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Monday, May 13, 2013

Where Does Innovation Meet Scale?: Leveraging cross-sector collaborations to expand impact

By Blair Miller

Photo courtesy of Jacaranda Health

Since I left Acumen about eight months ago to work with Ray Chambers, the United Nations Secretary General’s Special Envoy for Financing the health related MDGs and Malaria, I have been thinking a lot about the question: How do we find ways for the innovation of the social enterprise sector to meet the scale of the World Bank, USAID, United Nations, or emerging market governments? I believe this collision will create new systems, shatter old ones, and ultimately make us more effective and efficient at delivering products and services to the poor. So what might this look like?

Scale may not mean going from building 50-100 hospitals, scale could be inventing a new model of health care that can be replicated around the world. I was recently talking with one of my friends, Nick Pearson, Acumen Alumni and founder of Jacaranda Health, a low-cost mobile maternal clinic in Nairobi. Nick told me that he is not looking to build thousands of clinics, instead he is going to develop a revolutionary model that has the highest quality in the world at an affordable price (this reminds me of my late mentor CK Prahalad’s article “Innovation Sandbox”). This mentality enables him to think outside the confines of his social enterprise and it will allow his model to scale beyond his organizational capacity being replicated by governments and multilateral organizations around the world.

Another strong model is that of 1298 Ambulances. The founders from the outset were in conversation with the government about their model and how it might work with or complement the current infrastructure. That being said, they needed patient capital early on to prove their model. When Acumen invested $1.5 million equity in the company they had nine ambulances. They promised the customer that they would provide quality treatment on the ambulance with a 20-minute response time, and they delivered.

1298 ambulance, NextBillion Health Care

They slowly scaled their own model to around 100 ambulances, but it was not until the government of India awarded them contracts to scale across multiple states in India, leveraging the government’s capital and infrastructure, that they were truly able to scale. Scale is developing a model that, from the outset, can be plugged into a government infrastructure. Despite what people may think, government is looking for more effective and efficient solutions to deliver services.

(Left: a 1298 ambulance, photo courtesy of Acumen)

In my current role working with a group of former and current private equity players at the MDG Health Alliance, I have learned some great lessons about what it might take to scale. For example, unlike venture capital, which is looking for a new innovative model, private equity is seeking high leverage opportunities that often mean restructuring assets to make an entity more efficient. For example, if there is a company that is no longer adding value there is an opportunity to reassess that company and convert their assets to something of value in the market place. This is very different from the mentality of the non-profit world. When most  non-profits are struggling, they do not look for someone to merge with or to buy them out. Nor, when they are expanding, do they look to buy out other non-profits. They should. This model will allow us to create greater value, let failing organizations fail, and let the most successful organizations scale their work. If we were able to consolidate more in the social enterprise/non-profit sector we would be able to more effectively collaborate with some of the larger development institutions to merge and blend our models.

One interesting model to watch is social impact bonds. For example, a multi-sector group is developing a malaria bond in Mozambique.  The bond is being spearheaded by the government of Mozambique, DalbergNandos and Anglo American. The government of Mozambique is investing $20M and impact investors are investing around $10M. The concept leverages a successful program in Ghana developed by Anglo Gold Ashanti, combined with new initiatives developed by the government of Mozambique and leading NGOs. The idea is that they will be able to pay back impact investors based on their more efficient and effective model.  This model will rely on the private and public sector working in collaboration with local non-profits to better deliver malaria control services. The model is a true test of non-profits and government working with and understanding the performance-based metrics of the private sector. If it works, it could unlock a tremendous amount of capital to help scale the non-profits that are providing the most value in the marketplace.

In conclusion, as the development world shifts and changes and the non-profit, for-profit, and governmental sectors merge, I believe there is a tremendous opportunity for non-profits to ask some critical questions about scale:

  • What unique value am I adding to the market place?
  • Is there another organization doing this better than me?
  • How do I measure my performance?
  • What is my path to scale?
  • What is my exit strategy?

Perhaps questions like these and some of the models I mention above could lead us to a place where innovation meets scale.

Editor's note: this article was cross-posted from Acumen's blog, and is republished with permission.

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