WDI reviewed and documented lessons learned by the Global Alliance for Clean Cookstoves (the Alliance) since its inception. The Alliance is a public-private partnership hosted by the United Nations Foundation that aims to save lives, improve livelihoods, empower women, and protect the environment by creating an efficient and thriving global market for clean and efficient household cooking solutions. The alliance’s goal is to facilitate the creation of a market that enables 100 million households in developing countries to access clean cooking solutions by 2020. Through interviews with staff and alliance partners in Washington, D.C., Kenya and Bangladesh, WDI sought to identify which of the alliance’s efforts focused on building the market for clean cooking solutions have worked, which of these efforts have been less successful, and how these outcomes might be translated into lessons learned and strategic options for the alliance. WDI also sought to develop insights that could be beneficial for other organizations interested in a global approach to market creation in low income settings.
This work also resulted in the development of a conceptual framework for how to accelerate impact industries, which was the subject of an article published online by The Stanford Social Innovation Review in June 2018. Stanford Social Innovation Review article.
Colm Fay participated in a panel discussion hosted by the Alliance at SOCAP 2018.
WDI is a founding partner of the Michigan Academy for Developing Entrepreneurs (MADE), along with Poornatha Foundation in India and the Zell Lurie Institute at the University of Michigan’s Ross School of Business. MADE was established to support small- and medium-sized enterprises (SMEs) in low-and middle-income countries through local Entrepreneur Development Organizations (EDOs). MADE connects the resources of the University of Michigan (U-M) with the EDOs in the field and provides other support to EDOs that is based on the EDOs’ needs. MADE has involved students and/or faculty from the University of Michigan’s Ross School of Business, psychology department, Institute for Social Research, Stamps School of Art and Design, Law School and School of Education.
MADE supported the Poornatha team to develop a B2C Sales & Marketing Strategy. The MAP team provided Poornatha with recommendations on the entrepreneur-type to target including product bundling and pricing. Poornatha is already successfully operating in the B2B segment where it serves clients of India Bank and operators of retail electronic outlets through its ‘Empower’ training program. To date, Poornatha has trained over 1,700 SME owners across 9 states in 7 different languages in India.
Working with a new potential partner, a team of MBA students developed a market entry strategy for starting an EDO in Vietnam as part of the MADE network in partnership with Poornatha. The students also conducted a financial analysis and market analysis to identify potential market opportunities and include financial projections with the strategic plan.
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By Colm Fay
In early September in Delhi, India, the William Davidson Institute at the University of Michigan, and Miller Center for Social Entrepreneurship at Santa Clara University launched “Closing the Circuit: Accelerating Clean Energy Investment in India.” The event included round-table discussions with enterprises and investors on how they might implement some of the ideas presented in the paper.
One theme that emerged is that the challenges facing enterprises in the clean energy industry in India and the lessons they are learning are not unique to either the clean energy industry or, indeed, to India. In fact, some of the findings from our research reflect patterns that can be observed in any nascent industry. While the context of providing access to energy in India has its own unique characteristics, what we know about how industries develop might help guide investment and provide some clues as to what might come next.
After interviewing several energy access enterprises in the Energy Access India (EAI) program – funded by USAID from 2015-18 and implemented by Miller Center and New Ventures India – we observed a pattern emerging in terms of how enterprises evolved. There were three distinct stages of development: an early initial focus on a compelling value proposition; a stage of vertical integration where a company takes on additional supporting activities; and, a stage of moving these activities outside the enterprise through outsourcing partnerships to specialize around the enterprise’s core competencies.
In the “early focus” stage, enterprises develop a value proposition that targets a specific pain point for a specific customer segment. Hopefully they’ve co-created this value proposition with those customers, and it is something that creates value for them. Enterprises will likely see some early success as the product precisely meets the needs of these customers and they have the ability and willingness to pay for it.
Once enterprises seek to grow beyond this stage, they may be addressing a different customer segment, or operating in different geographic regions where the value proposition they’ve developed doesn’t fit quite as well. This may require widening their offering, through the addition of a consumer financing facility, developing new distribution models, additional after-sales service, etc. In a developed industry, partners would exist to undertake these activities. However, in nascent industries such as the clean energy industry in India, these partners often don’t exist, and enterprises must do it themselves.
