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The hybrid entrepreneur

Michael Jarvis's picture

Can social entrepreneurs forge a more productive collaboration with corporations that yield development and business benefits? Bill Drayton and Valeria Budinich suggest that they can, as detailed in their article in Harvard Business Review. They introduce the concept of hybrid value chains (HVCs) based around four key criteria – that they create real economic as well as social value, have the potential to go to scale across borders, are profitable and hence sustainable, and offer a basis for new competition. This is an interesting spin on the base of the pyramid business case that prioritizes an integrated role for social entrepreneurs, but I wonder how many settings are conducive to this model.

Of course businesses will develop even in the most difficult settings. As reported recently in the Financial Times, entrepreneurship is alive and well in Somaliland despite lack of clarity of its status and the absence of many typical state structures. Investors are exploring options in such sectors as oil, fishing, power, and livestock exports – including a proposed $9m cold packing camel meat export business. What’s more, the early risk takers tend to be those connected to the country, notably returning diaspora, who are likely to have an interest in broader benefits for their homeland. So is there a role for social and private entrepreneurs to jointly shape private sector development from the beginning? Would HVCs generate sufficient jobs for the poor?

It is unlikely that HVCs can be successful without some capacity in the civil sector, but even where civil society is vibrant, how do the complementary company and social entrepreneur find each other? There are close to a million CSOs in Brazil alone. This is bewildering for companies, who struggle to pinpoint those with good ideas and capacity. It is no surprise that the authors come from Ashoka, an organization that has helped play a broker role between social entrepreneurs and corporations in many of the examples they cite. How can that brokering be made available globally? Most of the proposed HVC examples cited by Drayton and Budinich stem from relatively few countries, notably India and Mexico, and target better service delivery – overlapping with oft repeated base of the pyramid cases. For HVCs to take hold – and join the canon of established acronyms with CSR and BOP – the concept needs to be proven in more contexts - we need hybrid entrepreneurs in Ulan Bator and Kampala as well as Mumbai and Sao Paulo. 



I agree that HVCs sound great – in practice. In our experience the two biggest challenges were: identifying a viable business model, and attracting investment capital. Two years ago we set out to build a social business that helped the poor (create jobs and products with social benefits), was scalable, and profitable – essentially a HVC. The result was The Paradigm Project (which is structured as an L3C) The business model we selected is a fully-integrated distribution system, offering efficient cookstoves as the first product. These stoves preserve the environment, reduce poverty, increase quality of life for the poor and save lives. Because of their environmental benefits, efficient cookstoves can also generate carbon offsets which are sold to create a stream of revenue that covers ongoing project costs and funds other community benefit projects. We sell stoves at a price that people can afford (i.e. highly subsidized) and generate additional revenue through the sale of carbon credits. We have been operating in Kenya for over a year and our success is well beyond our original expectations. In less than a year we have sold over 30,000 stoves, created dozens of jobs, impacted 125,000 people, saved 40,000 trees and avoided 12,000 tons of CO2e – and pre-sold our first three years of carbon credits. The right HVC model can work. With a proven business model in hand, our hurdle now is investment capital. To expand our program into East Africa we need an additional $15mm. The challenge with being a “hybrid” is that we don’t fit neatly into traditional investor models. For HVCs to become the latest acronym it will take a critical mass of investors willing to put capital to work in these new ventures. We are encouraged by the movement toward combining business disciplines with social outcomes. Right now we observe a chicken and egg situation. The capital isn’t interested without sound ideas, and ideas are slow to realize without an obvious place to go for capital. Hopefully your friends at the IFC will help with the capital side of the equation.

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