James Koch

Reflecting Our Energy for Impact: How can we strengthen the contributions of incubators and accelerators?

Editor’s note: This is the second of a two-part blog post. In part one, author James Koch explored four recurring themes of businesses trying to reach the base of the pyramid: First, the BoP customer has been poorly understood. Second, while customer needs may exist, market demand for products that meet those needs may not. Third, vertical integration is often a necessity. Fourth, depth and breadth approaches offer alternative paths to scaling impact. In this post, Koch, a co-founder of the Global Social Benefit Institute (GSBI ®) at Santa Clara University, examines how to strengthen incubators and accelerators, an integral part of enterprise development.

How can we strengthen the contributions of incubators and accelerators? Below are four suggestions.

1. Reduce Pressure to Scale

Investors equate scale with success. Despite the uncertainties under which BoP ventures operate, new ventures are often pressured to scale before they know their customers, develop cost efficient distribution channels, understand unit economics and price structure, create demand, and attract and train the correct talent. The incubation phase for new BoP ventures should be a time to gather this information and “get the unit right” before scaling. This entails understanding the “unit of social benefit” or impact as well as the “unit economics” or financial viability of a replicable unit of the business.

2. Coordinate Funding Sources

Capital is often aimed at specific stages of venture development, resulting in fragmented funding sources and “lean periods” as ventures graduate from one funding source but do not yet qualify for the next. John Kohler, Director of Impact Capital in the Center for Science, Technology, and Society at Santa Clara University advocates that incubators and accelerators should facilitate hand-offs across venture financing stages by conscious attention to milestones that are relevant to investor criteria for early-to-growth stages of organizational life cycles. This is a work in progress that will involve re-imaging how capital markets might work if they were truly intended to serve the greater good.

3. Set Appropriate Expectations

There is a greater need to emphasize the challenges of execution. Investments are needed to build the organizational capacity and support sustainable growth. Research by the Aspen Network of Development Entrepreneurs (ANDE) on incubators and accelerators suggests that by fostering a disciplined approach to growth, providing access to technical services, and increasing selectivity these intermediary organizations can become more central actors in facilitating access to a continuum of capital that is aligned with organizational life cycle needs.

(Above: Eco-fuel Africa, a member of the GSBI class, aims to empower communities in Africa by converting locally sourced farm and municipal waste into clean cooking fuel and organic fertilizers. Image credit: GSBI)

4. Codify Informal Knowledge

Over the past decade, hundreds of ventures have been launched, but few have achieved significant scale in relation to the size of the market opportunity. The success of ventures depends on understanding the unique characteristics of doing business with those at the BoP. While the domain is just starting to understand these particularities, this process can be accelerated by learning from the exemplary practices of successful entrepreneurs. Codifying informal knowledge can enable the participants in incubators and accelerators to ground abstract concepts and convert uncertainty into clearly defined risk factors with field-tested mitigation strategies. Incubators and accelerators would benefit from a greater attention to learning from success and failure. ANDE research finds that systematic assessment of social benefit or impact is seldom used by incubators and accelerators as a feedback mechanism to measure and improve their effectiveness.

A Concluding Note

The “fortune at the base of the pyramid” thesis may not have been correct. That’s especially true if our ultimate measure of value is the functioning of the global economy in facilitating growth through the flows of material goods, money, and people. It may not have been correct if we apply the rationality of large company decision making that measures success in quarterly returns or ad revenue growth curves. Neither is this thesis of a fortune in serving the unmet needs of humanity likely to hold in the future if we measure our fortune in the prospects of a sequel to “Angry Birds,” the unprecedented stock option wealth of CEOs, or the ability of social media to lure brilliant mathematicians and physicists to apply their genius to the development of “big data” algorithms for high frequency trading or monetizing the private data of unsuspecting users to benefit a small number of people.

The real fortune at the base of the pyramid is a different kind of treasure — one that is measured in life options as opposed to stock options. It is measured in children who will not die of diarrheal disease before the age of five. It is measured in access to economically sustainable technology solutions that can provide all members of a family with safe water for just eighteen dollars a year. It is measured in the recognition of our collective humanity.

The challenges discussed at the 2013 Michigan BoP summit are complex, and reflect a different mindset and reality than the 2003 Networked World Conference a decade earlier. These challenges call for whole systems thinking. At the same time, we’ve made real progress in identifying the critical factors for market-based solutions to play a meaningful role in providing every child the freedom to hope. In the next ten years, converting those dreams into reality is the scale by which we should measure our progress.

James Koch is the Don C. Dodson Distinguished Service Professor of Management. He was founding director of Santa Clara University’s Center for Science, Technology, and Society, and a co-founder of the Tech Museum Awards, as well as the Global Social Benefit Institute (GSBI ®).

Base of the Pyramid, clean cooking, incubators