It’s helpful to understand why these partners may not exist in the early stages of an industry’s development. Providing inputs or services in these contexts often require the creation of “specific assets” – investments that have extremely limited and specific uses. For example, if there is only one vendor of household appliances serving a particular region of rural India, developing an entirely new distribution network for household appliances as a standalone business is unlikely to be a profitable business. At the price that the distributor would have to charge to cover their cost, it would be cheaper for the vendor to build this capability themselves.
However, enterprises often can’t continue to be experts in everything as they grow. For most enterprises, the next stage of growth is going to require focusing on their core competencies, executing at higher volumes that generate economies of scale and having partners optimized around providing inputs or supporting services. If the enterprise has been successful in demonstrating the possibility for commercial viability, it is possible that others have recognized the opportunity and have entered the market. Now providers of supporting inputs and services look at the market and see multiple potential clients and that mitigates the risk of their investments.
Simpa Networks is a great example of this type of evolution. The enterprise started out as a provider of solar home systems. As it developed its distribution network, it launched consumer financing products that enabled a greater number of customers to purchase the product. It also began providing a range of appliances that increased the use of energy, thereby increasing demand for its core product. Through this process, the enterprise has become an expert in understanding consumer needs and providing solutions to meet these needs through an extensive distribution network that reaches the last mile. Rather than replicating this integrated model everywhere, it now seeks to optimize its strategy around this core competency to become the leading distributor of household appliances to the last mile regardless of where the energy to power them comes from. In effect Simpa Networks is outsourcing the electricity generation component of its business. This kind of specialization only becomes possible when there is a sufficient number of energy providers in the market. Because they are focused only on electricity generation, and are serving smaller geographic areas, they are able to do so more efficiently than Simpa Networks can. This demonstrates another interesting twist – what may have been the subject of an enterprise’s early focus may not continue to be its core competency as it grows.
This evolution from early focus to vertical integration to specialization is nothing new. It is exactly how firms operate in nascent industries. While these models can provide guidance for enterprises and help inform their strategies, it is also important for impact investors and the development community to recognize these dynamics of how an industry matures. It can be tempting for these stakeholders to focus on finding the next new technology, the next business model innovation, or a new financing vehicle that will unlock sustainability and scale. What isn’t as obvious is investing in business to business enterprises across the value chain that facilitates specialization and optimization or improvements in the legal environment that make it easier to enforce contracts between partners. In our discussions with investors in the clean energy space in India, we noted that several are beginning to look at whether their investments are catalytic for the industry, as well as representing good investment deals.
This was a topic of a number of conversations at SOCAP 2018 in San Francisco in October. As part of the panel discussion “Moving from Good Impact Deals to Great Systems Change,” Clara Miller of the Heron Foundation described the importance of supporting efforts like the Sustainability Accounting Standards Board. Neil Yeoh of Echoing Green encouraged investors that wish to see greater pipeline, to also invest in the plumbing.
In “Closing the Circuit,” we also identify some broad categorizations of the Energy Access India (EAI) portfolio companies in terms of the business models they are pursuing. While the distinction between business models may be fuzzy, we saw three distinct patterns emerge; pure-play energy providers, complementary products and services and integrated productive use.
Pure-play energy providers are focused on the generation of electrons at volumes that are profitable. This may mean providing a combination of solar home systems, rooftop solar and solar pumps. These companies leverage economies of scale across these different customer segments to reduce costs and become commercially viable. For example, Argo Solar provides rooftop solutions for profitable customer segments including commercial and industrial customers. It also engages in government tenders for solar pumps in rural markets and drives economies of scale across both markets.
Complementary products and services enterprises focus on developing a basket of products, which may include both the generation and use of electrons. These companies leverage economies of scope to reduce costs and become commercially viable. This means that production of a second product can be done so more efficiently because the company is also producing the first product. Grassroots Energy (GRE), for example, is a biogas production company in the EAI portfolio. It uses animal waste to produce gas that is used as a backup energy source for mini-grids rather than diesel generators. To do this it needs to collect animal waste from local farmers. The residue that remains after the production of biogas, with some addition of nutrients, is an effective fertilizer. GRE can produce this fertilizer product much more efficiently than a standalone business because it already collects the waste and processes it through bio-digestion in the course of generating energy.
