What We Know: Business Model Innovation in Emerging Sanitation Markets
The “business model, far from being a quantum of information that is revealed in a flash, is typically a complex set of interdependent routines that is discovered, adjusted, and fine-tuned by ‘doing.’ ” Winter & Szulanski (cited in Lecocq & Demil, 2010)
Since 2014, our sanitation team has worked with clients to push forward next-generation sanitation solutions in countries as diverse as Bangladesh, India, Kenya, Senegal, and South Africa. We’ve been privileged to engage hundreds of sani-entrepreneurs, sani-ware companies, supply chain partners, and others who are actively advancing solutions in emerging sanitation market systems.
The topic of business model innovation looms large for the sanitation economy. As our 2018 Sanitation Technology Funder Landscape report revealed, the global community has work to do to demonstrate that sanitation-based business models are sustainable in low-income environments.
Lessons Learned: Business Model Innovation
In the hopes of moving this work forward, here we share our top five lessons on business model innovation.
Lesson #1: Business models and the innovations they encompass are context and organization–specific. Consequently, the success of a business model depends on an organization’s value proposition, core skills and offerings, organizational culture, customer needs, market context, and other factors. In sanitation, factors such as cultural norms and user preferences significantly influence business model success. Organizations must filter and synthesize advice on business model innovation to answer what that advice means and how it can be used.
Lesson #2: Many business model “innovations” are not new per se. Rather they are often new to the organizations leveraging them and the market contexts in which they are being used. Being innovative means having a mindset for experimentation, an appetite for risk and failure, and a desire for continual improvement and outsized impact.
Lesson #3: No single business model innovation can unlock all market opportunities at the Base of the Pyramid. The importance of integrated innovation, which leverages the interaction between multiple, reinforcing business model innovations to produce business and social impact, cannot be overstated. As the complexity of the market environment and the systemic nature of the challenges being addressed increase, so does the value of integrated innovation strategies.
Lesson #4: While there is no formula to follow, our work reveals common elements shared by organizations advancing towards sustainable sanitation business models in low-income environments.
These organizations actively:
- Invest pre-revenue time and resources to understand the local market and what customers value. Given the context-specific nature of sanitation business models, organizations often invest significant pre-revenue time and resources to answer questions such as ‘What do potential customers value? What motivates them? What are they willing and able to pay for?’ —and then design business models that respond accordingly.
- Develop hybrid business models that leverage subsidy to scale impact. Hybrid business models—which leverage payments from users with other revenue sources including external funding from donors and governments—enable organizations to make the necessary pre-revenue investments described above. (Gebauer et al., 2017) Determining how to best leverage subsidy—while maximizing the wallet share of paying customers—is a high priority for these organizations. (Gebauer et al., 2017)
- Use diversified revenue streams to target different customer segments and/or offerings. Emerging sanitation markets often are characterized by thin margins, inconsistent usage patterns, and variable income among customers. Consequently, organizations targeting emerging sanitation markets rarely do just one thing to generate revenue. Diversification strategies include offering complementary products/services to the same customers; targeting middle-income customers alongside those in low-income segments; and selling byproducts to completely different segments.
- Integrate digital technologies as a core business strategy, not just a “nice to have.” Increasingly, organizations turn to digital technologies to help them “circumvent the various obstacles in the [emerging sanitation] markets” such as logistics, payment collection, and asset monitoring. In many instances, digital technologies serve as the “actual foundation for sustaining provision of services to [low-income] populations.” (Saul & Gebauer, 2018)
- Foster an ongoing commitment to business model experimentation and improved impact. Emerging sanitation markets are constantly changing, sometimes in ways that emerge slowly over time, sometimes in sudden “jolts” such as through a sweeping regulatory change. Accordingly, business models must adapt and evolve to remain effective over time. (Lecocq & Demil, 2010) Organizations that emerge as successful see their business models as in a state of “permanent evolution.” (Lecocq & Demil, 2010)
Learn more about our work to promote success in the global sanitation market. And if we can help you advance your emerging sanitation products or services, get in touch.