The Green Building Innovative Entrepreneur – Insights into co-creating fortune with the Base of the Pyramid

The Green Building Innovative Entrepreneur –

Insights into co-creating fortune with the Base of the Pyramid

 

By: E. Achiri Mongo, PhD.

Email: achirimongo@gmail.com

 

This paper introduces the concept and principles of the Base of the Pyramid as an alternative action plan for Green Building Council Cameroon’s (GBC CAM’s) #ActOnClimate campaign objectives. The concept of the Base of the Pyramid is introduced in relation to reframing how Green Building entrepreneurs and businesses perceive current reality. The following topics guide us through the critical role open to private enterprises in enhancing the practice of sustainable and inclusive development: what is the Base of the Pyramid (BoP)?, innovative entrepreneurship and sustainability, what is a BoP Business?, building entrepreneurial ventures with BoP, the social entrepreneur and patient capital sector, and the Green Leap Approach.

Most often we convince ourselves that development initiatives should emanate from the top and spread or trickle to the bottom – the center-periphery model. Development initiatives and strategies ascribe minimal strategic importance to communities at the Base of the Pyramid as potential contributors to the attainment of development goals in terms of ideas, knowledge, market, and business incubators.

On the other hand, when we evaluate the untapped fortune at the base of the pyramid, we ask ourselves:

  • How do we serve the more than 4 billion poor people (subsistence marketplaces) profitably?
  • How do we invest at the base of the pyramid?
  • Is there a market at the base of the pyramid?
  • How do we link our business strategy and entrepreneurial experience to conduct business for the advantage of all?
  • How do we render technological innovations more benevolent?

This presentation seeks to respond to these questions by placing the World Green Building Council’s (WorldGBC) objective to transform the ‘building and construction sector across three strategic areas – climate action, health and wellbeing, and resources and circularity of materials’ (WGBW, 2020) as key reference points. The World Green Building Council’s objective also reflects the ‘2030 Agenda for Sustainable Development’, which appeals for urgent ‘strategies’ that advance health and education, decrease inequality, and project economic growth (UNDP 2015) without undermining life-support systems (land, forest and water resources).

What is the Base of the Pyramid?

Initial publications on the BoP separated the global population into a pyramid comprising three socioeconomic segments. The bottom of these segments is categorized the “base of the pyramid.” (London & Hart, 2009). The BoP segment can also be defined as “the population of the world that is generally excluded from the current system of global capitalism” (Hart, 2010, p. 8). An alternative definition considers the BoP as the socioeconomic segment that is not adequately integrated into the formal economy.

The BoP is segmented into income increments that have strikingly dissimilar characteristics across regions and industrial sectors. As such, it is not a homogeneous market. Due to the cost, complexity, and unfamiliarity of transitioning to the formal economy, most transactions and business activities conducted by BoP communities are likely to remain in the informal economy, unless inclusive business practices are promoted and implemented.

Green Building, Innovative Entrepreneurship and Sustainability

Innovation is the process whereby organizations convert ideas into new/improved products, services or processes, in order to progress, compete and differentiate themselves effectively in the marketplace (Baregheh et al., 2009). In this light, successful entrepreneurship is portrayed by its capacity to link technical and market possibilities (Rothwell, 1994). Accordingly, the opportunity to make a difference about changing the quality of life by means of ‘equitable and resilient built environment’ and creating awareness in the ‘stakeholders of the built environment’ requires elevated levels of triple bottom line performance (carbon, water and waste recycling) in addition to creating economic value (the capacity to consume) in the economy. To target ‘communities, the planet, and Net Zero Buildings for economies’ (GBC CAM, 2020), the goal of the Green Building innovative entrepreneur is to look for an alternative to established economic growth business models.

Green Building entrepreneurs can play a meaningful role in catalyzing the process of sustainable and inclusive development by engaging in synergistic business activities through their touch points in society and physical presence in communities.

In this effort, the innovative entrepreneur faces three challenges:

  • To co-create (create fortunes ‘for’ and ‘with’) sustainable and inclusive societies through innovative business models.
  • To combine productive assets from the informal and formal economies in a mutually beneficial manner.
  • Green technologies are habitually “disruptive” in nature – they threaten incumbents that serve the existing markets.

