Guest Articles

Tuesday
April 7
2020

Alex Lazarow

Frontier Innovators: A New Roadmap for Social Impact

The world is increasingly calling on business to boost its social impact and leadership in society. The challenge is that we have no clear roadmap. Silicon Valley has until recently been held-up as the role model for high-impact business models. However, in the wake of recent failed IPOs, the negative externalities of social media platforms, and the myriad social problems in San Francisco, its star has dimmed. (Indeed, with the coronavirus impacting nearly all aspects of life at this particular moment in time, unexpected and far-ranging negative externalities will be the norm for some time.) Social enterprise, on the other hand, has long offered an exciting alternative, but the movement remains frightfully sub-scale.

However, a new model is emerging among innovators at what I call the Frontier– those startup ecosystems outside the typical global business centers – a topic I explore in my upcoming book Out-Innovate: How Global Entrepreneurs – from Delhi to Detroit – Are Rewriting the Rules of Silicon Valley. These Frontier Innovators exemplify three important traits that provide a model for business to have a positive impact and a sense of purpose: They create industries rather than disrupt them, weave impact into their business model, and manage the negative externalities of their businesses.

The lessons from entrepreneurs at the Frontier may hold the key for business to realize its potential to offer transformative social impact around the world.

 

Creators, not disruptors

In Silicon Valley, startups dream of “disruption,” a phrase that has taken on near-mythical qualities.

But at the Frontier, entrepreneurs are Creators. They offer a product or service that solves an unserved, acute pain point in the formal economy. Creators don’t just offer their solutions to the top of the pyramid; successful products are designed for the mass market from day one.

The difference in the number of Creators between the Frontier and Silicon Valley is striking. A study by Village Capital determined that out of the nearly 300 unicorn startups in the United States, less than 20% focused on critical industries with large market gaps like health, food, education, energy, financial services or housing. By comparison, an analysis by the Global Accelerator Learning Initiative (GALI) determined that the next wave of entrepreneurs in emerging markets predominantly operate in these sectors– often where there are no existing formal solutions.

These entrepreneurs aren’t just creating industries. They weave impact into the fabric of their businesses.

 

Embedding Impact Into The Business Model

Crafting a business model that aligns social impact and economic best interest, while managing negative externalities is no easy feat. Many companies merely promise ethical approaches – think Google’s mantra of “Don’t be evil” (which, if it’s necessary to specify, is enough to make one nervous). Others implement generous programs to give back, like the Pledge 1% movement, or buy-one, give-one models, where for every product purchased, another is donated or sponsored. These models have their heart in the right place, but some of them have yielded mixed results. For each of these companies, impact is not a foundational part of the business model. If the business does not perform well, back-end giving is easy to cut. So are the checks and balances towards risk management and externalities.

In contrast, the most successful Frontier Innovators weave social impact into their business models. For consumer-facing companies like Zola Electric, an energy access startup in Africa, impact is linked to product adoption, and key metrics are tied to number of customers and level of usage. Zola increases its energy access impact every time it sells another family a solar system in Africa. Similarly, for Dr. Consulta, which offers lower-cost health care services in Brazil, impact is core to its operations in offering high-quality affordable healthcare services to its customers.

Frontier Innovators carefully reflect on their desired impact and decide how to assess success. They then assiduously track, report and disseminate progress towards this goal across the organization. In many cases, the chosen impact metrics align with or are complementary to the company’s financial metrics, because impact is part and parcel of the business model.

 

Managing Negative Externalities

In addition to building a business model that has impact at the core of its operations, Frontier Innovators manage their negative externalities as well.

This defies Silicon Valley risk-taking culture, the home of mantras like Mark Zuckerberg’s “Move fast and break things.” For Frontier Innovators, Silicon Valley’s blasé approach to product risk and company development does not work. Frontier Innovators view risk – particularly certain risks – as an externality that should be avoided or at least mitigated. This philosophy doesn’t mean avoiding risk entirely. Managing risk is about determining which risks are acceptable and which are non-negotiable.

For instance, Dr. Consulta’s CEO, Thomaz Srougi, considers risk management core to his strategy. As Srougi told me for my book: “On patient safety we have zero tolerance for risk. On everything else, we take highly calculated ones.” To deliver medical advice in its clinics, they hired the best doctors they could find, refusing to compromise on the patient experience. But on everything else, they looked to experiment and innovate.

To cement this approach into their organization, Frontier Innovators build risk management into their incentives, organizational structure and culture. Take the case of Aerofarms, a vertical farming startup for whom food safety is a paramount concern. David Rosenberg, the CEO reports to his board on seven operational key product indicators: 1) people safety, 2) quality and food safety, 3) yield, 4) operational efficiency, 5) inputs (e.g. nutrients, seed, energy), 6) price and 7) labor. His first two key performance indicators have to do with safety. Food safety runs through the reporting structure. Checks and balances are integrated into this reporting structure, whereby safety managers report to quality assurance, who report to the COO and not to the head of a farm.

 

Why this is important

The world is looking for a new roadmap for social impact. We can find it at the Frontier. By harnessing commercial capital in the way of Frontier Innovators, we have an opportunity for businesses to create new models, ingrain impact into their operations and manage the negative externalities of their products. Learning their lessons may be the key for business to fulfill its social impact promise after all.

 

Alex Lazarow is a global venture capitalist and the author of Out-Innovate: How Global Entrepreneurs – from Delhi to Detroit – Are Rewriting the Rules of Silicon Valley.

 

Photo courtesy of Amit Jain.

 


 

 

Categories
Entrepreneurship
Tags
business development, business models, emerging markets, entrepreneurship, social enterprise, social entrepreneurship, social impact