Integrated productive use enterprises provide access to energy, but also focus on promoting and facilitating productive use of that energy. This is typically required in contexts where ability to pay is low, and productive use of energy has economic benefits that increase customers’ ability to pay. Without productive use to drive up utilization of the energy generation assets, typically mini-grids, these businesses would not be viable. These models require deep learning about how such communities operate, their energy needs, and how to identify and nurture productive use applications. Companies implementing this model leverage economies of learning to reduce the cost of each subsequent implementation.
Mlinda is an example of this model. It installs mini-grids that provide a higher-quality and more reliable source of energy for rural communities in Jharkhand, India. It also invests significant effort in helping the local community to develop micro-enterprises, such as producing mustard oil, rice hulling and poultry production. Of course, this is only economically productive if there is a market, and so Mlinda also creates market linkages to enable the community to sell these products. As it replicates this model, Mlinda is developing the knowledge assets that will enable it to reduce the cost of community engagement over time.
These models and the associated economies of scale, scope, and learning might sound familiar to anyone who has taken an MBA strategy class. Hagel and Singer cover similar ideas in “Unbundling the Corporation.”
We spend a lot of time focusing on the unique aspects of working in resource constrained environments. Indeed, it is critically important to understand the inherent nuances. However, these examples demonstrate that despite the vast differences in context, some of the business principles we are familiar with in other industries can be observed and that creates the possibility that we might be able to look to history, and to other industries, to anticipate what might happen next in these markets. Further, it may help entrepreneurs, investors, funders and practitioners to gain a deeper understanding of what they should do next to help accelerate these industries to a point where they are mature, competitive and can attract sufficient commercial capital to become self-sustaining.
Colm Fay is a program manager leading WDI’s Energy Sector focus area.
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Over the past year, Poornatha has made great strides in spite of, and in some cases because of, COVID-19. Poornatha entered into a partnership with Indian Bank to provide online training to 1,500 micro, small and medium enterprise entrepreneur account holders of Indian Bank in 10 vernacular languages. The program was launched by the honorable Minister of Finance and Corporate Affairs of India. More recently Poornatha reached an agreement to provide training to 500 operators of retail electronic outlets. Poorantha has also launched its direct online training program – “Empower” to train entrepreneurs in the vernacular. The program received an overwhelming response of 42 entrepreneur registrations. Poornatha has also been investigating the best way to extend its Journey in Joy (JnJ) model of training across India. As a part of Michigan Academy for Developing Entrepreneurs (MADE), Poornatha’s activities have been supported by WDI and MADE in various ways including research on opportunities, assistance in development of programs and specific products to be used in these programs such as the business assessment tool. MADE also collaborated with Poornatha and University of Michigan’s School of Education to launch a study on Poornatha’s entrepreneurship learning modules, pedagogy and impact of the course on entrepreneurs through photo documentation.
WDI’s research project aims to identify the factors influencing the performance of energy enterprises in emerging markets, and provide a framework and methodology for documenting and assessing these models. The team will identify factors that relate to the technical, business, policy and socio-economic contexts that energy enterprises operate within, and compile an initial repository of energy business models using these factors as an analysis methodology. It also will look at energy enterprises in Uganda, India and Cuba leveraging existing relationships across both WDI and the Erb Institute.
WDI is gathering data from enterprises that are part of the Miller Center for Social Entrepreneurship’s Energy Access India portfolio, impact investors and other ecosystem players to identify learnings that may be helpful to entrepreneurs seeking to enter the energy access space in India. These learnings will also be relevant to investors interested in supporting these enterprises, and those stakeholders seeking to improve the ecosystem of support. Data has been collected through in-person interviews conducted during a field visit to India, and through phone interviews and analysis of secondary data. The findings from this work will be published and launched at an EAI event in Delhi in September 2018 upon conclusion of the project.
The Aravind Eye Care System is beginning a strategic planning process for the next five years. This project focused on the Chennai hospital. For 2028, Aravind-Chennai has daily volume goals of 6,000 outpatient visits and 500 surgeries across its main hospital, secondary centers, and vision centers. The five year strategy from 2023–2028 for Aravind-Chennai focused on the key organizational pillars of human resources, operational excellence, training and education, research, IT, and innovation. A general framework that could be used by the other Aravind hospitals was also included.