 

Emission targets under the UN Framework Convention on Climate Change (UNFCCC) and the Paris Agreement (2015) depend on voluntary mitigation contributions. A related challenge is that, “…environmental sustainability is a form of public good that markets do not provide on their own” (Fay et al., 2011, p. 355).  As such, innovative public policies central to private sector decisions for investment in production processes and consumer habits reflective of the social benefits of environmental sustainability and the costs of environmental protection must be considered. These challenges require the formulation of a Rating/Certification System that can provide credible information to civil society to enable them make informed choices. Such innovations will spur the creation of markets for responsible and sustainable practices and make sustainability a value proposition that firms, organizations, and development agencies will entrench in their offerings to society (Deveshwar, 2010).

 

What is a BoP Business?

BoP businesses are revenue-generating initiatives that explicitly target the BoP buyers, sellers, and entrepreneurs. BoP businesses sell goods and services to and source products from the BoP. These two orientations serve the BoP consumer or BoP producer and a BoP enterprise can adopt either or both approaches.

BoP ventures typically embrace the formal and informal economies. The role of the BoP entrepreneur is to combine the productive “resources and technological capacity of the formal economy and the indigenous knowledge, human face, and local embeddedness of the informal sector in a mutually beneficial manner” (London and Hart, 2011, p. 10). In this light, the UN Global Compact (2017) suggests that companies should first do business responsibly and then pursue opportunities to solve societal challenges through business innovation and collaboration. The BoP businesses comprise undertakings by multinational and domestic firms, local small-and medium-size companies, and businesses initiated by non-profit organizations and social entrepreneurs. BoP partnerships across different sectors include collaboration among for-profit companies, non-profit organizations, and development agencies (2017).

Developing Better Green Building (GB) Ventures with BoP  

BoP entrepreneurial ventures must understand how to develop business models and do business in a market environment predominated by dissimilar rules, strengthened by diverse stakeholder expectations, and executed with unfamiliar customers, suppliers, and partners. Disadvantaged by limited experience in the BoP markets, the GB entrepreneur must be prepared to reevaluate traditional perspectives about expertise in design, methods of piloting, and capabilities for scaling. However, the advantages of small businesses in innovation associated with flexibility, dynamism and responsiveness (Rothwell, 1994) compensate the BoP innovative entrepreneur’s limited expertise in the BoP market.

London (2011) proposes seven key interrelated and complementary principles entrepreneurs must understand in a bid to create a fortune with the BoP. Considering Green Building Council Cameroon’s (GBC CAM’s) System Change Approach – ‘Open the Green Door to the future by serving a nucleus for awareness creation in the stakeholders of the Built Environment’ (#ActOnClimate, 2020), the BoP innovative entrepreneur should consider each principle as a critical component of the whole. These principles are applied in three stages (design, pilot, scale) grounded in validating and enhancing mutual value.

Design stage involves creating market opportunities and crafting solutions with the BoP

  1. Creating Market Opportunities

BoP entrepreneurs must consider taking an active role in market creation rather than focus on identifying and exploiting existing market opportunities, or ‘finding fortune’. This process involves exploring strategies to boost consumer demand – increase disposable income by creating the capacity to consume, cut transaction costs with suppliers, and enable the development of public properties. In case a gap exists in the market the BoP GB enterprise should explore the potential for partnership with the relevant development sector.

 

  1. Crafting Solutions with the BoP

BoP ventures often miscarry the design phase due to flawed learning processes guided by incorrect assumptions about the marketplace and misdirected sense of expertise, including inherent biases about methods of service delivery to BoP communities. Sources of facts, data and evidence used to comprehend, evaluate and exploit new market opportunities should be carefully veted. Designing solutions with the BoP requires adjustment of thought and action, steered by mutual respect, humility, listening and learning. The development of lasting relationships in the BoP requires patience, longterm commitment and persistence.

The Pilot phase involves:

  1. Orchestrating Effective Experiments

The piloting stage in the BoP venture development requires disposition to experiment, learn, and innovate based on learnings in the field. To be prudent, investments in BoP pilots should start small in order to test the potential for sustainability. Methods that require demonstration of immediate economic returns and premature claims of social impact must be avoided.

