Disruptive Innovation In Service of Social Business Growth (Part 2)
Editor’s Note: The following post first appeared in NextBillion Brasil. You may read the original post in Portuguese here.
In my previous article, I aligned and demystified the concept of disruptive innovation and its lessons. This second article goes deeper with two examples of social businesses and some of their practical lessons for market diffusion.
To explore why social businesses are mostly disruptive innovators by nature, I chose two models analyze due to their extensive and robust history. They are: Asembis, a network of low-cost urban clinics in Costa Rica, and KickStart, an irrigation pump maker that offers rural micro-entrepreneurs appropriate tools to increase productivity, in Kenya, Tanzania and Mali.
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The concept of disruptive innovators |
Asembis, since 1991 (Rebecca Villalobos) |
KickStart, since 1992 (Nick Moon and Martin Fisher) |
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Business Description |
180 employees 3 million customers in their history, 360,000 per year, a budget of US$ 6 million per year 13 medical specialties Subsidized only for the first three years, recently, mobile medical services subsidized in rural areas |
200 employees 163,000 irrigation pumps sold Its customers make around US$ 105 million annually Only consumer market education and technology diffusion activities are subsidized |
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1. New value proposition applying existing technologies |
Accessible and high-quality health services inspired by existing health services |
Affordable tools to increase productivity and profitability of rural microentrepreneurs, inspired by existing irrigation pumps in Bangladesh |
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2. Focus on emerging markets, attracting other markets later
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Initially offered ophthalmology services to low-income people for US$2 Today it has 68% market share in Costa Rica, including middle-class customers |
Its main product, the “MoneyMaker” irrigation pump, was designed for the low-income market Today, 40% of Kickstart’s customers are middle-class farmers |
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3. Product features:
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Prices are 60% cheaper in services, 40% cheaper in surgeries, 5% of services are free for the poorest Efficiency, high-volume, not all services are necessarily simpler Not necessarily smaller, since the business model is based on service No waiting time to receive service; in other clinics, customers can wait over a year Mobile services to care for the most isolated rural populations |
US$ 60 per product, cheaper than gasoline-fueled or electronic pumps Currently negotiating with banks to offer micro-credit to purchase tools Small, portable, light or light enough to be easily carried, suction and pressure capabilities, runs on human power, appropriate for small-scale farmers |
Table 1: Social Businesses as Disruptive Innovators Sources: Asembis 2010; the Ashoka Globalizer Panels 2010; Cardenau 2009[1]; Fisher 2006[2]; Naigeborin 2011[3]; Sabates-Wheeler 2009[4] and KickStart 2010.
As per Table 1 above, both businesses can be considered disruptive innovators, with radical innovation in their business model, process and opening of new markets, as well as incremental innovations related to products and services. There are exceptions related to product features that aren’t always necessarily smaller since they can be based on services, although most of the times they are cheaper, simpler and more convenient.
Disruptive Innovation is More of a Market Matter than a Technological Issue
In other words, this means less investment for developing a complex and radically new technology, and, on the other hand, this demands high penetration capability into new market segments. This requires other assets, in which social business entrepreneurs are demonstrating superiority, as is the case of Asembis and KickStart. In both cases, the founders understood the realities of the populations they wanted to serve, through engaging in volunteering work with them before starting before beginning their business. Nevertheless, the low-entry barrier and the opening of new markets pose new challenges.
Innovation Differentiates Your Business, but Requires Diffusion, Which Entails Investment and Time
The first challenge of which a business needs to be aware is the time needed to develop and diffuse the technology or disruptive innovation. The more radical the innovation, the longer this period tends to be, which directly affects the first business revenues (Tidd and Bessant 2009)[5]. Thus, new entrepreneurs need to prioritize according to the market to innovate more radically, whether in the opening of a market, in the business model, in the process, in the supplier or in the product itself, since there is investment in every innovation and it already contains plenty of challenges.
A range of characteristics about the innovation can affect its adoption in the market, i. e.: level of complexity, relative advantage to other products, compatibility with the existing infrastructure, and testing and observation ability for the consumer market (Tidd e Bessant 2009). Innovation diffusion is a study that requires its own and deeper analysis.
This also warrants a reflection of investors and other supporters of social business. One school of thinking believes that the diffusion phase must be subsidized, as is the case of KickStart until today, since it requires infrastructure investments to open new markets. Others contend that, on the contrary, social businesses need to seek efficient models from the start. Both arguments are valid and may offer advantages and disadvantages, according to the situation.
The study of how disruptive innovation helps social businesses leaves no doubt that it can be the port of entry for them to transform the economy. The application of disruptive innovation to social businesses is not exhausted with these two articles, on the contrary, there is still room to go deeper on how to transfer knowledge and experience in disruptive innovation for social businesses to design business models, strategies, and implementation, as well as a role for investors and supporters in the diffusion phase of disruptive innovators.
Cardenau, P. (2009) Empresas Sociales Latinoamericanas: Interview with Rebeca Villalobos at ASEMBIS, Costa Rica. Next Billion. [Accessed on December 30, 2010].
[2] Fisher, M. (2006) Income Is Development: KickStart’s Pumps Help Kenyan Farmers Transition to a Cash Economy. Innovations: Technology, Governance, Globalization.
[3] Naigeborin, V. (2011) Soy loco por ti América. Next Billion Brasil. [Accessed on March 1st, 2011].
[4] Sabates-Wheeler, R. (2009) KickStart Case Study.
[5] Tidd, J. and Bessant, J. (2009) Managing Innovation: Integrating Technological, Market and Organizational Change.
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