to do with red case: is it better to have either strict for-profit or a strict non-profit?

4) Finally, could other organizations organization be redesigned to become more like yellow organization?

My interest is not academical: I have an idea for an organization that is both profitable and will create an impact. So I am thinking how should I frame and design this organization to better serve its goals and to get initial funding.

I’m just thinking and playing here, so if you could forward me some research or provide me some ideas/feedback/criticism, it would great!

dahshurHere at LSE, I am taking a fascinating pilot course about the business innovation for the Base of the Pyramid. It is organized by LSE’s Department of Management and Innovation and Co-Creation Lab and is taught by Professor Harry Barkema. This year the course is “pilot,” which means it’s a test-drive that will hopefully result into adding the course to formal curriculum of the School.

As the syllabus reads, in this course

we will share, review, apply and co-create new insights and frameworks (to understand), and methodologies and tools (to design, implement, innovate and improve) business models at the BOP that work. It is part of a much larger, coherent set of activities at the LSE to co-create, share, review, and apply knowledge and capabilities and to provide systemic measurements of impact, together with our partners across the world in academia, companies, social entrepreneurs, NGOs and governments. The ultimate aim is to (help to) innovate/improve, implement, and scale economically sustainable models that have a significant measurable impact on serving needs at the BOP. Where “sustainable” means systemic funding from customer payments, donors, governments and/ or companies, with an eye to maximizing payments from customers, if possible and desirable, to make it economically sustainable.

It doesn’t just sound great, it is great! At the last meeting we have discussed different business models that are already employed in ventures at the BOP. This week we will look at the ways to engage the users, local community and others in the process of co-creation of business models.

We have a great reading list and (even though I already have piles of work for LSE) I am going to share some of my ideas and reflections on the pages of this blog.

For those who have read Prahalad’s The Fortune at the Bottom of the Pyramid, don’t get too enthusiastic or skeptical: what we are doing in this course is actually looking at what is the BOP, what can work there, and how can business can create value for the communities at the BOP. Fortune-making is not really the part of the course.