  1. Managing Failures

Failed trials often provide considerable insight into refining the business model during the piloting stage. Accordingly, it is advisable to invest in multiple trials in order to select and fund only those pilots that offer the likelihood for success. This method also ensures that the evaluation analysis focuses on capturing knowledge (the lessons of failure) from failed trials than apportioning blame.

Failure, however is not an excuse to relinquish responsibility, or abandon partners in case the trials fail or at the end of trials. Prior to the pilot launch the entrepreneurial team must prepare for the end by setting and expressing expectations to all partners and stakeholders. During the implementation, the entrepreneurial team must refrain from exposing local partners, communities, or individuals to significant risks or involve them in major investments without also ensuring the existence of a safety net should the venture fail.

At the Scaling phase we:

  1. Generate Co-mingled competitive advantagee. we scale up

Projects that cut across formal and informal economies face distinctive challenges in generating and sustaining competitive advantage. To scale, an undertaking that cuts across the formal and informal economies entrepreneurs must identify, leverage, and enhance existing platforms in the BoP market place. These platforms include network infrastructure (existing distribution systems, and self-help groups); social infrastructure, (relationship capital and informal leadership); and physical infrastructure, (underutilized business assets and existing resources).

In order to achieve co-mingled competitive advantage, the innovative entrepreneur needs to obtain partial exclusivity/access to platform-type assets set up by development-oriented organizations. Making non recoverable investments outside the venture’s limits is also recommended. Investing in platforms enhances the entrepreneur’s social mission, strengthens relationships within the community and invigorates the innovative business model.

  1. Leverage and transfer social embeddedness e. scale deep and wide.

Developing social embeddedness involves how an entrepreneur obtains access to critical market-specific information and how the pilot team interprets the information obtained. The pilot or entrepreneurial team requires the ability to develop profound, mutually beneficial contacts with a diversity of local stakeholders. These contacts can yield market intelligence, links to established networks, and insights into how things really work in host communities. In order to develop and enhance social embeddedness the entrepreneurial team must look beyond the limitations of the local economy and the instinct to fix what they perceive is wrong. The entrepreneurial pilot team must instead design its analysis around identifying opportunities to leverage and develop “what is right”.

  1. Enhancing Mutual Value

The BoP innovative entrepreneur must have in mind that success in each stage of the process is entrenched in the proposition of mutual value creation. When an undertaking makes increased improvements in meeting stakeholders’ needs (customers, suppliers, and partners), the likelihood of its long-term sustainability is also enhanced.

Assessing and enhancing mutual value is however problematic because of:

  • Failure to invest in a systematic method to advance the poverty-alleviation impact;
  • Scant attention to environmental implications;
  • Failure to develop a sustainable holistic Impact Assessment Framework (potential value creation);
  • The habit of upholding arms-length mutuality restricts economic and social potentials of BoP ventures.

Although full-time solo entrepreneurship (the company of one) is considered the fastest growing segment and hailed as a solution to the self-employment economy (Ganapathy, 2018), its applicability in terms of funding, market/value creation and strategy implementation in BoP communities remain questionable. GB BoP entrepreneurs must discard the traditional paradigm of operating independently and embrace collaborative business models (collaborative interdependence) in order to attain the objectives of all stakeholders.

 

Innovative Business Approaches to “Patient Capital”

Although globalization has lifted millions out of poverty, neither traditional markets nor traditional approaches to development initiatives and projects have worked well because the benefits have largely bypassed those living in the base of the pyramid marketplaces. While well intentioned, these traditional methods unavoidably fall short of their goals because they neglect individual motivations, generate opportunistic behavior, and fail to take advantage of the innovative potential of recipient communities or host countries (Kennedy and Novogratz, 2011). Merely introducing successful business concepts from the top of the pyramid (ToP) is out of place because BoP markets have unique characteristics such as: unaddressed needs, poor infrastructure, corruption, low purchasing power, and lack of equity capital.

One of the disadvantages faced by innovative entrepreneurs is often related to lack of financial and technological resources (Rothwell, 1994). This inequality can also restrict the BoP GB innovative entrepreneur’s access to knowledge, technology and human resources. However, two complementary developments are transforming our approach to sustainable development: Philanthrocapitalists and Social Entrepreneurs.