WDI has worked over the past year on the opening of a second location of Livewell, which provides rehabilitation services to patients who need therapy and limited clinical oversight but do not require hospitalization. The new facility, in Hyderabad, opened in October 2017 and WDI’s work has focused on improving the internal processes in anticipation of significant growth. Recommended changes focused on the staffing model and metrics that identify ways to improve operations on a continuous basis and demonstrate effectiveness of treatment. Four of the recommendations were implemented within two months.
In 2011, WDI worked with the Livewell leadership in the planning and early operations of its first facility in Madurai.
The William Davidson Institute is a collaborative, multi-disciplinary organization. As a result, WDI often engages multiple sector and services teams in our work. The following project undertaken by both our Healthcare sector and Performance Measurement and Improvement service demonstrates our holistic approach.
The goal of the program is to support quality laboratory systems, which are needed in order to effectively scale-up HIV prevention, care and treatment efforts. WDI’s work includes developing the Monitoring and Evaluation design and implementation plan, and collecting data to measure the impact of the program activities that include Strengthening Laboratory Management Towards Accreditation (SLMTA) training and BD mentorship, in multiple labs across Kenya, Uganda, Rwanda and India.
Ecozen Solutions, which has developed a solar powered cold storage system, is a company that participated in the research project. (Image courtesy of Ecozen Solutions)
WDI and the Miller Center for Social Entrepreneurship at Santa Clara University will mark the release of a new paper exploring what enterprises and investors have learned about energy access in India with an event on Sept. 6 in Delhi.
The paper, “Closing the Circuit: Accelerating Clean Energy Investment in India,” is based on the experiences of enterprises and investors involved in the Energy Access India (EAI) program. EAI is a three-year, USAID-funded program intended to narrow the gap between clean energy enterprises and investors. The program provides access to knowledge and mentorship that boosts enterprises’ investor readiness and by facilitating more funding to these enterprises.
A Freyr Energy solar plant in India, one of the companies included in the research. (Image courtesy of Freyr.)
EAI program’s broader goal is to provide energy access to some of the approximately 300 million people in India who lack access by helping private energy enterprises develop innovative business models to achieve sustainability at scale. The program provided acceleration services to 26 energy enterprises in the country that represent a range of technologies and business models. The enterprises have achieved varying levels of success in growth, impact, and financial sustainability.
“Our collaboration with WDI helped discern key lessons from accompanying over 30 social enterprises focused on clean energy access,” said Thane Kreiner, executive director of Miller Center for Social Entrepreneurship. ”We hope this report will help clean energy enterprises connect with impact investors who want to increase energy access for India’s poorest people, and thereby transform their lives.”
The paper highlights opportunities for greater alignment between enterprises and investors. It also:
WDI’s Colm Fay, who heads the Institute’s Energy initiative and is lead author on the paper, said the Sept. 6 discussion at the Royal Plaza hotel in New Delhi will focus on what the EAI enterprises have learned about how to develop commercially viable models and strategies, as well as what patterns are emerging. Attendees will also talk about some of the paper’s recommendations to spur discussion.
“We’re hoping that the event attendees can take the recommendations we’ve developed in the paper, and determine the resources and partnerships required to put them into action, and the next steps to get there,” Fay said.
The research and subsequent paper on the EAI program is the first project of WDI’s fledgling Energy initiative. Fay said there are other current projects with graduate students at U-M’s School for Environment and Sustainability, U-M’s Erb Institute for Global Sustainable Enterprise and with faculty across the U-M campus.
The initiative works with individuals and enterprises that are developing innovative approaches to power generation, and connects them with the expertise, knowledge, and tools to design commercially viable business models and build profitable enterprises. WDI’s Energy initiative works with University of Michigan faculty, students and other collaborators to increase access to energy in low- and middle-income countries, and to develop innovative models or technologies that can reduce reliance on non-renewable energy sources.
“Our goal with the Energy Initiative is to combine the technical expertise we have access to across the U-M campus, with WDI’s experience in business model innovation in emerging markets to support the development of enterprises that are commercially viable, while also increasing access to renewable energy,” Fay said.