Thursday, September 04, 2014

Unlocking Technology-for-Good Innovation

At Benetech, we advance technology applications that empower and protect underprivileged populations, and that also have the potential to become financially self-sustaining enterprises. This keeps us focused on projects that offer the greatest social impact for the resources invested. Benetech Labs is where the Benetech team and our social impact partners incubate new software-for-good applications. Within the arena of startup incubators, however, Benetech’s social enterprise business model and Benetech Labs’ approach are unique. Let me explain how this is so.

The typical incubator model works well where a team has formed around a technology innovation and is looking to graduate a for-profit company. The entrepreneurial team explains how its product can be monetized, and angel and venture capital funders then invest in the hottest teams coming out of the top incubators. What happens, however, with technology applications that could provide great social benefit but that won’t generate big profits?

This is where Benetech comes in. We focus on areas of market failure, where the standard for-profit approach won’t address the needs of disadvantaged populations because they don’t represent a big enough market, or because the risk profile makes them an unattractive investment based on the expected returns. Our mission goal is to see to it that technology more fully serves the needs of all of humanity, not just of the richest five percent of society—and it is this mission that shapes our approach to Benetech Labs.

Benetech regularly (as in, more often than weekly) gets asked to build new products that make social impact. In most cases, the request comes from someone who identifies a social need and believes that technology can help address that need. Oftentimes, that person is a potential customer for the solution requested. We established Benetech Labs because we needed the space and flexibility to explore new software-for-good ideas with the potential to successfully meet pressing social needs. And that mission focus drives what differentiates the Benetech Labs approach to incubation of new projects from that of the typical for-profit incubator.

The typical for-profit incubator has a funnel of startup teams. It winnows out 90% or more of them and incubates the selected teams, getting their companies into the best possible shape and refining their pitch to investors. How successful the graduating companies are is determined by their follow-on funding and market valuations. The scaling up of the companies happens outside the incubator, which is busy recruiting and incubating a fresh crop of new entrepreneurs. We’re excited to see Y Combinator admitting some nonprofit teams into their program, but their focus is still on cultivating a community of top-end entrepreneurs for a relatively short period of time.

With Benetech Labs, by contrast, our focus is on developing ideas for social enterprise technology applications into financially sustainable products. We don’t build a network of entrepreneurs, but rather function as a sounding board with social sector leaders on how technology could better help their organizations or communities. We have a pipeline of ideas, not teams. We winnow out 90% of the ideas proposed to us based on our New Project Assessment Method, incubate some of the selected 10%, and then pick one or two for follow-on funding. And, we raise all of that money from philanthropic sources, since the social good projects that score highest on our method are typically a long way from offering for-profit returns.

An inforgraphic describing Benetech's approach to developing social good technology enterprises. It has four blocks describing four stages labled "explore," "create," "decide," and "achieve." These are connected to three exit options: releasing an enterprise to a nonprofit or a socially conscious company; putting it on the shelf; or scaling it (labled here "success"). The infographic summarizes the information on Benetech's website: http://benetech.org/about-us/our-approach/.
Benetech's approach to developing social good tech enterprises.
Click on image to enlarge.
 The projects we select in Benetech Labs are those that have the greatest potential to realize a return on investment, but the difference is that we focus on social good return rather than private profit. For example, instead of a 10X return to investors, we’re looking for a 10X reduction in the cost of delivering a social good unit—say, an accessible book to a student with a print disability, or a gallon of clean water to an underserved community in a developing country. And, for projects that don’t lend themselves to cost benchmarking, we’re looking for something that would transform a field. A project that is 20-30% better than the status quo won’t get our attention any more than it would get for-profit tech investor attention.

There are more ways in which Benetech Labs differs from typical incubators. For example, we expect to conduct the Labs openly, so that anyone can see what’s in our pipeline. We share all of our software and information under open licenses to make it easy for other nonprofits or socially conscious organizations to build upon them. If someone decided to tackle one of our Labs pipeline ideas that would be great: that’s one less unmet social need for Benetech to worry about!

No armies of venture capital investors eager for a piece of these deals line up at our doorstep. Rather, Benetech operates the technology-for-good enterprises originated in the Labs and takes them to scale to create the positive impact on society that our mission requires. We find and build the teams around the enterprises. The follow-on funding we have to raise comes from philanthropic donations or grants.

This may sound challenging, but we have a track record of successfully creating multiple break-even social enterprises. Five or ten years later, we often have a successful exit. So far, we’ve spun off one for-profit, one nonprofit, and sold one venture for $5 million. None of these deals would have been accounted a success by Silicon Valley standards, but they were wildly successful by nonprofit/social good standards.

It’s not unusual for a Labs project to be put on the shelf at some point in our pipeline. It could be that we don’t quite have the product right, or we need to see a technical advance that will make it practical, or simply that there are other, more attractive enterprises to build at that point. Unlike the for-profit world, where new ventures are rushing to fill a need first before the window of opportunity closes, many of these needs will still be there in two or three years.

A Benetech Labs project leaves the incubation process when it’s ready to go to scale as a social enterprise. To exit, it will have met the criteria in our New Project Assessment Method that I mentioned earlier, such as having a clear path to break-even financial sustainability, a distribution and marketing plan that ensures that the actual end users will get the product, and even three projected successful exit options.

Benetech, therefore, is 97% operator of enterprises that make social impact at scale in education, human rights, and the environment sectors. Benetech Labs, with its own version of social good incubation, makes up 3% of Benetech at most.

Yet in some ways, Benetech Labs is similar to a startup incubator: we, too, tap into our deep knowledge and sector expertise, but in this case we focus on social issues and our know-how of leveraging technology for good; we offer leadership and mentorship; engage technology industry leaders in brainstorming ideas; experiment with new innovative approaches; rapidly prototype; get customers’ feedback; and iterate. If an idea catches fire, then we have likely found our next venture and engage our own “angel investors” called Benetech Labs Partners. They commit to funding Benetech and its Labs projects, help us think through technology and business model challenges, and draw on their networks of people and companies that could help our nascent ventures.

Incubation is a critical period in any new venture’s life, where its value proposition is explored and its roadmap to impact is determined. We are excited about enhancing our social good-focused process through Benetech Labs over the coming years. I invite you to join us in this unique approach to catalyzing the development of new technology-for-good applications that deliver large-scale benefit to humanity!

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