The collaborative efforts of these complementary developments – social entrepreneurs and patient capitalists – when taken advantage of, yield transformative impact in the housing, water, sanitation, agriculture and healthcare sectors. They offer green financing opportunities to Green Building stakeholders (one of the GBC CAM #ActOnClimate 2020 campaign objectives: to expose Green Financing opportunities in addition to the Three Strategic Areas – ‘climate action, health and well-being, and resources and circularity of materials’ – applied by World GBC to ‘transform the building and construction sector’). Social entrepreneurs innovate and create new solutions while patient capitalists identify the best ideas, help build organizational capabilities, and provide the capital to scale.

Philanthrocapitalists: organizations such as the Gates Foundation, Omidyar Network, Google.org, Virgin Unite, etc. are committing resources in innovative ways to social investment (Kennedy and Novogratz, 2011). Unlike traditional development organizations, Philanthrocapitalists emphasize the implementation of business tools and techniques in their programs: the application of private capital organizational methods to achieve development objectives, mandate efficient and effective use of resources, and maintain rigorous measurement.

Social Entrepreneurs are people who set up innovative organizations with the objective of addressing social necessities. Social entrepreneurs seek unmet needs, organize resources in innovative ways, and take their solutions to the marketplace.

The Emerging Patient Capital Sector

This sector is effective because BoP firms often require non-traditional financing. However, “Patient capital is not a grant; it is an investment intended to return its principal plus interest, which may be at or below the risk-adjusted market rate. It does not seek to maximize financial returns to investors; it seeks to maximize social impact and to catalyze the creation of markets to combat poverty”(London and Hart, p. 48). Patient capital expects accountability and requires repayment on an agreed-upon schedule.

The difference between Patient capital organizations and traditional capital providers is at least four fold: longer time horizon; willingness to sacrifice maximum financial returns in compensation for social or environmental impact; greater tolerance for risk than traditional investors; and capital is characteristically bundled with intensive support for social entrepreneurs as they develop their initiatives.

Can BoP teach the Top of the Pyramid?

In terms of ‘learning from industry (sector leaders) as to ‘where’, ‘why’ and ‘how’ they have succeeded in implementing green solutions, successful implementation of initiatives indicate that four innovations are crucial and successful BoP undertakings have implemented at least one from the following tool kit:

  1. Introducing drastic cost reductions in value activity.
  2. Building a management team which will serve the BoP by applying traditional business skills required to build a successful business.
  3. Implementing human-centric enterprise frame of mind to products and services.
  4. Establishing necessary trust with the BoP required for market creation and growth.

Application of Green Technology or the Green Leap to demonstrate how serving the BoP sustainably requires “leapfrog” green innovation: that is, the incubation of environmentally sustainable building technologies and industries of the future –  addressing environmental challenges from the base to the top. Hart (2011) describes the Green Leap approach as “a strategy for commercializing green technologies through BoP business experiments aimed at leapfrogging today’s unsustainable practices” (p. 81). Green technologies are frequently “disruptive” by nature. They threaten incumbents that attend to existing markets (especially in the utility, energy, and material sectors) with much invested in the recent past technology. Accordingly, it is challenging for BoP entrepreneurs to gain traction in established markets.

Although the power of incumbency poses formidable barriers to urgent innovative action to ‘deliver net zero buildings’ at the base of the pyramid, there are few incumbents with significant positions to loose. Rural villages and urban slums, without pre-existing physical infrastructures, and declining cities/towns offer the opportunity to create promote the adoption of Green Building practices and ‘take over’ the acres of vacant and abandoned sites. Most importantly, the BoP has an abundance of idle and distrustful (development initiatives have not improved their lot) population that is hungry for new opportunities.  Such conditions provide avenues for Green Building BoP innovative entrepreneurs to pursue #ActOnClimate 2020 campaign objectives ‘for a healthier and more sustainable environment, create thriving and resilient communities’ and ‘investing in new and existing net zero buildings to stimulate innovation, activate supply chains and create jobs’.

