‘Active Incubator Models’ and Management for Social Enterprises (Part 2)

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Part two of my two-part Next Billion series.

The ASEI incubation model has three phases. During the first phase, ASEI, in conjunction with the originator (or the visionary behind a would-be enterprise), develop a business model. The organization evaluates the specific value proposition of the company, and formulates a strategy for expansion, based on market demand, competitive landscape, production costs, and any other relevant information. For example, with incubator firm Invisible Sisters – which employs urban poor women to make dresses, purses and other accessories from plastic waste – they needed to understand the potential distribution networks, specifically retail, bazaars, and fashion companies, and identify the optimal path to market.

During the second phase, the manager is brought in to run the day-to-day operations and implement the growth strategy. Invisible Sisters originally relied on schools as collection points for obtaining used plastic bags, the raw material for manufacturing. Under ASEI management, the company worked with shopping malls in the Philippines to source used bags from shoppers, and partnered with the Philippine Plastic Industry Association (PPIA) to supply the collection bins in the malls. In exchange, the PPIA and shopping malls promote recycling and improve its corporate image. This cooperation has a considerable environmental impact reaching beyond the immediate needs of Invisible Sisters. In terms of marketing, the company began producing bags for a jewelry chain and a shoe/bag importer in Manila, and partnered with fashion houses to co-brand bags. It has also developed and expanded its production capacity in order to  take contracts from international buyers.

Invisible Sisters has branded itself as the ideal partner for any company interested in enhancing its CSR campaign. The slogan, “Be part of the story,” captures the ability of companies to really take a hands-on approach to CSR as part of a core strategy via the social enterprise. This concept, according to Dietrich, is relatively new: “We see more corporate involvement at the BoP level, but these players don’t have as much flexibility. By connecting the fashion house with Invisible Sisters, we are trying to create a prototype where the corporation actually becomes more intimately involved with the BoP itself through the social enterprise. We think of it as a playground where the corporation can experiment with ideas outside of the rigid corporate framework. So I think there is a lot of potential that has not been exploited yet.”

And, lastly, ASEI has helped Invisible Sisters establish systems for operating. It has developed a payment system for the women who crochet, training modules on technique and creativity, quality assessments, and a tiered system of payments, where women can earn more from producing more elaborate designs. So far, the social impact of Invisible Sisters can be measured in providing income opportunities to more than 100 urban poor women and enabling them to express their creativity in a meaningful way. Effectively, ASEI, in conjunction with the originator, improve the supply chain and develop the market for the products.

Working at the BoP is not always straightforward, of course. “When you put in new systems and procedures, there are always little surprises that come up,” Dietrich says. “There are jealousies between the women, or hierarchies within the communities. It is the nitty-gritty of working with communities, but we have the methodologies to get around that. It takes a lot of time to work those things through until we find a system that values what we believe in.”

Invisible Sisters is currently in the third phase – the point at which the company is spun off – either to investors, other companies, or to the originator. Impact investors have millions in capital waiting to be deployed, but they lack a good pipeline of sustainable, triple bottom-line enterprises. ASEI keeps a portion of the equity in the company, so that when it is sold (if it is sold), it collects a portion of the payout. ASEI also employs a fee-based system for running its incubation program.

The concept of an active social enterprise incubator is innovative, but has challenges to implementation. Dietrich emphasizes the importance of being adaptable and not imposing frameworks without taking into account the nuances of working in these markets. “At the BoP, if we do not co-create, we are not going to be successful. I’d read about it, and had thought about co-creation, but it was more profound to go through that experience myself and really understand what co-creation means within the BoP context. So we applied that to our model, and it has become part of the ASEI.” The other major challenge is the collaboration of the originator and ASEI as two different mindsets come together to develop a project into a social enterprises. In Dietrich’s experience, “this inherent tension leads to a very creative process in furthering the different bottom lines of the company.”

ASEI has just taken on its second incubee, a company called Tough Stuff that produces modular solar systems for the BoP market in Africa. (Check out NextBillion’s feature on Tough Stuff here). It is expanding to the Philippines, and ASEI will help it get on its feet.

Dietrich uses the metaphor of a child to describe the approach, “We develop this baby of a social enterprise to grow into the child level. We look at the pilot phase as more of an embryo. When we bring it on, we develop it to a baby and raise it as a child, before turning it out on its own.”

Depending on the nature of the enterprise such an active incubation costs between 20,000 to 50,000 USD. Dietrich believes that it is “money well invested, as a relatively small amount has a considerable impact at that very early level of enterprise development.” During this year, ASEI will conduct its second round of financing and increase the number of incubees to four, in 2012 the expansion to other South-East Asian countries is planned.

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