Sunday, March 23, 2008

The Matrix

When you are a business professor, you are supposed to use a 2x2 matrix to explain your ideas. This past week I was in Dallas at the NCIIA March Madness for the Mind, a conference of collegiate entrepreneurs and engineers. Several asked me for feedback about choosing a business model for their ventures. So here is a matrix that may help entrepreneurs designing a new venture: (i) select a business model, based on the income level of their market and whether the problem is a chronic one or an emergency/crisis; or (ii) select a potential partner if they are working on a solution that goes across quadrant boundaries (particularly vertically). It should be read in conjunction with my Hand-Up and Handout post of March 15 to make much (any?) sense.

With this matrix, I am focusing on business models, not legal structures. For example, if a new venture's primary mission is to provide emergency medical aid for poor people, a donor based charity model may work best. It might also suggest that this entrepreneur could partner with ventures in the other quadrants if they occasionally need to provide emergency medical aid in wealthier markets. As discussed in the other post, it may take several of these approaches to best deal with a problem in a region that contains multiple market needs. Entrepreneurs should keep in mind that the BOP is a "big picture" concept and should avoid the trap of describing countries (India, Brazil) as BOP markets. Most of these countries contain many market segments, often within the same city block. It may make sense to partner (or have a different business model) just to serve that city block, as well as the many customers with that need in that region.

This matrix implies that Millennium Villages Project might be better organized as a hybrid social enterprise, in that the challenges it is addressing are chronic in nature. While the combination of challenges (hunger, AIDS, etc.) may contribute to a feeling of "crisis," the underlying problems are primarily chronic ones of agricultural practice and markets, which may be exacerbated by a crisis such as drought. The matrix would suggest that if MVP is in the botton left, but has occasions to deal with crisis isssues, it could move vertically up to the upper left quadrant for a partner.
This matrix also implies that organizations such as IDE, Selco and PSI may be more successful, in the long run, addressing chronic issues confronting the poor than those organizations that haven't fit their business model to the quadrant.
Is this a helpful way to think about business models for these markets? Can you think of examples of diagonal movements for partnerships? Who will still be serving the poor in rural Africa in 10 years- PSI, MVP or some partnership between the two?


Pam Hoelzle said...

fascinating. I like the idea of this matrix. With the new L3C structure I suppose we will see all sorts of socbiz models with various returns and financing/sustainability sources. I think 'giving' will be redefined and social investing will continue to get more and more sophisticated as we bring best practices from all fields to solve social problems and break through the old paradigm that we need donations to do it...Thanks for sharing your genuis

Bopreneur said...

Pam, have you checked out B Corps too?

I hope you are right about new funds flowing to sector. Note, though, that if the non-profit sector were more effective with the funds it already gets, that would increase impact, as well as attract more funds which would then increase impact even more.

And no genius. A bit of experience, personal observation and opinion.