The Green Leap Approach

The following portfolio of actions and initiatives in combination with appropriate legislative texts/smart policies will prove useful in accelerating the Green Leap Revolution within the context of transforming the building and construction sector in Cameroon and around the planet:

Create Protected “White Space”: based on traditional matrices for valuing new products, small businesses show interest in inventions that will pay off within five years. Just enough time to recover spending on research, invention, innovation and marketing. An approach that will detract from the advancement of knowledge (Thomas, Miller and Murphy, 2014). In this light, GB innovative enterprises should consider creating an organizational protected package for initiatives within an existing business or as a new venture in BoP markets. The reason being, incubation period for patient capital and Green Leap ventures takes time to become sustainable. However, Prahalad and Hammond (2002) point out that BoP markets are at the primary stages of growth and constitute new sources of growth. This could only mean opportunity and possibilities to accelerate the process of growth using the proper business paradigm.

 

Exploit “Shelf technology”: substantial stocks of uncommercialized green technology gather dust on the shelves of universities and business organizations. These technologies do not quickly fit into existing business models most often because they disrupt core businesses. Rather than engage in unnecessary and costly R&D, the GB innovative entrepreneur should take an inventory of existing relevant Green Sprout technologies, pull together a small portfolio of the best of these uncommercialized green technology, and formulate a strategy for an alternative path to the market – the BoP “bottom-up” path (Hart, 2011).

Several opportunities for GB partnership with universities and academics to create spin-off businesses exist. The GB innovative entrepreneur has to be proactive and look for such opportunities. Universities promote the process of spin-off of educational research into a network of industrial companies and business endeavors. Interested academics (academic entrepreneurs) have considerable technological competence in the shelf-technology upon which the venture will derive its competitive advantage (Mueller, 2006).

 

Innovate from bottom-up: achievement of ‘reverse innovation’ lies in the optimization of new and unexpected methods based on experience derived from the BoP community. Both technology and business models being developed must evolve simultaneously.

Build regional ecosystems: this calls for appropriate legislative texts – smart policies. Green Leap endeavors can be developed through regional ecosystems of entrepreneurs, NGOs, universities, and government partners (Hart, 2011). Collectively commercialization experiments provide the empirical platform for scholars to research and practitioners to develop strategies for accelerating the Green Leap approach around the planet. Clusters constitute a major development in knowledge spillovers as entrepreneurs and specialized workers move from one enterprise to another through labor mobility. Keeble & Wilkinson (1999) identify three mechanisms for the transfer of knowledge within a cluster – New firms, spin-offs from firms, universities and public sector research laboratories. A vital component of a cluster is the community of people (Porter, 1990). This includes the skilled labor pool linking territorial human resources concentration in clusters. The competitive advantage GB innovative entrepreneurs may derive from clusters emanate from the core competences or knowledge of firms. As cluster knowledge flows through informal contacts (Dahl & Pederson, 2004), GB innovative entrepreneurs can capture knowledge by focusing on the social aspects associated with tacit knowledge and information flows.

Remove the bias against distributed solutions: bias in favor of large-scale solutions while discouraging distributed solutions detracts from the entrepreneurial zeal to innovate. Political will and commitment to design smart policies targeting the reversal of current trends should be instigated by BoP communities with the aid of social entrepreneurs, patient capitalists, and GB activists and lobbyists.

Create Green Leap seed funds: Green Leap technology entrepreneurs look beyond their boarders for commercialization opportunities. Considering Wakkee et al’s (2003) definition of a global startup as: “A new venture that from its inception (opportunity recognition) seeks to pursue opportunities wherever they arise…” (p. 23), this situation presents network opportunities for GB innovative entrepreneurs to set up Green Building global startups beginning with efforts at collaborative interdependence.

 

None of these principles and proposals is easy or as obvious as this range of actions and initiatives may sound. In order to pursue disruptive innovation, firms and entrepreneurs should manage new Green Sprout opportunities separately from their conventional businesses. GB innovative entrepreneurs will have to design business models that consist of proven strategies, structures, and processes at the base of the pyramid.

In summary, accelerating the delivery of sustainable construction and refurbishment to underserved markets using the BoP concept is an exciting prospect. Social entrepreneurs and patient capitalists are increasingly approaching low-income communities as customers and partners, rather than objects of charity. This emerging sector is necessarily messy, as many players struggle to figure out what works and – just as important – what doesn’t. Our collective challenge is to build on this trend, share lessons and ensure the ongoing extension of the global economy so that it includes, ultimately, everyone, everywhere.

 

 

 

 

 

 

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